Special to the Tribune-Star
TERRE HAUTE —
Recent conversations led me down a road to consider how fundraising in the world of institutions and nonprofit companies may also be used for small businesses. It is important in today’s economy and climate for companies to be innovative and think outside the box. Raising capital is one of the largest challenges for entrepreneurs and competition is fierce. How can an entrepreneur effectively maximize the likelihood of raising capital?
Step one: Be sure your request for funding is in line with the market. If your company is earning revenue of $250,000 annually, you cannot ask for a $5 million investment just because you think your company is valued at that. The bottom line in a company is critical to investors; remember that investors get approached hundreds of times annually. Be sure to set your company valuation correctly.
Step two: ROI (return on investment) is always one of the most important if not the single most important item an investor looks at. How will they get their money back? What will it be used for? What results will their investment achieve both in the market and for your company? As for the right amount of investment from the funders, if you ask for too little or too much the investors will question your ability to manage your company and achieve results.
Step three: Regardless of the length of time they have owned their company, business owners struggle with projections. Make sure your pro forma statements, like income statements, balance sheets and cash flow statements, are accurate. Too often business owners create “blue sky” projections and have no evidence or written plan to support their findings in the financial statements they present to investors.
Step four: Competition is necessary and encouraged in every industry. It drives and motivates us all to do better and be better at what we do. Everyone has competitors, whether it is indirect or direct. It is a dangerous practice to assume that you have no competition. Almost always, an alternative to your product or service exists.
Step five: Know your audience. Know who you are approaching about funding. What is their professional background? What are other companies or projects they have invested in? What type of social engagement do they participate in?
Fundraising is hard; it takes a significant amount of energy and persistence. Be sure to present a clear message each time you discuss your company with a potential funder.
Heather (Penney) Strohm is the regional director for Indiana State University’s Indiana Small Business Development Center.