For some businesses, private equity (venture capital, angel capital) is the only way to go for growth funding while other businesses should not even consider wasting their time chasing these kinds of funding sources.
Private equity players receive hundreds, if not thousands, of business plans each month. And, no matter how big the firm, there is just no way they will be able to review all of those plans. As former President George H.W. Bush was found of saying; "Not gonna happen."
Even if the business seeking funding is the perfect match for the investment firm, it still remains highly unlikely that its business plan will get any consideration from just merely cold sending a business plan to one of the managing partners.
So, if your business fits the private equity investment model;
Current track record of revenue or customers, A highly desired set of scalable products, Huge market potential, and A very strong management team. Then, how can you get these investors to stand up and take notice of your business?
By simply getting an introduction.
Now, this does not mean having your Aunt Sally call the investment firm with a recommendation regarding your business. It means getting a recommendation from someone who the investors have either worked with in the past or trusts fully.
Example, several years ago, I was the Executive Director of a small business incubator in Texas. One of our client companies was quickly burning though its cash and decided to seek another round of outside investment. After searching high and low and nearly running out of money, one of the original founders got in contact with an old college chum who happened to have dealings with a very prominent venture capitalist in the state (a VC that the company had tried to approach many times in the past via cold calling with out any success).
The venture capitalist not only knew this old college chum but trusted his insight and judgment. Within a few weeks, this VC invested $2.5 million in the company; allowing the business to quickly ramp up sales and eventually become a huge success.
Now, not all of us have old college friends that are that well connected. But, that does not have to stop you. All you have to do, instead of wasting valuable time sending cold solicitations to private investment firms, is to spend that time identifying and contacting those people who the investor or investors trusts – called gatekeepers.
What? That seems even harder to do than just finding an investor for your business. And, you are right. But, it is how the game is played and you either have to play along or get left behind.
Asheesh Advani, in an article for Entrepreneur Magazine in the August 2009 issue states; "getting introduced by the right person in the right manner really matters when you're raising money. A strong introduction is a prerequisite if you're raising money from institutional investors, such as VC firms, which rarely invest in entrepreneurs who have pitched them on a cold call. For angel investors and others, a strong introduction will maximize your chances of getting a fair hearing in your first meeting, and improve your chances of getting the all-important second meeting."
There are several ways to identify these so called gatekeepers:
Seek out other professionals in your local area – particularly those in your industry. These could be CPAs, Attorneys or other business owners. Investors also use these professional services and trust these people or have worked with these firms in the past.
College professors are also a good source for an introduction to investors. Many college professors, especially those that come from private industry prior to becoming teachers, have huge rolodexes. The key is to get them to use those contacts for the benefit of your business.
Local Networking. Many Chamber of Commerce administrators or representatives, City Officials or other local business professionals in your area may have contracts in the private investment space and may be willing to help introduce your company to them. This involves just getting out in your community and attending events that both investors and gatekeepers attend and talking to anyone and everyone. Don't be afraid to ask for an introduction or to pitch your business.
Portfolio Companies. Look to companies that the investors you are targeting have already invested in – in the past or presently. Seek out these companies' founders and executives, attempt to build a relationship with them then ask for an introduction.
Remember, the goal is to get a solid introduction from a trusted source. So, do your homework and just simply get after it as you have a much better chance of getting your business plan moved to the top of the pile after an introduction from a trusted gatekeeper then wasting time cold soliciting investors directly.
Also know that raising money is just a single step in growing a solid business. Thus while none of us like to put ourselves out there in this manner – when you look back, you will see that this was a very minimal step in the overall growth and success of your business.
So, what are you waiting for? If you want investors to notice your business then get out there and network for that very important introduction.
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