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How to Raise Capital by Thinking Like an Investor

By: Morgan Sims

 

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One of the biggest reasons small businesses fail is that they run out of money before they can effectively compete in the market. That’s why it’s important to raise enough capital at the beginning. Of course, this isn’t easy. If you need to raise capital for your new venture, you’ll be more successful if you approach the situation with the mindset of an investor. Take a look at these three things to keep in mind.

 
Carefully Negotiate the Money
 
Unless you’re only targeting family and friends for investments, the amount of money you ask for is the most important factor in raising capital. You have to be realistic about what you need and what you’re willing to offer investors in return because they aren’t just going to throw money your way. Investors want to make an arrangement that benefits them. Therefore, you must make all capital solicitations sound enticing and impossible to pass up in your potential investors’ minds.
 
There are two main ways to raise capital—debt and equity arrangements. Try to avoid equity arrangements because they reduce the money you can make in the long run. However, equity arrangements are easier to make than debt arrangements. So, there are advantages and disadvantages to each one. Decide what is best for your company and then look at all the options that present themselves to you. You may have no other option than to make an equity arrangement.
 
Present a Strong Business Plan
 
Before investors will even think about giving you capital, you’ll have to prove to them that your business can thrive and will bring them money. This is not easy to do, especially if you don’t have any success stories from the past. Investors are skeptical of all new businesses because 95 percent fail within the first five years, according to Small Biz Trends. The only way for you to impress investors is to present a strong business plan that has been thoroughly researched and has goals and deadlines for reaching them. You also need to show that you have the experience needed to reach your goals.
 
If you don’t have any experience, you should seek an equity arrangement where an investor can play a more influential role in your small business venture. Or, get a partner that has industry experience and foresight. For instance, Skyjet Aviation Services Limited in Nigeria sought the help of Kashim Bukar Shettima because of his previous experience with Barbedos Aviation Services. This helped the company continue to raise capital and thrive.
 
Target the Right Investors
 
Instead of presenting your small business plan to everyone, carefully select the investors you think will be the most advantageous to you. Just because someone has invested in a company in the past does not mean that he or she is a good choice for your business. For instance, an investor might think it is strange that you are approaching him or her with a business plan for a bakery when he or she has only invested in financial services companies. The business arrangement needs to make sense.
 
Do you have any other advice on seeking investors to raise capital? Is there something investors are thinking that business owners need to know? Leave a comment below.
 
Published: January 8, 2014
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Morgan Sims

Morgan Sims is a freelance writer who loves all things tech and social media. When she's not trying out new gadgets and tweeting she spends most of her time with her dog, cooking and staying active. Follow her @MorganSims00.

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