Starting up and expanding a business is tough. In addition to drive, ambition and a great deal of planning, starting and expanding a small business generaly requires capital. Many entrepreneurs look to personal ties to raise cash for a business that is either too new or too small to get financing elsewhere. Often, money is loaned interest free or at a low interest rate, which can be beneficial when getting started.
There are some step to raise the capital :
1. Make a list
The first step to take in finding investors amongst the people you know is to basically draw up a massive list of names. Include in it your relatives, friends & beyond. The categories of people you are looking for are the ones with whom you already have a trusting relationship with, or with whom you can build with.
Start with the people in your inner circle - parents, grandparents, siblings, aunts, uncles, cousins, in-laws, close friends & neighbours. Next, look at your middle circle that includes people whom you currently & regularly have contact with - business associates, fellow volunteers, members of your church or temple, current or past co-workers, supervisors or employers. Think about potential business mentors or entrepreneurs, individuals who may be able to give advice & provide lovely knowledge about the kind of business you are in & whom you either know or could get to know.
Finally, look at the outermost circle of people you know. This circle reaches to past contacts, friends or acquaintances you never see, & people you only know through someone else. These ought to either know your name or think highly of a mutual acquaintance. Think back to teachers, college friends, mentors, professors, coaches & someone else who might have an interest in seeing you succeed. Do you know any angel investors - an affulent individuals who provides capital for business start-up? Add their names to the list as well. Skim through your:
* address book
* e-mail database
* holiday greeting card list
* old school yearbooks
* alumni directories
* employee rosters from old jobs
* even party invitation lists
The next stage is to evaluate each person on your list for the following four characteristics:
* Their trust in you
* Their ability to afford the investment
* Business experience - Entrepreneurs are most likely to invest in other businesses
* Lack of emotional baggage - Cross of anyone you feel nervous about entering into a financial relationship with.
Draw up a list of your best bets people with at least of these characteristics. Include columns for each person's name, a brief description of why the person appears to be a lovely prospect, and the best way to contact the prospect.
2.Evaluating Each Prospects
Once you understand the type of person the prospect is & how they prefer to do business, you'll be better able to craft an appropriate proposal. The cards you need prospects to bring to the table are their experience with business investing & comfort with the idea of mixing funds & relationships.
If your prospect has ever been involved in some type of financial investing, such as: making other private loans or investments, have started a business, worked in a senior position or invested in the stock market, think about him or her savvy. If the prospect has not completed any of these things, think about him or her inexperienced. In this case you will must describe your request more clearly to inexperienced prospects & educate them thoroughly about the potential risks & rewards of investments.
Would your prospect be able to separate business from personal & have no issues investing as a business transaction without thinking about it part of your personal relationship? If your prospect doesn't appear worried about mixing funds & relationships, think about him or her analytical. If they or they fears that providing funds for your venture could destroy your relationship, think about the prospect worried.
There are four main type you can divide your prospects into:
* savvy and worried
* savvy and analytical
* inexperienced and worried
* inexperienced and analytical
* Each type of prospect needs to be handled differently.
With an inexperienced & worried prospect, carefully think about whether it is even feasible to alleviate the risks from this prospects point of view. In the event you select it is worth approaching the person, describe that the best way to protect your personal relationship is to make the agreement as in the event you were strangers - set it up & manage it in a businesslike fashion, with signed legal documents & a re-payment schedule. (You most likely won't encounter plenty of inexperienced & analytical prospects - they are rare).
With savvy & worried prospects, you need to alleviate their sense of emotional risk. Carefully describe your plan for repaying the investment, including your month-by-month obligations & the way you handle any missed or late payments. With savvy & analytical prospects, present your request with the utmost professionalism. Include a detailed explanation of how the investment will play out & what kind of return you are offering. Make the investment system as simple as feasible.
3.Planning Your Approach
You may have heard of the "elevator pitch" - a scripted sales pitch entrepreneurs use when they are pitching to a feasible investor to recieve funding & only a limited time to make an enduring impression. The pitch is so called because it can be delivered in the time span of an elevator ride - about 30 seconds to a minute.
Your friends, relatives & others probably don't require to listen to you give a slick sales pitch, but they do require to listen to a straightforward account of your designs. In contrast to the anonymous, aggressive elevator pitch, your approach ought to be warm & casual.
Here's what works:
* Decide whether it's better to bring your request up in casual conversation or at an informal meeting.
If you are asking for money from somebody you don't see every day, or for whom a more businesslike setting seems appropriate, you are better off scheduling an actual meeting. Tell the person you would like to get his or her input on your business idea, then set up a gathering. Don't decieve your prospect about the meeting's purpose, but also don't make the meeting sound like a sales pitch before it even starts. Show genuine excitement at sharing your idea & hearing the other person's thoughts.
If your prospect is somebody you see regularly, bringing up your request in casual conversationis probably the right choice. Let it come up when the conversation turns to you & your work. In lieu of directly asking the listener for money, phrase it more usually, saying you require to raise some money for your business & you are trying to figure out how to do it.
* Pick a setting suited to your relationship.
The closer your relationship along with your prospect, the more casual the setting ought to be; the more distant the relationship, the more formal the setting - for example, at the person's office, a restaurant or an upscale coffeehouse.
* Bring a few illustrative materials.
Your casual conversation is not the time to bring along notebooks filled with business designs & promissory notes. Still, you ought to show prospects something tangible to report your business, such as a brochure, sample product, net site or newspaper editorial. Pics of your product or planned site are lovely, since visuals attract attention. In case you plan to open a bakery, bring sample cookies. Even something as simple as a printout of a colour logo can give others a more tangible sense of your business.
3. Making The Pitch
These basic principles will give you your best shot at pitching potential investors:
* Start with your business idea.
Ask your potential lender some genuine questions for ideas on making your plan work. The more you leave room for give-and-take, the greater the chances your prospect will be willing to participate.
After some tiny talk, explain the product or service & why you think it will sell, using any materials you have brought along. List several specific business goals you have for the upcoming months, such as trade shows you'll attend, sales goals you plan to accomplish & new product versions you'll design. Describe why you think it is the right place & the right time to launch your business - & why you are the right person to do it with.
* Ease into the loan request
In case you require to make your request more explicitly, do so with a "soft ask." After speaking about your business, you might say. "I require to raise about X amount of funds to start, and I thought you might have an interest in participating."
Many fundraisining advisors recommend you be direct in making your request for a loan. With relatives and friends, it is actually more effective to be comparatively indirect. You may be keen to blurt out your query, but hold off until the query seems to arise naturally. In some cases, you may require only to start speaking about what you require to do before your prospect volunteers to make it happen.
If the person looks at all uncertain, acknowledge any tensions with a comment like "No pressure, of coursework." Next, explain: "I thought it might appeal to you, since I do know you started your own web design business years ago," or "I thought of you because I do know you have a background in business." Don't be apologetic - your manner ought to continue to show your confidence that you have offered your prospect a reasonable investment opportunity.
* Keep any agreement verbal
Think of your kitchen table pitch as merely the opening to an extended conversation. Your objective for the moment is for your potential lender to say yes to the idea of a loan - not to sign on the dotted line. It is best to leave this preliminary conversation open-ended.
In the event you receive a yes, portray that you will send a letter detailing the loan terms & next steps. If your lender is so gung-ho that they or he cannot resist asking a few more questions, reply in gerneral terms. If, for example, your prospect wishes to discuss exactly how much you need to borrow, offer a range, such as "between �£5,000 & �£15,000." If they or he asks about repayment, basically report how & when you'll pay the money back.
I specifically advise against giving the lender a duplicate of your loan request letter or business plan in the coursework of this preliminary conversation. Preserve the informality of the meeting by sticking with purely verbal discussions & agreements.
One time your prospect has heard to agree to the idea of an investment, wrap up your pitch conversation. Portray the next steps - you'll send your business designs & loan request letter, & then you can hammer out the details.
Suppose the conversation has not gone well, & your prospect is uncomfortable or reluctant to agree to a loan. If feasible, don't let him or her actually say the word no. Say something like: "I can tell you are not comfortable with this yet - am I able to contact you again in six months to show you mu progress?" Only a few people make their financial decisions quickly, & entrepreneurs often recieve a lukewarm reception long berfore they get an eventual "yes."
4. Rejection
There's circumstances in which you require to take "no" as the lender's final answer. The first is if your lender has given you a clear & firm refusal, & you accept that his or her concerns or objections are valid. The second is if your lender has given you a muddled refusal that appears to be masking some concern they or they is reluctant to communicate. Do you require to get in to a business transaction with somebody who won't say what is on his or her mind?
What if, even after you address your potential lender's concerns, or the person reviews your custom-made loan request, they or they turns you down? Listen carfully to the person's reasons. If they or they expresses concerns that ring true, or in case you listen to a similar message from several people, you'll learn important lessons for the future.
Keep track of prospects you sensed had a favourable opinion of your business idea but weren't fully satisfied. Some logical time to return to those people are:
* When the agreed-upon amount of time has passed since your initial meeting
* When you've got a more convincing presentation
* When your business has gained a major new customer or supporter
* When your potential lender's financial or life circumstances have changed
Even after you get the financial help you need, keep the records of your search. Don't discard any draft lists of potential investors. As you grow your business, you'll likely need additional financing. Who knows? The contact you wrote off in the work of the first round could lead you to your next source of capital.
