Raising Investment Money

The Internet is Hot. Venture Capitalists and Investors are falling all over themselves looking for Internet startups. Everyone is raising lots of money and getting very rich. Everyone that is, except you. So what are you doing wrong? Why aren't the investors falling all over themselves to invest in your hot new startup? Why won't they even answer your emails?

Most of you are probably not looking for money while a few of you probably have actually raised the seed capital necessary to get your startup on it's way. If you have, you know that the media hype surrounding the tremendous amount of money looking for the next Internet business owes more to selling newspapers and TV programs than it does to the actual facts that apply to most budding entrepreneurs.

Thats not to say that there is not or has not been an excess of cash available. Most of that cash however, is finding its way to more established operations that are already well financed. The idea that misery loves company applies equally as well to money. If you have a lot you can probably raise more, at least for a while.

Although a very few Venture Capitalists are willing to invest in Internet Startups, it probably does not apply to you. A common misconception with budding entrepreneurs is that their new online venture is a startup business. From a VC's perspective it is not. A startup is a business with a clear presence, product, seasoned management, distribution and sufficient cash to implement the initial stages of their business plan. Their Investment is intended to take them over the top to make the plan work to the point where they can get their investment out with a very handsome profit. At least that is the spiel you will often hear.

I have raised quite a lot of money in the past that returned a handsome profit to the investors and I did it when software was still considered a technology without a future. I attended one seminar where the VC from Ventures West stated in his presentation that they would never invest in a software company because it was unlikely that they would ever generate the returns that VC's required. I guess he had not heard of Bill Gates at that time.

Having been through the process a few times I think that I have a pretty good understanding of the hurdles that a budding entrepreneur will face when attempting to raise cash for the first time. The problem is not that it cannot be done. The Internet is hot and there is cash available. The major problem is the resources that you will have to expend in order to chase after it.

One of the great advantages with setting up business on the Internet is the low cost of entry. You do not need an office, lots of equipment and a large staff in order to create a viable operation. What you do need a lot more of is time. This even applies to larger companies that have a major online presence. For a small "startup" time is even more critical. The question is can you afford to distract your attention from your current operation in order to look for financing?

So what is really involved in looking for investors? As is often the case it depends. It depends on who you are, who you know, how much you already have and how much effort you are willing to devote to it. If you are a PhD candidate in the computer lab at a major university you may have potential investors that come looking for you. If your mother or father knows someone who knows someone you may also be in luck. If neither of the above is true you will have to start networking. Although you will be told tha
t you must have a good business plan, the fact is that it is far more important to get a good introduction.

Assuming you are successful at raising seed capital you will find that the money comes with all kinds of strings attached. Many of these strings will impose outside professional assistance that can be quite beneficial. Marketing contacts, financial management, formal business operations are the things that many new business operators lack and need. The down side is that they will constantly distract you from your core competence. If you were a world-class figure skater seeking an Olympic medal, your time would be far better spent practicing than on maintaining the books even though the latter  may be necessary.  

The bottom line is that raising capital can be a great benefit for some and a disaster for others. The Wall Street magazine
Barron's recently listed many Internet startups that will soon be out of cash and available for purchase at fire sale prices. This is something I have been expecting for quite some time. Have a look at my article http://www.imswebtips.com/issue31top2.htm on advertising.

Once you have professional investors in your business they will expect results. It is very hard to scale back your business once you have expanded it and even harder to raise additional financing if you do.

If you still want to look for financing try attending meetings and seminars hosted by your chamber of commerce, banks, law firms and accounting firms. Network and introduce yourself. Look for any special government programs that may apply and be beneficial. Be very cognoscente of the time you spend away from your business. By far the most valuable and least expensive investor you can get is a customer that pays to use your product or service.

If you are still interested in making a cold call to a Venture Capitalist you can try the Global Internet Venture Capital Directory at: http://www.venturescape.com/globalvc.html They have a list of many of them and their requirements. Just don't be surprised if they don't return your call.

"IMS Web Tips" ISSN 1488-7088
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