7 Key Pieces of Advice About Funding Your Business
I have been working on new book. Whereas my first book, Integrated Investing, helps aspiring and experienced investors make investment decisions to achieve more positive and impactful outcomes, this second book is for entrepreneurs. This time, I’m helping entrepreneurs navigate the tough decisions involved in raising and managing the capital to fund their business. Building on the concepts introduced in Integrated Investing, you can be sure that the new book will integrate analysis, emotion, body, and intuition into decision-making. The new book needs a title — if you have any suggestions, let me know.
Much of the following advice is universal for anyone seeking funding, however I wrote it from the perspective of key pieces of advice particularly for women entrepreneurs.
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Meet people before you need to meet them. Some people might call this “network early”. This is true about a lot of different situations and couldn’t be truer for funding. Even the most experienced and seasoned entrepreneurs turn to people in their existing network, that they know well, with whom there exists a great deal of mutual trust, and with whom they have great relationships. To get to the point of having aligned investors in your network already, you need to meet them before you need to meet them.As noted in the Executive Summary of The Diana Project’s 2014 report, women are excluded from networks of growth capital finance and appeared to have insufficient contacts with investors and financiers. Women entrepreneurs need to take extra steps, and take them early, to develop the networks of funding that they need presently or in the future.
- Save money and save early. Build your own startup capital. Be an investor in your own startup — in hard-earned cash, not just blood, sweat, and tears. Initially, you need your own resources to start your ventures without the need for external capital. On average, women make 80 cents on the dollar compared to men. In general, it takes more time for a woman compared to a man to accumulate her own startup capital, so you need to start early.
- Think like an investor. Closely related to point #2 above, build up your own capital, invest a little, then reserve some for follow-on investment in your own venture. Having capital set aside means you can continue to invest in your venture and leverage it into additional equity capital or financing from external investors later on, if you so desire. Being able to present the opportunity to co-invest alongside you, the founder, is a far more compelling and attractive story. In Integrated Investing, I devoted a chapter to the mindsets that help people think like investors.
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Learn the language of finance. Get comfortable with numbers, accounting, and financial terms. From return on investment and internal rate of return to dilution and cap tables, learn what these terms mean and why they are important. Know the difference between burn rate and run rate. Know your debits from your credits and understand the different information that is told by your balance sheet, income statement, and cashflow.There was a saying (when I was an investment banker): she who owns the financial model, owns the deal. This was to say, understanding the numbers was paramount.
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It doesn’t hurt to understand a bit of legalese. In addition to understanding numbers, I have always found understanding the legal documents associated with funding to be an advantage in negotiations. Whereas financial models tell the story of an investment opportunity in numbers, legal documents tell the story in legalese. I’m able to give anyone an overview of the legal documents they are about to enter into. I caveat that I’m not a lawyer and encourage people I’m partnering with to get legal advice. I encourage them to have legal documents independently reviewed by a lawyer, but that doesn’t absolve me from understanding, in general terms, what is in the documents. The number of times I’ve encountered entrepreneurs who have no idea what’s in their documents is too frequent to count and it’s scary.
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Understand what “exit” means and have a strategy. Exit is most frequently talked about from the perspective of investors and it is the time and way we can realize our return on investment. Having an “exit strategy” really means a way to liquidate your equity in a venture into hard-earned cash or equivalent. Put another way, an exit is about shifting ownership of the venture to another investor — typically as a subsidiary of a larger company that does have equity liquidity or becoming a company that has equity liquidity (IPO). Entrepreneurs may or may not exit at the same time as investors. Research how other ventures and investors have realized exits. Get educated on mergers and acquisitions activity in your industry and develop a credible exit strategy.
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Be your best, most informed self and trust that there are aligned investors out there. When you fund your venture with external capital, you’re doing more than just bringing in money, you’re bringing in a new partner to your team. For any entrepreneur and investor, alignment is paramount. Increasingly, there are investors that truly value what women entrepreneurs contribute to the economy and society. Be informed and be yourself. Seek out investors that are aligned with your vision, that will champion you, mentor you, and be a partner in your venture. The need to conform to a particular pattern familiar to some investors is becoming less and less prevalent. The investor community is becoming more diverse and therefore the goal of attracting funding is becoming about fit, complement, and alignment.
It’s an exciting time to be an entrepreneur, especially for women. Be informed, find your community, and build your network, so that you can continue to build exciting impactful businesses.
The original version of this post was first published on Quora and was featured in Inc., Forbes, and Huffington Post.
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In the meantime, you can check out some of my other answers on Quora about entrepreneurship.
One last thing — what should I call my book for entrepreneurs about decision-making, funding, and managing your finances?