7 Steps for Making the Big Ask

7 Steps for Making the Big Ask

So, you have your investment offering ready, and you’re preparing to go out and start talking to investors.  One of the biggest questions I get from my clients is how do I know how much to ask for when I talk to a potential investor?  Here is a system you can use to get ready to make the right-sized ask.

  1. Decide on your ideal number of investors which will depend on the legal compliance strategy you’ve chosen.  (Click here to continue reading). If you’re doing a private offering, there may be legal limits on how many investors you can have.  Typically with a private offering, you would not have more than 25 investors. If you’re doing a public offering, you may end up with 100 or more investors.  Don’t be afraid of having “too many” investors—a larger number of small investors makes it easier to reach your goal without having to give up control.
  2. Take your total target raise and divide it by your ideal number of investors.  So, for example, if you want to raise $500,000 and your ideal number of investors is 25, the average amount per investor is $20,000.
  3. Decide on the minimum investment you will accept—in the example above, maybe your minimum is $10,000.
  4. Now, (at least) double the number you arrived at in Step 2.
  5. Picture yourself meeting with a specific person you plan to ask for investment and imagine asking for the amount you calculated in Step 4.  What thoughts come up? Do you find yourself thinking, “Oh my gosh! That is way too much—they will never go for that?” If so, good! You are in what Dia Bondi of AskLikeanAuctioneer.com calls the Zone of Freaking Out (ZOFO).  If the number you’re asking for doesn’t freak you out, increase it until you feel freaked out. When your inner voice tells you you can’t possibly ask for that amount, you know you have arrived at the right number!
  6. When you’re in a meeting with a potential investor, make your ask and then be quiet.  Give your potential investors time to think. Do not say anything—wait for a response.  If they say no, you can reduce your ask (in small increments) down to the minimum you decided on.
  7. Know that you should not make an ask that does not put you in the Zone of Freaking Out.  Then practice increasing the amount that puts you in the ZOFO. The first time I raised money, I freaked out over asking for $1,000.  Now I freak out over asking for $100,000. The more you practice asking for an amount that you think you can’t possibly ask for, the more you will learn that it is actually possible!

We would love to help you with your big ask.  Click here to schedule a strategy session now!

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email

FAQ:  How can I get funded without giving up too much of my business?

FAQ: How can I get funded without giving up too much of my business?

In a recent virtual training, I asked participants to submit their top questions about raising funding from investors.  Below is one of the most commonly asked questions.

How can I get funded without giving up too much of my business?

Many business owners think that if they raise money from investors, they will have to give up a big chunk of ownership and maybe even control of their company.

This is a myth! It is absolutely possible to raise money from investors without giving up any ownership at all or giving up an ownership percentage that you feel comfortable with.

The reason this is possible is that the return on the investment you offer does not have to be tied to ownership of your company. If the only way an investor can ever get any return is via the sale of your company, then yes, investors will want as big a chunk of ownership as possible. But there are lots of other ways for investors to get paid.

The key is to carefully design your investment offering so that it fits with your goals, values, and plans. If you need help designing your offering, please sign up for a complementary financing strategy session. 

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email

Is the VC model perpetuating the racial wealth gap?

Is the VC model perpetuating the racial wealth gap?

You may have heard the shocking statistics about venture capital investments in businesses founded by Blacks and Latinos.  “Less than 1% [of venture-backed companies] have a black founder; same for Latinx. A mere 0.2 percent of venture deals go to black female founders; in fact, only 26 black female founders have raised over $1 million in outside capital…ever. The average amount of venture capital to black female founders is only $36,000 compared to the overall average of $1.3 million invested.” (Herrling, S., “Women-Led Startups Aren’t Getting Funded, and There’s a Very Simple Reason WhyInc. Magazine, June 2018)

Undercapitalization of businesses owned by people of color exacerbates the racial wealth gap.  While a small group of venture capitalists and venture-backed founders—a huge percentage of whom are white, male, and privileged—become increasingly wealthy, the vast majority of small business owners struggle to keep their doors open and deplete their personal savings (if any) in the process.  Some will make it, but many will fail due to the lack of sufficient capital.

The median net worth of Black and Latino families stands at just $11,000 and $14,000, respectively—a fraction of the $134,000 owned by the median White family.  Even more disturbing is that when consumer durable goods such as automobiles, electronics and furniture are subtracted, median wealth for Black and Latino families drops to $1,700 and $2,000, respectively, compared to $116,800 for White households. (Asante-Muhammad, Collins, Hoxie, & Nieves, “The Road to Zero WealthProsperity Now, September 2017)

What is the best way to solve this problem?  Many suggest that we just need to diversify the venture capital industry.  Add people of color, stir, and somehow inequality will start to disappear.

But what if the venture capital model itself is all about perpetuating inequality, regardless of the race of the participants in it?  The venture capital model provides investment opportunities only to the very wealthy.  Once a company receives venture investment, it is expected to grow as fast as possible so that it can have an “exit” (i.e. get bought by a larger company).  The vast majority of venture-backed companies don’t make it to an exit and they go out of business, often leaving employees and suppliers in the lurch.  (Estrada, L, “Munchery:  How a venture-backed startup swindled a group of women and minority owned companies out of over $50,000 and is getting away with itMedium, January 2019)

If there is a “successful” exit, it makes the wealthy investors even wealthier, and the benefits don’t trickle down to the lower paid employees, much less to the customers or communities that supported the business in its early days.

Rather than try to diversify a system that by its very design concentrates wealth in fewer and fewer hands, why not focus our energy on alternatives that have the potential to bring greater wealth to the many and not just the few?

Let’s focus on strategies that make it possible for EVERYONE to invest in the businesses they believe in and care about.  And let’s design those investments so that investors can get paid without there having to be a unicorn-style exit.

If you would like to join the movement to democratize small business investing, please join us at www.AngelsofMainStreet.com.  If you’re an entrepreneur who would like to raise capital outside of the venture capital model, please sign up for a strategy session to learn about how this type of funding could fit your business.

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email

What entrepreneurs really want to know about raising money

What entrepreneurs really want to know about raising money

I recently held a virtual training and asked participants to submit their top questions about raising funding from investors, and I got a lot of great questions!  I wanted to share answers to some of the most commonly asked questions:

Can I talk to potential investors before I deal with the legal compliance part?

No!  A lot of business owners don’t realize it, but talking to someone about investing in your company is a highly regulated activity and you MUST deal with state and federal legal compliance before you offer an investment opportunity to anyone.  If you inadvertently break the law governing how you can talk to investors, you will create a potential liability that could affect your business’ success in the future. The good news is that there are many legal compliance options available to fit your situation.  Just be sure you know your compliance strategy before offering an investment to anyone.

How do I decide between a public offering and a private offering?

There are two general categories of legal compliance strategies: 1) strategies that allow you to publicly advertise the fact that you are raising money and 2) strategies that require you to keep your investment conversations private.

My clients and I have done both, and I have to say that I am partial to public offerings.  I believe it is much easier to find investors when you can shout from the rooftops that you are raising money!  Plus, with public offerings you can generally set the minimum investment rather low (e.g. $1,000 or less) so that investing is accessible to far more people.  With private offerings, you generally are allowed to have fewer investors, so you have to limit yourself to potential investors that can afford larger amounts.

Whether you do a public or private offering, you will need to do a lot of outreach and have lots of conversations with potential investors.  When you can publicly advertise your offering and the minimum investment is relatively low, it is much easier to find the right investors and have them say “yes”.

So, why doesn’t everyone do public offerings?  The main reason is that public offerings generally require more extensive up-front legal compliance because the law assumes they are riskier for the investing public.

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email

Will it turn investors off if you tell them about your mission?

Will it turn investors off if you tell them about your mission?

I’ve talked to many entrepreneurs who have told me they deemphasize the mission of their business when talking to investors.  They assume that investors care most about financial returns, and they worry that talking about their mission could get in the way of getting funding.

This is a terrible idea!  Most investors actually want very much to invest in mission-driven businesses that are values-aligned.  If your mission is important to you, you need to say it loud and proud. Furthermore, any investor who does not like the fact that your company is mission-driven is not a good fit for you, and you should not waste time with them.

More and more investors are coming to understand that, in the long run, mission-driven businesses are likely to be more profitable and successful.  When talking to potential investors, if you sense a lack of values alignment, it’s best to move on. Always seek out investors who are focused on your business’ long-term success, not on making a quick buck.

If you stay true to what matters most, you can and will find investors who share your vision and want to support you on your terms.

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email