Investor Management 101

Investor Management 101

I advise my clients to be open to having a larger number of smaller investors rather than one or two big ones.  Why? There are two reasons: (1) it’s easier to reach your fundraising goal when you allow lower minimums per investor and (2) when each investor puts in a relatively small amount, it is very unlikely that any of them will try to micromanage or bug you with constant requests for information.  Because they have put in an amount that is not ‘make or break’ for their financial situation, they are far too busy to worry about your day-to-day decisions.

I have raised money four times from hundreds of investors, and I have never had a single one become demanding or irritating.  On the contrary, all of my investors have been patient, supportive, and tolerant when things haven’t gone quite as planned.  

What do you need to have in place to take care of your investors and meet your financial obligations to them?

  1. A professionally managed accounting system that allows you to track your investors
  2. A process to ensure that you have up to date contact information for your investors including W-9s so you can report to the IRS the payments you make to them
  3. A system for providing regular updates—a quarterly email newsletter works great
  4. A process for making payments to your investors in accordance with your agreement with them—this often involves sending an annual dividend or loan repayment to each investor, via check, ACH, or wire.

Of course, the more investors you have, the more time and effort may be involved in maintaining these systems and processes.  I recently sent out about 140 checks to investors and am now trying to track down those who haven’t cashed their checks yet.

Don’t let the thought of these obligations deter you from raising money!  Depending on how you design your offering, most of the effort happens just once a year or even less frequently.  And the benefit of having supportive investors—who have no interest in telling you how to run your business—far outweighs the relatively small effort needed to treat them well and pay them for the use of their money.

If you would like to get my eyes on your particular situation, please apply for a strategy session, and we’ll reach out if it’s a fit.

Here is an exercise we recommend in order to make sure you get your fundraising done within a reasonable amount of time.

1. Imagine you have reached your fundraising goal. You are looking at the list of all your investors and how much each one invested.  What is the lowest amount that someone invested and what is the highest amount?  Try to create a clear picture in your mind of your investor list and the amounts invested.

2. In your imagination, scan the list and estimate what the average investment size per investor is. For example, you may picture that you’ll have some people come in at $5,000, some at $10,000, a few at $25,000, maybe one or two at $50,000, and one at $100,000.  In that case, you may estimate the average per investor to be $20,000.  You can use this tool to decide how much you’ll ask for from each potential investor: http://www.jennykassan.com/blog/7-steps-for-making-the-big-ask/

3. Now, take the total amount you want to raise and divide it by the average per investor. That will tell you the approximate number of investors you’ll have when you reach your goal.  So, if you want to raise $400,000, you’ll end up with around 20 investors.

4. Multiply that number by 10. That is the approximate number of potential investors you’ll need to talk to about your offering.  (This assumes that an average of one out of ten people you talk to will say yes—you may do much better than that, but it’s best to be conservative).  In our example, this would be 200.

5. Divide that number by the number of weeks you would like to devote to reaching your funding goal. This is the number of people you will contact per week about investing.  So, if you’d like to reach your goal within six months, divide 200 by 26 weeks—you need to contact 7-8 people per week.

6. Assume that for each contact you’ll need to spend 30-60 minutes on average. Multiply the number of people you’ll talk to per week by the average number of minutes you think each contact will take.  That is the total number of hours you should schedule into your calendar for contacting potential investors.  Add at least half that many hours to give yourself time to follow up with people who haven’t yet given you a definitive answer.  In the example above, I would assume eight hours per week plus another four for follow up—so a total of 12 hours per week should be spent contacting potential investors.

7. Now block out that time in your calendar for the number of weeks you gave yourself to reach your goal.

If you use this method, you’ll keep your momentum going and get that fundraising done before you know it!

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Main Street America: Notes from the Field

Main Street America: Notes from the Field

Last month Jenny and I attended Main Street Now 2019the annual Main Street America™ Conference which was held in Seattle.

Main Street America is a grassroots network made up of small cities, towns and urban commercial districts that work on preservation based economic development and revitalization.

The work of the Main Street America network is increasingly vital for the support of local business communities that are relentlessly decaying in the face of the huge disparity in investment capital between Wall Street and Main Street.

One of the unique focuses of the conference this year was the topic of Opportunity Zones. Created by the 2017 Tax Cuts and Jobs Act, the Opportunity Zone program was designed to stimulate private investment in distressed communities throughout the country in exchange for capital gain tax incentives.  

In June 2018, more than 8700 communities in all 50 states, the District of Columbia, and five U.S. territories were designated as qualified Opportunity Zones and will retain their designation for 10 years. By making an appropriate investment in a zone, private individuals may defer tax on almost any capital gain until 2026 AND pay NO capital gains tax on the investment in the zone.

The tax benefits provided for investments in opportunity zones are a welcome addition to the self-directed investment tool we launched last year—Crowdfund Mainstreet. We are working toward building  a robust finance ecosystem for the small businesses that create local jobs and preserve local character.  Please join us in the movement to fund and grow small businesses throughout the nation by investing in a business on Crowdfund Mainstreet.  We hope to offer Opportunity Zone investments on the platform in the near future.

If you’re a small business owner looking to raise capital, feel free to schedule a call with us to explore how we can help you.  We can also work with you to determine whether you are in an Opportunity Zone and, if so, how you can take advantage of that.

Here is an exercise we recommend in order to make sure you get your fundraising done within a reasonable amount of time.

1. Imagine you have reached your fundraising goal. You are looking at the list of all your investors and how much each one invested.  What is the lowest amount that someone invested and what is the highest amount?  Try to create a clear picture in your mind of your investor list and the amounts invested.

2. In your imagination, scan the list and estimate what the average investment size per investor is. For example, you may picture that you’ll have some people come in at $5,000, some at $10,000, a few at $25,000, maybe one or two at $50,000, and one at $100,000.  In that case, you may estimate the average per investor to be $20,000.  You can use this tool to decide how much you’ll ask for from each potential investor: http://www.jennykassan.com/blog/7-steps-for-making-the-big-ask/

3. Now, take the total amount you want to raise and divide it by the average per investor. That will tell you the approximate number of investors you’ll have when you reach your goal.  So, if you want to raise $400,000, you’ll end up with around 20 investors.

4. Multiply that number by 10. That is the approximate number of potential investors you’ll need to talk to about your offering.  (This assumes that an average of one out of ten people you talk to will say yes—you may do much better than that, but it’s best to be conservative).  In our example, this would be 200.

5. Divide that number by the number of weeks you would like to devote to reaching your funding goal. This is the number of people you will contact per week about investing.  So, if you’d like to reach your goal within six months, divide 200 by 26 weeks—you need to contact 7-8 people per week.

6. Assume that for each contact you’ll need to spend 30-60 minutes on average. Multiply the number of people you’ll talk to per week by the average number of minutes you think each contact will take.  That is the total number of hours you should schedule into your calendar for contacting potential investors.  Add at least half that many hours to give yourself time to follow up with people who haven’t yet given you a definitive answer.  In the example above, I would assume eight hours per week plus another four for follow up—so a total of 12 hours per week should be spent contacting potential investors.

7. Now block out that time in your calendar for the number of weeks you gave yourself to reach your goal.

If you use this method, you’ll keep your momentum going and get that fundraising done before you know it!

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As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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Stop Bootstrapping, Stop Leaning In, and Organize

Stop Bootstrapping, Stop Leaning In, and Organize

It used to be that only men were called entrepreneurs.1 But women have been entrepreneurs for a long time.2 We have opened and run businesses out of necessity, passion, and genius. We’ve had to do it while caring for children and prior to having the right to vote. We started businesses back when we could not take out a loan without a man, and we are still starting businesses while earning 80% of what men earn.3 Maybe we weren’t called entrepreneurs, but we were doing it anyway: because we needed to, because we cared, because we knew we had it in us, or because our ideas were just too good.

Today, more and more women are launching businesses4—and this is good for everyone. As of 2017, woman-led enterprises employed nearly nine million people in the US.5 One international survey found that women are more likely to engage in entrepreneurship that has an environmental or social mission.6 More than one study has indicated that women-led businesses produce greater returns for investors.7

But, somehow, women are getting way less investment funding than men. Way less! In 2018, only 2.3% of venture capital investments went to female-founded startups.8 This isn’t necessarily because women aren’t trying (as some people claim). It turns out (surprise) that more than 90% of investment partners in venture capital firms are men,9 and (you guessed it), men prefer to invest in other men.10 One research team believes this is due to “outright sexism (explicit or implicit) [or] more subtle things, such as a desire by male investors to mentor founders who remind them of themselves.”11 Another study concluded that “[w]omen do face bias in terms of the masculine stereotype held by the majority of the male dominated investment community: during the pitch, women should ‘act’ like men and indicate masculine behaviors or they may be penalized by investor audiences for not having the qualities they believe to be consistent with entrepreneurship.”12 By contrast, according to a TechCrunch report, “[t]here is clear evidence . . . that the small number of venture firms with female founders and/or an unusually high percentage of female partners invest at elevated levels in female entrepreneurs.”13

It’s possible that adding more women to the VC mix could help balance things out.14 But maybe, for those of us who want to build a new economy, this is not the best use of our energy. As Jenny pointed out last month, the VC model is designed to enrich a few wealthy people, and it perpetuates inequality regardless of the identity of the founders that get funded.

And anyway, until the VCs include more women, assuming that will help, what are women entrepreneurs going to do? They can (a) struggle in silence and bootstrap their businesses (find out what that is and why it’s a problem here); (b) try to act more like men and lean in at meetings with VCs (which might not help much according to Michelle Obama and a bunch of other people);15 or (c) they can get off those treadmills, organize for their common goals, and do something more productive.

Women, let’s (c), get organized. Why wait for male VCs to finally decide we are worthy? We—and our mothers and grandmothers—didn’t wait for anyone to tell us we could be entrepreneurs.

Here are some suggestions. Business owners or not, we can:

  1. Invest in women-owned businesses that share our values. Investment crowdfunding platforms are a great place to start. They are easy to browse, and anyone—regardless of wealth—is allowed to invest at least something (there is a weird sliding scale based on income and net worth that you should know about). Check out these female-led, mission-driven companies on Crowdfund Mainstreet.
  2. Join investor communities that prioritize women-owned businesses. Angels of Main Street is open to everyone and is a place to learn about investing in mission-driven enterprises and be introduced to companies currently raising capital, including many led by women.
  3. Tell other women to do (1) and (2).

Are you a woman entrepreneur focused on raising capital for your business? Do you want to connect with legal and capital-raising experts and join a mastermind group of like-minded, badass female founders? Please join us at our July 2019 Retreat—Be A Money Magnet—to step into your power and get the RIGHT funding for your business.

Here is an exercise we recommend in order to make sure you get your fundraising done within a reasonable amount of time.

1. Imagine you have reached your fundraising goal. You are looking at the list of all your investors and how much each one invested.  What is the lowest amount that someone invested and what is the highest amount?  Try to create a clear picture in your mind of your investor list and the amounts invested.

2. In your imagination, scan the list and estimate what the average investment size per investor is. For example, you may picture that you’ll have some people come in at $5,000, some at $10,000, a few at $25,000, maybe one or two at $50,000, and one at $100,000.  In that case, you may estimate the average per investor to be $20,000.  You can use this tool to decide how much you’ll ask for from each potential investor: http://www.jennykassan.com/blog/7-steps-for-making-the-big-ask/

3. Now, take the total amount you want to raise and divide it by the average per investor. That will tell you the approximate number of investors you’ll have when you reach your goal.  So, if you want to raise $400,000, you’ll end up with around 20 investors.

4. Multiply that number by 10. That is the approximate number of potential investors you’ll need to talk to about your offering.  (This assumes that an average of one out of ten people you talk to will say yes—you may do much better than that, but it’s best to be conservative).  In our example, this would be 200.

5. Divide that number by the number of weeks you would like to devote to reaching your funding goal. This is the number of people you will contact per week about investing.  So, if you’d like to reach your goal within six months, divide 200 by 26 weeks—you need to contact 7-8 people per week.

6. Assume that for each contact you’ll need to spend 30-60 minutes on average. Multiply the number of people you’ll talk to per week by the average number of minutes you think each contact will take.  That is the total number of hours you should schedule into your calendar for contacting potential investors.  Add at least half that many hours to give yourself time to follow up with people who haven’t yet given you a definitive answer.  In the example above, I would assume eight hours per week plus another four for follow up—so a total of 12 hours per week should be spent contacting potential investors.

7. Now block out that time in your calendar for the number of weeks you gave yourself to reach your goal.

If you use this method, you’ll keep your momentum going and get that fundraising done before you know it!

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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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. 

Here is an exercise we recommend in order to make sure you get your fundraising done within a reasonable amount of time.

1. Imagine you have reached your fundraising goal. You are looking at the list of all your investors and how much each one invested.  What is the lowest amount that someone invested and what is the highest amount?  Try to create a clear picture in your mind of your investor list and the amounts invested.

2. In your imagination, scan the list and estimate what the average investment size per investor is. For example, you may picture that you’ll have some people come in at $5,000, some at $10,000, a few at $25,000, maybe one or two at $50,000, and one at $100,000.  In that case, you may estimate the average per investor to be $20,000.  You can use this tool to decide how much you’ll ask for from each potential investor: http://www.jennykassan.com/blog/7-steps-for-making-the-big-ask/

3. Now, take the total amount you want to raise and divide it by the average per investor. That will tell you the approximate number of investors you’ll have when you reach your goal.  So, if you want to raise $400,000, you’ll end up with around 20 investors.

4. Multiply that number by 10. That is the approximate number of potential investors you’ll need to talk to about your offering.  (This assumes that an average of one out of ten people you talk to will say yes—you may do much better than that, but it’s best to be conservative).  In our example, this would be 200.

5. Divide that number by the number of weeks you would like to devote to reaching your funding goal. This is the number of people you will contact per week about investing.  So, if you’d like to reach your goal within six months, divide 200 by 26 weeks—you need to contact 7-8 people per week.

6. Assume that for each contact you’ll need to spend 30-60 minutes on average. Multiply the number of people you’ll talk to per week by the average number of minutes you think each contact will take.  That is the total number of hours you should schedule into your calendar for contacting potential investors.  Add at least half that many hours to give yourself time to follow up with people who haven’t yet given you a definitive answer.  In the example above, I would assume eight hours per week plus another four for follow up—so a total of 12 hours per week should be spent contacting potential investors.

7. Now block out that time in your calendar for the number of weeks you gave yourself to reach your goal.

If you use this method, you’ll keep your momentum going and get that fundraising done before you know it!

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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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.

Here is an exercise we recommend in order to make sure you get your fundraising done within a reasonable amount of time.

1. Imagine you have reached your fundraising goal. You are looking at the list of all your investors and how much each one invested.  What is the lowest amount that someone invested and what is the highest amount?  Try to create a clear picture in your mind of your investor list and the amounts invested.

2. In your imagination, scan the list and estimate what the average investment size per investor is. For example, you may picture that you’ll have some people come in at $5,000, some at $10,000, a few at $25,000, maybe one or two at $50,000, and one at $100,000.  In that case, you may estimate the average per investor to be $20,000.  You can use this tool to decide how much you’ll ask for from each potential investor: http://www.jennykassan.com/blog/7-steps-for-making-the-big-ask/

3. Now, take the total amount you want to raise and divide it by the average per investor. That will tell you the approximate number of investors you’ll have when you reach your goal.  So, if you want to raise $400,000, you’ll end up with around 20 investors.

4. Multiply that number by 10. That is the approximate number of potential investors you’ll need to talk to about your offering.  (This assumes that an average of one out of ten people you talk to will say yes—you may do much better than that, but it’s best to be conservative).  In our example, this would be 200.

5. Divide that number by the number of weeks you would like to devote to reaching your funding goal. This is the number of people you will contact per week about investing.  So, if you’d like to reach your goal within six months, divide 200 by 26 weeks—you need to contact 7-8 people per week.

6. Assume that for each contact you’ll need to spend 30-60 minutes on average. Multiply the number of people you’ll talk to per week by the average number of minutes you think each contact will take.  That is the total number of hours you should schedule into your calendar for contacting potential investors.  Add at least half that many hours to give yourself time to follow up with people who haven’t yet given you a definitive answer.  In the example above, I would assume eight hours per week plus another four for follow up—so a total of 12 hours per week should be spent contacting potential investors.

7. Now block out that time in your calendar for the number of weeks you gave yourself to reach your goal.

If you use this method, you’ll keep your momentum going and get that fundraising done before you know it!

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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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.

Here is an exercise we recommend in order to make sure you get your fundraising done within a reasonable amount of time.

1. Imagine you have reached your fundraising goal. You are looking at the list of all your investors and how much each one invested.  What is the lowest amount that someone invested and what is the highest amount?  Try to create a clear picture in your mind of your investor list and the amounts invested.

2. In your imagination, scan the list and estimate what the average investment size per investor is. For example, you may picture that you’ll have some people come in at $5,000, some at $10,000, a few at $25,000, maybe one or two at $50,000, and one at $100,000.  In that case, you may estimate the average per investor to be $20,000.  You can use this tool to decide how much you’ll ask for from each potential investor: http://www.jennykassan.com/blog/7-steps-for-making-the-big-ask/

3. Now, take the total amount you want to raise and divide it by the average per investor. That will tell you the approximate number of investors you’ll have when you reach your goal.  So, if you want to raise $400,000, you’ll end up with around 20 investors.

4. Multiply that number by 10. That is the approximate number of potential investors you’ll need to talk to about your offering.  (This assumes that an average of one out of ten people you talk to will say yes—you may do much better than that, but it’s best to be conservative).  In our example, this would be 200.

5. Divide that number by the number of weeks you would like to devote to reaching your funding goal. This is the number of people you will contact per week about investing.  So, if you’d like to reach your goal within six months, divide 200 by 26 weeks—you need to contact 7-8 people per week.

6. Assume that for each contact you’ll need to spend 30-60 minutes on average. Multiply the number of people you’ll talk to per week by the average number of minutes you think each contact will take.  That is the total number of hours you should schedule into your calendar for contacting potential investors.  Add at least half that many hours to give yourself time to follow up with people who haven’t yet given you a definitive answer.  In the example above, I would assume eight hours per week plus another four for follow up—so a total of 12 hours per week should be spent contacting potential investors.

7. Now block out that time in your calendar for the number of weeks you gave yourself to reach your goal.

If you use this method, you’ll keep your momentum going and get that fundraising done before you know it!

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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