The Art of Raising Capital for Your Business

Raising capital is a profession and should be done with the assistance of a professional who has spent years developing relationships with capital sources. Investors do not invest with strangers or in deals sent to them unsolicited. VC firms reveive 2,000 business plans per year. The look at 10 and fund 2. The 2 they fund are usually referred to them by people they know and have worked with in the past. Raising capital is a closed circle. If you want to get in you need to retain the services of someone who has spent years developing these contacts. Listen to their advise on what their investors want to see, hear and read and  prepare your presentation along the lines they suggest. Then let them arrange a meeting with their investors.

Investors do not have time to read 50 page business plans that is what their trusted advisors do. Once an investor knows his attorney, CPA or financial consultant has reviewed the deal and completed Due Diligence he is more likely to take a meeting and consider an investment. This process is not a guarantee you will get funded (there are no guarantees) but it will increases your chances of success.

For some reason people seeking to raise capital fail to realize there are State and Federal security laws that must be followed. One such regulation is you cannot hire an unlicensed money “finder” and pay him a commission or some other success-based compensation if he is successful in raising capital. Only a licensed broker/dealer can receive a commission or success-based compensation for raising capital. Period. That’s the law. There are no grey areas. I know people violate this law but that does not make it legal. It just means they have not been caught.

The only legal method is to pay a retainer for the consultant to source capital for you whether he is successful or not. I know this runs counter to the way most people think. There are no guarantees in raising capital. Only BEST EFFORTS. If you not willing to play by the rules you have no business trying to raise capital. Why do you think they have security laws and security lawyers?

If you violate this specific law your whole offering is tainted and you as the issuer and the “finder” are subject to civil and criminal penalities. The investors is allowed to rescind his investment and demand his money back at any time even if it is several years after the fact,

This is just one reason you need to work with a professional when it comes to raising capital. You either pay now to do it right or you pay later when the SEC and State regulators knock on your door and they will.

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One Response to “The Art of Raising Capital for Your Business”

  1. Lui Says:

    Mr Mikebette,

    Currently I am a business school student, I was offer a commission based job from a start up venture capital firm the will pay a commission of 3,000 each time I am able to find a distress company that they can help finance, base on your article this will still be legal? I am new to the venture capital market and pardon me if this question seem naive. Thanks

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