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Seven Important Rules for Prospecting for Capital Sources

In Angel / VC on November 23, 2011 at 9:43 am
The lifeblood of all companies is capital. Whether it is money from sales, bank loans, or equity from investors, a business cannot do anything without the money that it takes to build its products and establish distribution.Acquiring capital is often the most challenging aspect of a business. Very few companies are lucky enough to establish and maintain a steady source of capital that can fund its growth. Lack of capital is the primary cause of failure for companies – even very successful companies. There is a wasteland of companies that are victims of their own success – these are the companies that had big sales and opportunities, but they could not get the money in place to fulfill their orders. Just last month I met a nice small business that lost a $1 million order because they could not secure the capital required to fill the order in a timely fashion. Do you think the owners had a bad day when their existing banking relationship said “no”? Today there are a lot of these stories as banks are constrained on tight lending covenants and lending limits.The key to growing any business is ensuring it has enough capital to grow – and – to survive the times when profitability is elusive. It takes dedication to identify and maintain relationships that will ensure these sources of capital through good times and bad. To achieve this crucial objective, you need to prospect.

These Seven Rules will make it easier to identify and open new capital sources to fund your long-term success.

  1. Identify your WHY and let it be known. Your mission and vision may change overtime, but your purpose should not. A strong “Why” of your organization will tie the interests of capital sources to your organization through changes in personnel and revenue streams. When your capital sources know “Why” you exist, the “how” you do it and the “what” you do can change and you shouldn’t be penalized.
  2. Be curious. If you hear about new sources of capital or new players, make phone calls and find out what they are doing. Ask questions. New sources of capital have notoriously been the linchpin to many successful companies. Savvy business people will try to locked up these new capital sources to gain an edge on competitors. Private equity plays this game all the time to fund their deals and so should you.
  3. Be original. You need to be unique, especially if you are in a highly competitive market. You need to get in the door. Even if you are the CEO of a great company, some sources of capital may not be easy to warm up to. Tell them why you and your organization standout from the rest – your “Why” should reflect this.
  4. Load several arrows in your quiver. It will likely take several attempts and strategies to achieve your relationship-building objectives. Use the tricks that your sales people do (or should!). Use a CRM to track conversations. Use newsletters or company press releases to keep your company’s name in front of budding relationships. Send packages or gifts. Make phone calls when you have news to share or you have seen news about the contact or of interest to the contact. Bottom-line: systematically execute “touches”.
  5. Block Time. You need to dedicate time to this process. No excuses. It is easy to put this off. The first five don’t matter if you don’t dedicate time required to execute.
  6. Ask. When you have built your relationship and trust: Ask. Ask if they can get you access to more capital. Ask if they can get you better terms on capital. Ask them for a term sheet.
  7. Stay the Course. Prospecting for new relationships requires persistence and patience. When times are good, you are at greatest risk of falling into the trap of believing you will never need capital again. When times are bad, you are at greatest risk of being desperate since you had not procured enough relationships to provide you with choices.

Capital is available. Always. It is available to those that have procured trusted relationships. Despite advanced communication tools, the act of identifying and procuring these relationships takes old-fashioned networking and prospecting. Some of the identification can be expedited by surrounding yourself with advisors and influencers, but its up to you and your team to cement the relationships.

Patrick E. Donohue, CFA
DealPen

Special “Thank You” to our friend Jeffry Brown (Twitter: @IdeaWhiz) for his mentor-ship and education on finding your “Why”!

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