Or, how to stop looking for bucks in all the wrong places.
Yep, that’s a pretty cheesy play on words. But it’s a very apt description for the way most founders approach the (admittedly daunting) task of getting money for their businesses.
For those of you who don’t recognize the play on words, have a listen to Johnny Lee’s 1980 classic (above) and it should make sense.
When it comes to looking for money, every founder knows they need to do it, but much too often, they’re so worried about getting turned down that they don’t treat this critical decision with the care and patience it deserves.
Classic example — there are about 368,000 Google searches every month for crowdfunding, 75k for venture capital, 50k for small business loans, and 27k for small business grants.*
But guess where most of the money for funding small businesses comes from? Over 60% comes from personal or family savings. Guess what percentage business loans represent? About 12%. Venture capital represents about 0.4%, or 4 companies out of 1,000.** Investment, or equity crowdfunding isn’t even available to unaccredited investors yet, as the regulations are still being created by the SEC.
Founders have a ton of qualities, but it seems like we aren’t very rational when it comes to looking in the right places to find money for our businesses.
Why do we spend so much time and energy thinking about these exotic ways to find money?
Because all too often we’re all looking for a miracle solution, and we keep chasing what gets presented to us as “easy” money instead of thinking about what’s right for us.
For most founders, going to ask someone for money is one of the scariest moments of our lives — because all of us are human. When you add in the fact that you’re talking to people who speak what sounds like a different language, it’s perfectly normal that we would look for an easy way out.
But the reality of funding your business is this:
No one who offers you funding knows what is right for your business. Only YOU can know that.
You see, when you’re looking for funding, you are an ingredient. Professional investors (banks, VCs, angels, etc.) need to create a return on their investments — either for themselves or for their clients.
How do they create a return on their investment? Each of them has a recipe for using their money (and in some cases, experience) to turn the companies they fund into successful businesses.
When they talk to you about and investment, they are looking at your business to make sure that you fit into their recipe. You’re the “raw material” that helps them build their product.
This means that these investors, who I call the Suits, aren’t looking for what’s best for your company, they’re looking for the best way to earn a return that meets their needs.
Which means that the only person looking out for what’s right for you is YOU.
You own your business, so you need to own your choice of partners. Getting money from the wrong source can be just as bad (or in some cases, worse) than not getting money at all.
Now that you’re appropriately freaked out about the funding game, here’s some good news:
You can figure out what kind of partner is right for you pretty quickly if you know the right questions to ask.
Do you want to share the decision-making of your business? If not, equity partners like venture capitalists and angel investors are out.
How do you feel about paying to use someone else’s money? If you’re not crazy about the idea, you’re not going to be a good borrower.
As well as plenty of others…
Figuring out what you will (and won’t) accept in exchange for funding is critical before you start looking for it.
As I already mentioned, there are plenty of places to go looking for funding — and the number is growing by leaps and bounds. However, none of those places are looking after your interests. They’re assuming that if you’ve chosen to play the funding game with them, you want to play in their league.
That’s why you need to be very clear about what you expect from your funding partner(s), so that you get into the right ballpark before you worry about hitting a home run.
Defining where you’ve got the best chance of success will not only keep you from getting in over your head, but it will save you time and energy in your funding search.
Because the game is long, and you need to invest your resources where they can do the most good for you.
As Paul Graham puts is, “ Don’t raise money unless you want it and it wants you.”
Too often, people get to focused on the “it wants you” part. They chase any and every investor who’ll take a meeting, or sit in a banker’s office for hours trying to “make it work.”
Stop looking for bucks in all the wrong places by figuring out what kind of money YOU want.
If you want to narrow down the field, take this free quiz that will tell you what type of funding is right for you right now.
Whatever kind of funding you pursue, believe in your company (and yourself) enough to be picky about who you work with and how. You can find funding for your business, you just need to recognize what’s right for you instead of what everyone else is doing.
*Based on a quick search with Google Keyword Planner (using the average searches for the last 12 months).
**Based on responses to the 2007 Survey of Business Owners by the US Census Bureau. Mini-rant: this data is collected every 5 years, so another survey was done in 2012, but it’s still not possible to get the data from that survey. Current projections for high-level data availability = end of this year. Your tax dollars at work ;-)