In working with many organizations (businesses, social enterprises and community projects) that are seeking capital, a common question is “What is the fastest money?” Although every organization typically has many possible sources and types of capital (equity, debt, revenue share, gifts, grants, earned income from friends, partners, customers, angels, funds, foundations and venture capitalists) the time to raise the money is a critical factor. Every entrepreneur I know, including myself, wants to raise money ‘yesterday’. It doesn’t matter how many options you have if you don’t have the time to realize them.
No matter how much planning and preparation has gone into starting and growing an organization, there is always a gap between needed and available resources. This gap creates stress if nothing else. The gap may place the entire opportunity at risk for inability to obtain needed personnel or equipment or to attain an early milestone.
You may need quick money to get to other money.
First, there may be no quick money.
If quick money is available, it can come from someone or an organization that has the following characteristics:
- They need what you have (or that you can produce quicker than anyone else)
- No one else can provide what you have
- Their need is great (without what you have they will suffer greatly – possible loss of life, property or something that the capital source holds in highest regard)
- They know you exist
- They believe that you can deliver what they need
- They have the capital resources you need, in hand, and ready to make available to you
This is a relatively rare situation where providing you with capital is the quickest path to an outcome desired by the source of the money. In effect, you are meeting the needs of an ultimate customer who can afford not only to buy a single product or service, but can also afford to fund your business and is willing to do so because they feel they have no other choice.
Too many entrepreneurs and startup organization make the mistake that they fit in this situation. They do not meet all of these criteria and do not understand that fact.
However, many entrepreneurs and startup organizations qualify for quick money, but they pitch to the wrong people. If you do an analysis of who may provide quick money, it may reveal previously untapped sources.
I have seen pitches that claim all of these criteria when seeking money from angels, venture capitalists and other institutional investors who are only seeking a return on their investment. Since all opportunities offer some level of ROI, then the organization is not unique in the eyes of these sources of capital. So, without more, this money is not quick because it has the choice of looking at other investment opportunities which may pay out a higher ROI or have a lower risk of failure or both.
Another possible quick source of money has the following characteristics:
- · They know you (not just recently met you at a pitch session or party)
- · They trust you to pay back their money under any situation
- · They have the capital resources you need, in hand, and ready to make available to you
This situation may occur for several reasons, but it is still is relatively rare. In effect, someone will give you money because they are not worried about not getting it back.
Friends and family fall into this category, but not all friends and family will qualify.
Certain strategic partners and angel investors may fall into this category because of past business where a relationship has been established and a level of trust has been established.
In order to obtain money from these resources, you need to be able to pick up the phone and ask for the money you need and make the statement “I am good for it” and they believe you.
Slower, but still rather quick money is available from certain financial institutions because you have committed enough of your own resources and/or you will provide something as collateral of sufficient value (your house, your car, the assets of your business, your stock investments in other businesses, etc.) that there is no possibility that they will lose any money. In this situation, they do not have to trust you, because if you fail their investment is covered by your assets. Because this source of money requires submission and approval of an application, it may take a number of days to a number of weeks to obtain needed money.
Everything else takes more time – possibly too much time.
If you don’t have a time machine that allows you to go back in time and start building these critical relationships, then there may be no quick money.
If you are not already wealthy and able to apply your own resources, then there may be no quick money.
Other sources of capital require building a relationship, demonstrating the capabilities of your innovation, generating sales or even earning a profit. All take time. In developing your business plan and completing your capital strategy, time must be factored in. In scheduling a capital raise, time must be allowed for talking to all of the people that don’t care about you and your business and who will not invest. Profiling possible investors will speed this process, but it always takes time.
If you don’t need money right now, you should set the stage so that money is available as needed, when needed at a price you are willing to pay.
This issue and others related to raising money from within your community will be addressed at the upcoming workshops on Customer Crowdfunding that will be presented by the Colorado Capital Congress at the Colorado Lending Source this Thursday, July 21 and again on August 25th and September 22nd. For more information and to register, go to http://www.coloradocapitalcongress.com/events
Karl Dakin, President
Dakin Capital Services LLC
7148 S. Andes Circle
Centennial, CO 80016