The best start up companies don’t raise capital; they attract it. They build such a compelling investment opportunity that investors actually seek them out.
You are more likely to hear about an inventor who has a good, idea writes a business plan, and pounds the pavement trying to raise capital from reluctant investors. This is not the best recipe for success.
Investors are smart people. They are constantly looking for good investment opportunities. They don’t just respond to people who knock on their door.
The best way to get the attention of investors is to come up with a really good, disruptive idea, document it well, develop compelling strategies for taking it to market, and build a top quality management team with a blend of entrepreneurial enthusiasm and past success — all managed by a high-quality CEO with a track record of previous success.
Investors are very risk-aware, so you need to do everything you can to reduce the risk of your proposition. Prove the concept. Develop your product. Make a few sales. Create a few happy customers. The farther you take the company without capital, while reducing risk and creating value, the better your chances of raising equity capital and the higher your valuation is likely to be.
When you do write your business plan, make sure that your capital requirements are tied tightly to specific milestones that need to be achieved. Identify major tasks. Put them on a timeline. Figure out how much capital is required to achieve the major milestones and run the company for about 18 months. This way you’ll be achieving your major milestones, creating as much value as possible, and reducing risk as much as possible. This way, you raise enough capital; you don’t raise too much, and, if you achieve your milestones, you increase the value of your company at every capital raise.