Raising Startup Capital

As founder of Adelhub http://www.adelhub.com a social network connecting Fraternity Brothers and Sorority Sisters, I’m raising $184,000 for up to 25% of the company.  Raising startup capital at the earliest stages of your company can be a challenge, so I want to share tips about what has gotten me in front of potential investors to pitch my business. 

When pitching your idea to an investor and future business partner it’s so important to place yourself in their shoes.  Find out what types of companies they have invested in before, what their investment goals are, etc.  It’s not important that you are raising money to grow the business of your dreams, but rather that you are providing them with an opportunity to make a significant return on investment.  Your business must provide an investor the highest ROI at a level of risk they are comfortable with. 

It’s possible to raise money at any stage of your business.  Some companies even get funded with only a business plan, but in most cases investors prefer to see more traction than this.  They like to see that you have a working product or at least a demo you can show them.  The most attractive businesses to investors are really the ones that will succeed  whether they get in or not.    The entrepreneur has to become a salesman when raising money and let the investor know that his or her business is the best place to invest in.  It goes without saying of course that entrepreneurs have to be honest about expected earnings and how much this translates to for the investor.  Creating a partnership between the entrepreneur and investor has to be a deal that is equally beneficial.

Having an exit strategy is also very important to investors.  Most exit strategies typically involve a business being acquired or going through an initial public offering.  A good investment will yield investors at least a 2X ROI and the very best investments can have a 5X or even 10X return.  If you’re looking to raise money make sure your exit strategy involves the investor getting his money back within three to five years.  Anything beyond this will be a harder sell when raising startup capital. 

Oddly enough there are lots of dumb people with money. They may have inherited it, married into it or have it for some other reason.  The last thing you want to do though is take money from someone who isn’t business savvy or really doesn’t know what their investment goals are or how you as an entrepreneur with a great business can help them achieve that.  Just as investors are picky about where they invest, the entrepreneur has to be just as selective when considering who they sell part of their company to. 

My criteria for example when exchanging part of Adelhub for startup capital is the investor must have some knowledge about social media and be passionate about it.  I’m looking for someone with business experience, preferably someone who has raised money before and grown a business from scratch.  New York has an awesome environment and community of entrepreneurs growing businesses and investors looking for their next big profitable opportunity.  This really allows both entrepreneurs and investors to be more selective about who they go into business with. 

I’m very excited about leveraging social media to help connect Fraternities and Sororities.  I know there is a real opportunity to create a profitable business when you focus on a very defined niche.  If you’re into social media and are interested in joining the Adelhub team as an investor and business partner make sure to reach out to learn more.  I’m always happy to talk about the future of social media, Adelhub and other business ideas.