April 22nd, 2011

Earlier today I was reflecting on two client conversations I had with clients who were in the process of raising money. I spent about 40 minutes on the phone with one of our clients who is raising $800,000 for a business start-up and I’ve traded several emails with another client who is raising $5 million for a commercial real estate project.

So I thought, since the universe seems to be telling me that this is an important subject right now, what are the 3 most important pieces of advice I could give to you on the subject of raising money for your business or investment projects.

For most people raising money for a business or investment project is a scary, unpleasant, overwhelming process. But for a few people who have developed the expertise and honed their experience, it’s just a fun game.

Here are the three most important money raising tips I can share with you.

Tip #1: The 11th Hour Principle

I want to share with you the single most important thing to keep in mind when raising money that lets you know you’ll be able to raise your money. I call it the “11th Hour Principle” and basically what it says is that the biggest amount of your money will come in at the last moment.

Why? Why don’t people ahead? Why don’t they make their decision to fund your deal weeks in advance of the deadline? Why don’t they get their wire transfer in the day they make their decision instead of the day the fund closes? Because my friend, they are just like you and me.

People act when they feel urgency. I’m the same way. I pay my tax estimates on the day they are due… I pay my property taxes just in time not to get dinged for the 10% penalties…And, gulp, sometimes I buy Heather an anniversary card the morning of our anniversary. (Please don’t tell her that last part!)

So when raising money you’ve got to create urgency, and this means setting deadlines. Now to be smart, make your deadlines feel real but have some room in your documents to extend the closing date if you need to.

Also, understand that raising money is best done in a concentrated short period, not over months and months. Spend a month preparing for the all out blitz you’ll do (making sure to listen to your attorney and not do a general solicitation and get yourself in trouble with the SCC, but I digress) in a tight, compact, frenzy filled 14-45 days.

Does this really work? You bet it does. I’ve used this concept to raise tens of millions of dollars, and my good friend and Maui Advisor Bill Shopoff has used this strategy to raise HUNDREDS of millions of dollars.

Don’t fight human nature. Use the power of deadlines and the 11th Hour Principle to help you raise your money.

Tip #2: Get your “summary” to one page.

No more executive summaries of 23 pages! NO! No! No.

>From now on you will create a 1 page deal summary of your business or investment project.

Each paragraph will be at most 2-3 sentences long, and each paragraph ideally less than 5 lines tall.

This is tough, but it can and MUST be done. (I’ll give you a second page to show a simplified chart of potential returns.)

Give them:

·  Paragraph 1: the context of the opportunity (e.g. it’s a cash flow commercial real estate deal… it’s an equity play on a business start up…)

·  Paragraph 2: the reason why it’s such a great deal (e.g. We’re buying a building at 32 cents on the dollar… We’re expanding our business operations and have signed LOI for $4 million in sales…)

·  Paragraph 3: What you want from your investors (E.g. we are raising $3.5 million of capital from accredited investors with a minimum unit of investment of $50,000…)

·  Paragraph 4: actually not a paragraph but a chart of the numbers (i.e. the returns)… often done best by showing how a sample “hypothetical” $x invested would generate in return…

But David, what about my 3 page market analysis, and my 2 page cash flow proforma, and my 1 page GANT chart of timeline, and my 4 page Table of Organization, and my—NO! No! No.

One page of text, with optional half page of numbers… no more.

All the other “data” can be given to interested investors LATER.

Tip #3: Run through the finish line.

One of the most common mistakes I see is that people stop their fundraising too soon. Please, hear me on this one (it has cost me MILLIONS to learn this lesson the hard way, but hey, be stubborn if you want.)

·  Raise more money than you think you’ll need

·  Don’t count it as raised money until you see it in your bank account (Or in the escrow account)

·  Don’t stop your fundraising until you’ve collected all the money you need and then a little bit more… You can always return the last money in with a hang dog expression and say sorry, they were too late… Side benefit to this is that you’re setting the stage for the next money raise you do.

I hope you put these 3 tips to great use in your financial life.