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  • 19 Nov 2015 5:02 PM | Anonymous

    With more and more states passing intrastate crowdfunding laws, the new Reg A+ and pending JOBS Act crowdfunding, all point to a very bright future for businesses needing capital.  It is now possible to raise money from the other 97% of the adult population who do not have enough wealth to meet the legal definition of an accredited investor.

    By and large, the commentary and my own personal work have focused on the impact of crowdfunding on businesses that can now raise money from the average person.  It is time to look at crowdfunding from the perspective of the investor – the average person.

    Like the impact on small businesses, investment crowdfunding will impact investors differently.  Our analysis suggests that the average investment in a crowdfunding campaign will be somewhere between $100 and $1,000.  This price point is very simply dictated by the amount of discretionary money that people will have to make this kind of investment.  At this dollar threshold, it is almost a mathematical certainty that the investor is not going to strike it rich with any one investment.  Even if an investment were to attain angel investor club goals of 20x in 5 years, a $100 investment will be worth no more than $2,000.  This is not enough of a result to put a kid through college, buy a house or a car, or even take a vacation.

    For this and other reasons, it is anticipated that the psychology of the investment decision is going to be far different for crowdfunding.  The investor will look beyond the rate of return to other benefits associated with the investment.  It is likely that these other benefits will dominate the investment decision on whether to invest or not and which business will receive available investment dollars. 

    To aid investors in making investment crowdfunding decisions, we are developing a score card that will enable investors to apply a repeatable decision model and to be able to compare apples to apples when considering the anticipated flood of new crowdfunding offerings.

    The score card will have three sections:

    • Business Merits
    • Personal Merits
    • Commitment to Business

    The Business Merits section of the scorecard would follow normal due diligence metrics:

    • The experience of the management (the capability to execute the business plan)
    • The benefit provided by the product or service (the performance of the product or service)
    • The number of customers who may benefit from the products or services (the size of the potential market)
    • The profit margin earned on each sale (the business model)

    Unlike many scoring systems, the scorecard will not include subjective data – projections and assumptions.  Information in completing this section of the scorecard should be limited to actual facts and not dependent upon a crystal ball.

    One new factor that will be included in the Business Merits section would be the market value of any product or service that is bundled with the securities to create an incentive to invest.  Crowdfunding businesses may creatively encourage investments with give aways or pricing discounts.  The value of these incentives may represent an immediate or delayed return on investment that acts to increase the total yield.

    An investor who scores an investment opportunity low in the Business Section should probably walk away and consider other opportunities.  No matter how high a business may score in the remaining two sections of the scorecard, those scores do not matter if the business fails.

    The Personal Merits section of the scorecard is a completely subjective reflection of the likes and dislikes of the investor.  This may include:

    • Does the investor like the products and services of the business
    • Does the investor like the management team of the business
    • Does the investor like the level of engagement of business within the community

    The Personal Merits section is of particular importance to social enterprises and community projects where the investor may realize benefits of an investment beyond return on investment.

    The final section of the scorecard is the Commitment to the Business.  An investor should have an opportunity to influence the outcome of the investment by supporting the business.  This may take the form of:

    • Helping in operations of the business
    • Being a spokesperson for the business within the personal network of the investor
    • Actively selling the products and services of the business

    The willingness of the investor to help the business succeed by commitment to invest time, additional money and social capital is a good indicator of the strength of the belief that the investor has in the potential success of the investment.

    Each item within each of the sections should allow for choices such as good, bad or indifferent or a scale of 1 to 10.  Investors may weight certain metrics to indicate their preferences.  In the end, each scorecard will be unique.  However, the criteria for investment will have been set and the quality of the investment decisions will be improved.  Investors will also have a rationale for not simply matching investments of their friends and family in response to peer pressure.

    The development of an investor score card will be the subject of a half day workshop entitled Main Street Investing by the Colorado Capital Congress at Colorado Lending Source on December 17.  More information is available at

  • 18 Nov 2015 6:21 AM | Anonymous

    In evaluating crowdfunding platforms, a common approach is to determine how many investors have signed up to see opportunities.  There is an expectation that the more eyeballs on an offering the more certain that the business will raise the money it seeks.  There is also an expectation that investors in one crowdfunding will automatically invest in the next crowdfunding campaign.  Crowdfunding platforms are going around signing up investors and marketing the value of their platform based upon this number.

     Question: Is it true that investors are a commodity?

     One of the challenges I face in advising businesses on raising capital is overcoming the perception that anyone with money is an investor candidate.  Investors are treated as substitutable parts where any investor is like any other investor. This thinking fly’s in the face of everything that we have learned about marketing.  In marketing, we try to match products and services with customers who will benefit from purchasing that product or service.  We try to determine the value proposition.  There are few products on the market that appeal to everyone.  So why would a particular business appeal to every investor? 

     My experience has shown me that investors are as different as the individuals that they are.  No two investors are alike.  Even though the money spends the same, the decision to spend the money is different. 

     More importantly, there is a great difference between investors with regard to what else other than money that they can offer a business.  The best investors act as mentors, make introductions to their contacts and bring all of their resources to bear in supporting a business in achieving success.

     Question: Are investors in crowdfunding campaigns different from classical investors?

     The most common form of evaluating an investment opportunity is to determine the potential return on investment.  In too many cases, this is the only metric considered.  However, the best investors will look at other factors such as management, markets, competition and risks.

     In recent years, additional factors have been considered as certain investors have started making ‘impact investments’ that focus upon social causes and consideration of people and planet.

     With crowdfunding, businesses have the opportunity to build a crowd of investors that are unique to them.  These investors may:

    • ·         Be a customer
    • ·         Live in the neighborhood
    • ·         Know the management team
    • ·         Work at the business
    • ·         Sell products or services to the business
    • ·         Resell products or services made by the business
    • ·         Support a common charity
    • ·         Benefit from community service by the business

     Although classical investors may invest in a crowdfunding campaign because of the potential return on investment and impact investors may invest in a business because of the social good that it may do, investor crowds may have a much more personalized and focused interest in the business they support.

     Question: What is the likelihood that an investor in one crowdfunding campaign will invest in the next?

     So, if every investor is different and crowds of investors may be unique, it would seem highly unlikely that an investor in one crowdfunding campaign would invest in another crowdfunding campaign.

     It is possible that a certain business may have enough in common with another business that the same investor may invest in each.  As an example, an investor in a pet product company may invest in another pet product company.  Or, an investor in a business located down the street may invest in another business down the street. 

     So, a business considering different crowdfunding platforms should not merely count the number of investors that are looking at investment opportunities.  The business would be better served to understand all of the reasons that it may be attractive to specific investors and determine if the platform raised money for similar businesses.  A business may be better served by a crowdfunding platform that has a theme that increases the probability that investors on the site may be interested.

     Better yet, the business should not rely upon the platform to attract investors.  The business should engage in ‘building’ is own crowd of investor candidates who match with one or more of the characteristics of the business that may trigger an investment.  

  • 17 Nov 2015 8:39 AM | Anonymous

    Businesses, social enterprises and community projects seeking to raise money by conducting an investment crowdfunding are encountering challenges in budgeting the cost of a crowdfunding campaign.  Information on this subject is either being held back in an effort to avoid legitimate ‘pricing’ of crowdfunding services or it is caught up in a misunderstanding of the difference between product crowdfunding and investment crowdfunding.

    The core of the confusion is over platform service fees.  A platform is an online service that acts like a shopping cart to handle investment transactions.  Other services, such as sales, may be bundled with the shopping cart.

    At a minimum, a platform enables a prospective investor to find investment opportunities, review sales information and to make a payment on an investment.  This seemingly simple event is actually a number of activities:

    • ·         Capture of information about the investor candidate
    • ·         Verification of the identity of the investor candidate
    • ·         In intrastate (single state) offerings, verification that the investor candidate is a resident of the state
    • ·         Determination that the investor candidate meets the minimum age to invest
    • ·         Presentation of sales materials
    • ·         Presentation of statutory warnings
    • ·         Verification that the investor candidate read or had an opportunity to read the sales materials
    • ·         Verification of acceptance of the terms and conditions of the investment agreement - typically a digital signature
    • ·         Determination of choice by investor in which investment option was selected
    • o   Dollar amount
    • o   Choice of incentives that may accompany the investment
    • ·         Manage payment – typically by ACH (non-credit payment like a debit card) to the bank of the business raising money or to an escrow agent until enough investments have been made to meet the minimum investment goal of the business

    These activities typically involve the use of databases and third party services which are costs to the platform business.  A large variety of additional services may be provided that include reporting and investor distributions.  All additional services will increase the costs of support.

    Businesses providing platform services will fall into two groups:

    • ·         Broker/dealers – businesses who are licensed to sell securities with state and Federal agencies
    • ·         Non-broker/dealer – any other business

    This distinction is very important.  A broker/dealer is authorized to charge a commission on the sale of an investment.  This compensation is also called a success fee.  As a general rule, any business that is not a broker/dealer is not allowed to charge a fee that represents a percentage of the investment.  This general rule is being blurred by the new JOBS Act and certain state laws.

    A broker/dealer crowdfunding platform will typically include the costs of handling the investment transaction within their commission.  A non-broker/dealer will charge a specific fee for handling the investment transaction.

    In a product crowdfunding campaign, the crowdfunding platform is allowed to charge fees for handling the purchase and also earn a sales commission.  When a product or service is sold through Indiegogo, Kickstarter or other product crowdfunding platform, a single fee is charged that is a percentage of the sales price.  Sale of a product through a crowdfunding platform is no different than selling a product through Amazon or other online retail sites where sales commissions are charged or the price of the product is marked up from the wholesale price to the retail price.

    In talking with hundreds of businesses about both product and investment crowdfunding, there is an expectation that listing a product or an investment on a crowdfunding platform will expose the offering to lots of buyers and investments.  This is not necessarily true. 

    Even though an investment platform may have successfully facilitated one or more capital campaigns in the past, there is no assurance that past investors in other offerings will see yet another investment offering or act upon the opportunity to make an investment.  Just like posting an article for sale on Craig’s list or buying a classified ad in the local paper, there is no way to know how many people will see the ad and act to make a purchase.

    In choosing a crowdfunding platform, it is important to determine what services are bundled in the fee and if value is being received for the amount of the fee charged.  It should not be assumed that a non-broker/dealer will attract investors to an offering simply based upon the strength of their brand.  Similarly, it should not be assumed that a broker/dealer platform will make any sales simply because they are authorized to do so.

    In both options, the business seeking to raise money through investment crowdfunding should bring their own crowd of prospective investors and point them to the platform in order to assure success.  This activity will have its own costs and should be included in the crowdfunding budget.

    When a business is engaging a crowdfunding platform to handle investment transactions, the business should take into consideration the number and dollar amount of the investors that it brings to the platform when compared with the number and dollar amount of the investors the platform brings to itself when negotiating fees for services.

    This issue and other challenges to investment crowdfunding will be addressed in the upcoming workshop on Customer Crowdfunding that will be presented by the Colorado Capital Congress at Colorado Lending Source in December.

  • 16 Nov 2015 8:22 AM | Anonymous

    My work in setting up an investment crowdfunding ecosystem in Colorado (to the side of the classical capital industry) has repeatedly raised the issue: what is optimum crowdfunding?  By talking with hundreds of businesses, social enterprises and community projects and looking at the offerings of different crowdfunding platforms, it is my opinion that optimum is achieved when a customer becomes an investor and then becomes part of the sales force.  A trifecta of benefits.

    As a customer, the business gets the benefit of selling its products or services and earning whatever margins exist on those products and services.  If the customer is new, rather than a repeat, these margins are lower because the business had to expend more sales dollars to generate the new customer than the old one.  An optimally designed crowdfunding campaign will seek to preserve the relationship with a customer  and have them be loyal to the business – buying products and services over and over again.

    As an investor, the business gets the benefit of receiving money that can be used to start or grow a business.  If the investor is strictly looking to the return on investment on its investment, the price paid for use of this money in the form of interest, revenue share or future profits will be highest in order to compete as a commodity within capital markets.  An optimally designed crowdfunding campaign will seek to give an investor additional benefits that will enable paying a lower price of money.

    As a sales person, the business benefits from new sales from the personal network of the sales person.  If the sales person is strictly looking for compensation in the form of a salary or commissions, the costs of sales will be highest to motivate the sales person to tell the story of the business to the widest range of customer prospects.  An optimally designed crowdfunding campaign will seek to give a sales person other incentives that will make them a 24/7 advocate of the business.

    The optimal design of a crowdfunding campaign will create all three relationships with a single person in a harmony where each relationship complements the other two.

    A customer may be elevated to an investor relationship by offering them an investment: ownership in the outcome of the business.  The interest of the customer is expanded beyond the use of a product or service to the success of the business.  Ownership in the business enables the customer to participate in the success of the business. 

    A customer/investor is incentivized to remain loyal to the business and not shop elsewhere because their ownership position is dependent upon the success of the business based upon its ongoing sales.

    The investor/customer is incentivized to maintain and improve the quality of the products and services of the business in order to assure success of the business and to benefit as a customer.

    The investor/customer may be elevated to a member of the sales team by demonstrating to them the additional benefits that will come from the investor/customer reaching out to all of their family, friends, associates and others within their personal networks and getting them to buy the products and services of the business.  Every sale completed within their network will support the success of the business and higher quality products and services. 

    The customer/investor/sales person is incentivized to tell everyone all the time about the merits of the business and its products and services. 

    An optimally designed crowdfunding campaign will communicate this opportunity to existing and prospective customers of the business in a manner that makes it obvious that the collection of benefits is so great that the person will invest within the limits of their ability. 

    Nearly all investment crowdfunding campaigns that I have studied approach the investor candidate from the single perspective of making an investment.  This single dimension forces the business into the status of a commodity that can only compete by paying a higher price in the form of a greater percentage of its profit margins.  The business is limited by the size of its margins and is at a disadvantage to other businesses also seeking capital that have greater margins on individual product and service sales or greater margins in the aggregate from a greater volume of sales.

    The customer/investor/sales person approach presents additional benefits.  It enables selling to sell the investment in the face of massive competition for investment dollars and allowing the business to  pay a lower price of money while enjoying loyal customers who are advocates for the business.

    Building a crowd and structuring the customer/investor/sales person relationship will be the focus of an upcoming workshop on Customer Crowdfunding that I will be presenting on behalf of the Colorado Capital Congress at Colorado Lending Source on December 10th.  Registration information is at

  • 15 Aug 2015 7:07 AM | Anonymous

    Why crowdfund?  To obtain funding.

    The better question is: “When is investment crowdfunding a success”? 

    It is possible to complete a crowdfunding campaign that is too expensive, too time consuming and one that possibly creates a liability to the business and its owners that cannot be met.

    The answer to the question is: Crowdfunding is successful when the total cost of capital and the total cost of raising the capital is less than the total reduction in the cost of sales.

    In a formula it would look like this:

    Cost of money + Cost of raising money < Reduction in Cost of Sales.

    The cost of money takes many forms:

    • Interest paid on principal
    • Future profits distributed to investors
    • Future revenues shared with investors
    • And any combination of the above

    And, the principal or investment has to be paid back.

    For example, if you borrow $100,000 at 8% annual interest and pay everything back in one year, then your cost of money is $108,000.

    If you give up 10% ownership in your business for $100,000 and your business earns $100,000 in profits in one year, then the cost of money is $110,000.

    If you give up 5% revenue share in your business for $100,000 and your business grosses $500,000 in sales in order to earn the $100,000 in profits, then the cost of money is $125,000.

    The cost of raising money includes any fees paid to prepare for the capital raise, registration fees to any regulatory agency, any success fees paid to a broker/dealer, any direct costs of promotional materials and services and each hour of each employee of the business that is spent in raising capital (calculated at market rates even if they are not receiving any wages).

    For example in a crowdfunding campaign, a business may engage a business like mine to assess the potential of the business to raise capital, to recommend a strategy, develop a plan, create the sales offering, submit documents for regulatory approval, and manage marketing subcontractors in supporting the business in engaging prospective investors while communicating the conduct of the capital raise.  My fees for these activities may range from $25,000 to $100,000, depending upon the extent of the complexity of the capital raise and to which my client is able to perform some of these activities. 

    In addition, the business must include the time of their owners, staff and other contractors to gather needed information, prepare cash flow forecasts, report profits and expenses, produce pictures and videos and talk to countless investor candidates.  Each hour spent in raising capital is one less hour spent in conducting the business of the business.

    Finally, a business will incentivize its customers to become investors by discounting or giving away its products and services.  The amount of the discount or cost of producing the product or service must also be included in the cost of raising capital.  If a customer is offered a $1 dollar discount on a $5 dollar product when they make an investment, the discount will impact the cash flow of the business and will be a cost of conducting the capital raise.  A business may decide to offer discounts and premiums that represent a significant percentage of or equal to the capital to be raised.

    The benefit of a properly designed and executed investment crowdfunding campaign will be a reduction in the cost of sales of its products or services.

    The money and time in expended in promoting the capital raise will generate new sales.  New customers will become aware of the business and its products or services through publicity.

    Customers of the business who are upgraded to investors will share information about the business and its products and services within their personal and business networks.  This distribution of information will lead to new customers that would not have heard about the business otherwise or that the business would only have reached through expenditure for advertising dollars.  However, these customers were reached through existing customers so that the communication takes the form of an endorsement with higher credibility than can be attained in a simple advertisement.

    The business may also pay a commission or affiliate fee to its customer/investors to act as sales representatives and bring qualified customer prospects to the business.

    As a result, the business will spend less money on sales salaries, on commissions and sales representative fees, on advertising and on travel, meals and events and other expenses related to sales.

    A calculation of the costs of capital and of raising capital when compared with a calculation of the costs of sales should show that the crowdfunding campaign not only provided the needed capital, but it did so while reducing the costs of sales.

  • 01 Jul 2015 8:46 PM | Anonymous

    I had the pleasure of sitting on a panel at the National Academy West for the Cleantech Open ( recently with Ron Flavin, Larry Kelly and Ian Gardner where we debated the biggest mistakes that entrepreneurs make when raising capital.  A great event! I will set forth in this fifth in a series of 10 posts some of the mistakes that were presented and discussed.

    #5 (not necessarily in order of importance) Investor as ATMs

    It is common for entrepreneurs to treat investors like an ATM – a device that dispenses cash upon demand.  The entrepreneur fails to consider the investor as anything other than a source of capital.  No thought is given to all of the other value that an investor may offer.

    It is not surprising that the relationship between an entrepreneur and investor is one dimensional.  The entrepreneur needs cash.  The investor has cash.  The pitch is for cash.  The investment is to be repaid in cash.  Cash is the one and only subject.

    Investors may bring a wide range of benefits to a business: other assets than cash, contacts and relationships, mentoring, endorsements, etc.  Considering all of these badly needed resources, the question is why the focus only on cash?  A question for another day.

    The focus on cash distorts the relationship between the entrepreneur and the investor and often leads to a corruption of the business model that may work against the investor by leading the business to failure.  Generation of cash in the form of revenues and profits is a consequence of a business realizing an opportunity by providing a product or service as a solution to a problem.  Cash is not the cause of the solution.  It is only a resource.

    The focus on cash causes some entrepreneurs to develop a sense of expectation or entitlement.  If they need cash, then the investor should provide it.  The entrepreneur often fails to recognize that they must demonstrate an opportunity of sufficient quality to merit an investment.  The entrepreneur often fails to recognize that they are competing for investment against other business opportunities. 

    The focus on and the desire for cash shines through a pitch and will cause many investors to walk away.  The investor often feels disrespected.  The entrepreneur loses credibility.  There is a lack of trust.  If all the entrepreneur cares about is money, will they put that concern ahead of the interests of the investor?  Will they burn through the investment money and care less about repayment?  Will they jump to another business opportunity when the going gets rough?  All of these questions are going through the mind of the investor while they are listening to a pitch.

    If the investor feels like an ATM, don’t expect funding.

    The focus on cash is not limited to the entrepreneur.  It is too often the focus of the investor.  The due diligence and selection of businesses for investment is focused on cash.  The investors want great management and a large market as enablers to obtain more cash.  However, the investor may be willing to sacrifice existing management or walk away from a business when additional funding is needed.  This situation occurs often enough that it is common fear of entrepreneurs.

    If the investor conveys a focus on cash, the entrepreneur should walk away.  The entrepreneur and the investor should share values and goals.  If it happens to be cash, that still won’t be enough.

    Starting and growing a business is too hard without the added challenge of managing a relationship with investors. 

    Treating an investor as an ATM and other common mistakes in raising capital will be addressed at the upcoming workshop on Building Capital that will be presented by the Colorado Capital Congress on July 9th in collaboration with TIE Rockies (, the Rocky Mountain chapter of TIE, one of the world’s largest entrepreneur organizations.  For more information on this workshop, go to:

  • 28 Jun 2015 8:33 AM | Anonymous

    I had the pleasure of sitting on a panel at the National Academy West for the Cleantech Open ( a week ago with Ron Flavin, Larry Kelly and Ian Gardner where we debated the biggest mistakes that entrepreneurs make when raising capital.  A great event! I will set forth in this fourth in a series of 10 posts some of the mistakes that were presented and discussed.

    #4 (not necessarily in order of importance) Army of One

    The entrepreneurial world celebrates the entrepreneur.  Too often, and inaccurately, it focuses upon the individual who is a rogue, a risk taker, a single voice against the status quo.  Although every new business requires a champion and a leader, the perception is that one person made it all happen.  You rarely see a picture in an entrepreneur/innovation/small business magazine that portrays more than one person.

    However, the start of a business rarely is accomplished by a single person.  And, a pitch for funding that is made by a single person that portrays a single person as the chief cook and bottle washer raises a number of red flags to any investor.

    Can this person work with others?

    Can this person work with a team?

    Can this person work with customers?

    Can this person work within a supply chain and distribution channel?

    Can this person grow their business?

    Working alone presents risks.  The entrepreneur has only a single perspective of the business, the market and the world in which the business operations.  The entrepreneur cannot share the load of work.  If the entrepreneur doesn’t do it, no one will.  These risks threaten any investment.  And, the failure to address these risks before making a pitch reflects badly on the management capabilities of the entrepreneur.  Investors will give preference and their money to other businesses that look more ‘stable’.

    A business should have a team.  It should have advisors.  It should have strategic partners.  It should have community friends and allies.  A successful business is a reflection of how it fits into and improves the world through a variety of relationships.  Each of these relationships can bring value to the business and reduce risks.

    Consider the alternative to an army of one.  What if everyone in the world was somehow supporting the business?  How would each of these relationships work?  The most intense may be putting someone on the board.  The least intense may be feedback from someone who will never buy a product or service?  In each case, a person, organization, business or government agency can convey value to the business.  The challenge is to establish that relationship and gain access to that value in a net positive action.

    The relationships may take all flavors: board, advisors, employees, contractors, customers, suppliers, distributor/retailers, chambers of commerce, civic organizations, charities, government agencies, media, etc.  Each type of relationship may have a purpose and a value. 

    Early in the life of a new business, the key relationships have to do with making decisions.  What to do, what to prioritize, who to work with, etc.?  Decisions must be completed quickly and effectively.  Gathering information and advice from multiple sources without allocating responsibility for making decisions is difficult.  It must be made clear to everyone that there is a decision making process. 

    At the same time, the other person in the relationship must make decisions about your business.  Do I like them, should I work with them, should I buy their products or services, etc.?  Because it is a relationship, the entrepreneur cannot dictate its existence.  The creation of the relationship is dependent upon pitching value in the same manner that an entrepreneur must pitch to an investor – simple, effective, empathic communications.

    An army of board members, advisors, strategic partners and customers will demonstrate a high level an endorsement by many people of the business.  It also establishes lines of communication to prospective investors.  An army of many looks totally different from an army of one.

    An army of one and other common mistakes in raising capital will be addressed at the upcoming workshop on Building Capital that will be presented by the Colorado Capital Congress on July 9th in collaboration with TIE Rockies (, the Rocky Mountain chapter of TIE, one of the world’s largest entrepreneur organizations.  For more information on this workshop, go to:

  • 25 Jun 2015 10:38 AM | Anonymous

    I had the pleasure of sitting on a panel at the National Academy West for the Cleantech Open ( this last weekend with Ron Flavin, Larry Kelly and Ian Gardner where we debated the biggest mistakes that entrepreneurs make when raising capital.  A great event! I will set forth in this third in a series of 10 posts some of the mistakes that were presented and discussed.

    #3 (not necessarily in order of importance) Not Knowing the Investor

    If an individual, business or fund invests in you, the relationship will be one of the most significant relationships of your business and possibly of your life.  Taking money from an investor without knowing them is less like a blind date and more like an arranged marriage.  You can only hope that it will work out.

    However, the likelihood of receiving funding from an investor that you do not know is very poor.  There is a common saying that investors do not invest in people that they do not know.  The single most important factor in the success of a business is the management team.  An investor will want to get to know you and that takes time.  However, it takes no time at all to say no.

    Yes, you may see someone receive money on a TV show, but that is entertainment and not reality.  Even then, the business has been vetted and a contract signed after hundreds of businesses have been reviewed and rejected before they are presented to the celebrities for consideration.

    Even if an investor is ready to write a check, you may want to refuse it.  There may be all kinds of reasons why you cannot afford to take their money.  They may want to control your business, control you, steal your business, steal from your business or engage your business in illegal business.  [See Snakes in Suits: When Psychopaths Go to Work by Paul Babiak and Robert D. Hare].

    You may find that the investor requires a lot of hand holding, distracting you from your business while you educate them, reassure them, cater to them or simply waste time with them.  You may find that your personalities clash and that they do not make a good team member.  There may be lots of reasons to look for better money.

    You need to know how the investor will act if things go wrong.  Will they walk away from their money or double down their investment?  Will they point the finger at you, dump you for a new management team or turn loose their attorneys?  Almost everyone can get along when things are fine, but teamwork is hard when things go wrong.

    Knowing an investor is one form of due diligence.  You should check out their LinkedIn profile, talk to other businesses in which they have invested and consider the level of their community engagement and support.  Ask for referrals and endorsements just like any new hire.  All of this investigation should be completed before setting a meeting.  You should not be conducting an interview while doing your pitch.

    Not knowing the investor and other common mistakes in raising capital will be addressed at the upcoming workshop on Building Capital that will be presented by the Colorado Capital Congress on July 9th in collaboration with TIE Rockies (, the Rocky Mountain chapter of TIE, one of the world’s largest entrepreneur organizations.  For more information on this workshop, go to:

  • 23 Jun 2015 6:27 AM | Anonymous

    I had the pleasure of sitting on a panel at the National Academy West for the Cleantech Open ( this last weekend with Ron Flavin, Larry Kelly and Ian Gardner where we debated the biggest mistakes that entrepreneurs make when raising capital.  A great event! I will set forth in this second of a series of 10 posts some of the mistakes that were presented and discussed.

    #2 (not necessarily in order of importance) Pitching Too Early

    Entrepreneurs are always in a hurry and particularly with regard to raising capital.  I don’t know when I last asked an entrepreneur when they needed capital with getting the answer “Yesterday!”  I am the same way with my own projects, so I am not pointing fingers.

    However, your sense of urgency is not shared by the investor.  In fact, I know a number of wealthy individuals who seem to exist in a different world where time has been devalued to the point that it doesn’t really matter. 

    The problem is that if you tell your story before it is ready, you will get turned down.  You probably will not get another chance to pitch.  You will have wasted all the time that you have invested in building a relationship with the investor (if you have not invested any time, you are too early).  You will have wasted your time – a priceless asset.

    When I am raising capital, it is more common for me to put off a pitch by telling the investor that I am not yet ready.  I always welcome a conversation with investor candidates so I can seek to determine their investment criteria.  But I avoid placing them in a position where they have to make an investment decision until I am fairly certain of getting a yes. [Note: If I am fairly sure of getting a no, I won’t ask for anything other than a referral.  I intend to come back to this same individual or business at a later time on my next project and I don’t want to train them to say no or to avoid me because it creates tension in our relationship.]

    So when is too early?

    Naturally, the answer varies with the investor candidate.  Some investors love the unknown and will jump on a deal when it is still in the concept phase.  Other investors will wait for a prototype, a market study or even first sale while others will want a five year track record.

    It is too early when you can’t answer all of the investor candidate’s questions.  If you can be stumped with a question about your product, the market, your business operations, your team or anything else that you should know, you are too early.  You need to find out the answers to all of these questions for your own use.  Not knowing them may be viewed as being careless with your operations or the money of the investor.  In any case, you lose credibility and the investor looks elsewhere.

    It is too early when you have to give up all or nearly all of the ownership of your business in order to obtain the investment.  This means that you are asking the investor to take all of the risk and that you are asking to work for the investors instead of yourself.  Every time you knock down a major milestone, the risk of your business goes down and so should the cost of money.

    It is too early when you haven’t finished your pivots.  If you are still making significant changes in your strategy as you engage 100 customer candidates in conversation, you should wait until your opportunity will stand still.  If you ask for money for one business and then use that money in another, you not only confuse your investor, but you may be viewed as a fraud.

    It is too early if the ink is still wet on your business cards.  Some entrepreneurs consider raising capital as the first item of business.  All they have is an idea.  Unproven.  Unimproved.  No value added.  No investment made by the entrepreneur.  Ideas are a commodity.

    It is too early if you are the only one answering the questions of the investor.  This means you have no team.  If you are unable to continue for any reason, the investor is left with a complete loss.  In addition, this means you must do it all – a capability few people possess.  It suggests that no one else believes in you.  The investor questions why you are all alone.  If you cannot inspire a team, how can you sell customers?

    Pitching too early and other common mistakes in raising capital will be addressed at the upcoming workshop on Building Capital that will be presented by the Colorado Capital Congress on July 9th in collaboration with TIE Rockies (, the Rocky Mountain chapter of TIE, one of the world’s largest entrepreneur organizations.  For more information on this workshop, go to:

  • 22 Jun 2015 9:39 AM | Anonymous

    I had the pleasure of sitting on a panel at the National Academy West for the Cleantech Open ( this last weekend with Ron Flavin, Larry Kelly and Ian Gardner where we debated the biggest mistakes that entrepreneurs make when raising capital.  A great event! I will set forth in this first of a series of 10 posts some of the mistakes that were presented and discussed.

    #1 (not in order of importance) Pitching to the Wrong People

    Entrepreneurs seeking capital are turned down almost all the time.  Statistics on bank loans show 95%+ of the applications get turned down and statistics on angel submissions show that 98%+ of the submissions get turned down.


    Entrepreneurs often fail to recognize that all investors are different.  Each investor has their own criteria and reasons for how and why they invest.  In addition, each investor has their own experiences in investing which will influence their selection of possible investments.  Bottom line – each investor is unique.

    To look at this from a different perspective, treat each investor like a customer candidate.  However, instead of selling them your product or service, you are selling them part of your business.

    In the same way that you cannot reasonably expect everyone to be a customer for your products or services, you cannot expect everyone to be an investor in your business.

    In the same way that you have some customer candidates for your products or services who are more likely to purchase than others, you have investor candidates who are more likely to invest than others.

    In the same way that your customer candidates will consider purchasing the products or services of your competitors, your investor candidates will consider investing in other businesses.

    The lean startup approach advocated by Steve Blank ( for meeting with 100+ customer candidates to learn if what you have to sell is wanted and by whom.  Even where a new product or service is desired, there are those customers who are early adopters and those who are last to purchase.  This same approach is true for investors.

    If you pitch an alternative energy business to an investor who only invests in food production, you will get rejected.

    If you pitch a start up with no revenue to a bank that requires five years of operating history, you will get rejected.

    If you pitch for $5 million dollars to an investor with only $100,000, you will get rejected.

    If you pitch for money and the investor doesn’t have any at the time you ask, you will get rejected.

    If you pitch the sale of stock in your company that requires that you get acquired (build and flip) to reach a cash exit and the investor prefers an exit in the form of a royalty, you will get rejected.

    The list is almost endless.  There are as many reasons for getting rejected as there are investors.  Back to my point: all investors are different.

    In order to reduce the number of rejections and to accelerate completion of your capital raise, you need to pitch to those investors who are most likely to invest the type and amount of capital within a type of capital transaction that fits you. 

    Don’t assume that everyone with money will invest in your business.  Ask.  Survey.  Get recommendations.  Study. 

    Ask for a debrief when you get rejected.  Each time you get rejected, you should pivot and get more precise in your search.

    You need to engage in investor profiling.  Who will benefit most from investing in your business? What would your optimum investor look like?  What criteria will they have for making an investment?  Who else will use all or part of these criteria?  Start with those who are most likely to invest.  Know who they are and why they love you or what you are doing.  Find those investors who need you to meet their own goals.

    It is possible you are pitching to the right investor candidate and that you are getting rejected for other reasons.  Those are some of the other common mistakes entrepreneurs make.

    Talking to the wrong investors and other common mistakes in raising capital will be addressed at the upcoming workshop on Building Capital that will be presented by the Colorado Capital Congress on July 9th in collaboration with TIE Rockies (, the Rocky Mountain chapter of TIE, one of the world’s largest entrepreneur organizations.  For more information on this workshop, go to:

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