Why is it so hard to find capital?

[Argus86]

Granted, i don't have credit or hardly anything much in the way of collateral, but all i've been asking for is $1,500 and offering 10 times in return. And yet, i have yet to find anyone is generally interested in my venture...does anyone know what I'm doing wrong? Does my desperation make me look like a fraud? Help...

[akula]

yes, it does - plus there are other reasons, all of which are your fault

financiers are not in the business of giving money to people who actually need it

to solve your financing problems you need to ask questions like "how do i finance my biz?" and you'll get answers

[TWCAaron]

I recently secured 30K and managed to give away just 5% of my company in return. While this is the most I have ever raised, I may have some insights that might help you.Here are some tips:

1. Get out there and make friends with older, more established business owners/entrepreneurs. Often you will find that these types of people are willing to help younger entrepreneurs because they see themselves in you (when they were younger of course). These people could be lawyers, doctors, real estate investors or any other type of person who is used to seeing relatively large sums of money change hands on a frequent basis.

2. Can you REALLY start your business with just $1,500? While it may be possible, I doubt that any real investors or business owners will think that it is. Review your financial projections just to be sure. You should take your estimated costs and triple them just to be safe (I estimated a $10k startup and then asked for $30k). Potential investors will see maturity in this strategy.

3. Write a business plan. It doesn't have to be huge, but it does need to have the necessary elements. There are lots of good online resources that can help you with writing a business plan.

In this plan, you need to have your financial estimates all mapped-out on an excel spreadsheet to prove your numbers. Be sure to include your break-even point and make sure the #s are conservative.

4. When courting potential investors (parents, relatives, friends, acquaintances), don't sound desparate. In fact, you don't want to ask them for money outright. The goal is to get them interested enough to want to get involved by giving you their money in exchange for ownership (or as a loan).

Casually let these people know about your business when they ask questions like, "What have you been up to lately?" Never force the subject on them and err on the side of talking about it less than more unless they ask. Of course, they should perceive a sense of confidence and excitement in you when you talk about the idea.

5. Ask these people if they would be interested in receiving a 'proposal' regarding your business idea if they seem interested enough. If they want you to send it, send your business plan along with a proposal for the amount you are requesting.

6. Negotiate.

I hope this helps. It takes patience, but raising $1500 shouldn't be too difficult.

Aaron

[akula]

great advice!

7. Use leverage to negate chance of failure

With shopping for money, the secret is not to make sure that you succeed, but to make sure that you don't fail (which inversely means that you'll succeed!) This is achieved through leverage.

It works like this:

Go to Investor A and say, "if you invest, your friend Investor B will also invest". Then got to Investor B and say "if you invest, your friend Investor A will also invest". When you leverage both investors against each other, the following will happen; both the guys are gonna get on the phone and decide one of three things: a) they both like the idea and you'll close the deal b) they disagree and Investor A invests in you to spite Investor B. or c) they both agree that it's a bad deal and you don't get the investment unless you pitch Investor C, who disagrees with them - and then points a) and b) are repeated.

Notice the following: this approach is different to just pitching one guy. This one guy only has two options - to invest or not to invest (i.e. the base probability of failing to close the deal is 1/2). However, if you follow this advice, the base probability of failing to close decreases to 1/3, and it gets lower as you pitch investors c, d, e, f. By the time you get to Investor f, the base probability of failing to close is gonna be like 1/6 (roughly).

That's the mathematically assured way to raise money. It's got nothing to do with polishing up pretty powerpoint slides so you can WIN. It's got to do with playing people against each other so you CAN'T LOSE

Works for other kinds of transactions as well....btw, for centuries, enterprising gold diggers have done the same thing to hook in sugar daddies.

Argus86, you have to be the opposite of desperate. The opposite of being desperate is being desirable. And you can only be desirable if you make people jealous. The point is: to raise money, you need to make competing investors jealous of each other

Overall: This idea of playing people against each other for the purpose of reducing the probability of rejection is certainly not new. In capital markets, certain banks to book building and act as market makers to create demand for securities. That's why IPO's work. Not because the company being listed is any better than an unlisted equivalent, but because the IPO creates a demand curve for the securities - where individual investors resort to buying stock because they're afraid that someone else will buy the shares if they don't. This idea of creating a market for unlisted securities is really the secret of raising capital. It's not easy to achive and that's why it's "so hard to find capital".

[Sam Barona]

$1,500 is not a great deal of money, but if someone came to me and promised me 10 times my money back, I would seriously think them dodgy.

I agree with all that TWC and Akula have said, and would further like to reinfroce the importance to creating a well researched business plan with all your costs and income being backed up by sound assumptions, which should in turn be backed by well documented research.

I would also like to add that you can make a better case for financing if you can add value to your proposition; this does nothave to involve a financial outlay, but simple clever foot work. I couls advice better on how to achieve this if you share more information, either here or through PM.

Good luck

Sam