By Lucia Maffei
So, you have launched your own business. You’ll need money.
Given this scenario, you have two choices. First, financing your company with your own resources, by scraping every penny from savings or parents’ trust funds. Second, giving up part of your business’s control by partnering with one or more venture capitalists, in return for funding.
Choosing the right time to raise venture capital may be challenging. According to a panel of Chicago-based entrepreneurs who discussed the topic Thursday at the tech incubator 1871 in the Merchandise Mart, these are the six rules to follow when considering the choice between bootstrapping and raising capital.
Organized by Hyde Park Angels and 1871, the event was the first of a series of conferences about early-stage investment that will continue till November.
1. Bootstrap as long as you can
“The longer you can focus on your business, the better evaluations you’ll get from potential investors,” said Craig Vodnik, co-founder of cleverbridge, a company that offers support for e-commerce businesses. When he launched his first start-up, he and his friends put one million dollars together from savings and did not take any salary for two years. “We felt we could do by ourselves,” said Vodnik, who eventually sold the company.
2. Raise capital when you can, not when you need it
Even though you are bootstrapping, meet with potential investors and start networking before you need additional money. “Investors want to track your progresses,” said Vodnik. As a result, they need time to evaluate your business before making any decision.
3. Make sure you can learn from your investors
Choose carefully the people you plan to bring onto your board. “Make sure they are people you like, because you are going to be married with them,” said Katlin Smith. Last year, she was included in Chicago’s Top 20 in their 20s by Crain’s Chicago Business as founder and CEO of Simple Mills, a food company.
Also, consider your investors as resources. “Raising capital is not only adding cash to the table,” said Kristi Ross, co-CEO and president of dough Inc. An entrepreneur with a strong background in accounting and finance, Ross created an online platform to help customers become better investors. She soon realized that her company needed marketing experts, and she chose her investors accordingly. “Investors have connections and skills you can use,” pointed out Ross.
4. Plan carefully the first meeting with your investors
Be ready to list your business’s numbers: revenue, net income, number of employees, any transaction. “No investor likes to be given ‘I don’t know’ as an answer,” said Ross. Also, be prepared to explain what you do every day at your company. Providing a visual presentation is a good idea; spending time on it, a better one. “Investors will use your PowerPoint to present your business to others,” explained Ross. Try to make your slides as easy to follow as possible. “Keep in mind that you are not documenting your company,” said Ross. “You are trying to generate interest.”
5. Ask your investors for more capital than you need
When the moment to declare a number arrives, think before speaking. “I’ll tell you, you are going to make mistakes,” predicted Ross. As a result, ask your investors for more money than you think you’ll need. How much more? “Whatever you think you need, multiply by two,” said Ross.
6. Think carefully before getting legal advice
Raising capital requires a lot of legal documents to be filled out, and legal experts are ready to help –upon payment. “There’s no need to pay a lot of legal fees,” said Bill Pescatello, a partner at Lightbank. “Templates of documents you need are out there.” For example, the website Seed & Startup Capital offers a template set of model legal documents put together by a group of venture capital attorneys.