Lesson #14

Raising Additional Capital Requires Creating Demand

The key to raising capital during the start-up phase is finding your stalking horse. However, once you've reached Phase Two and are developing your idea, the rules—and your needs—change. At this point, you've presumably already bought into and begun exploiting the Law of OPM. You are stretching every dollar as far as it can go, and then a little farther. But inevitably, you will need more money. And when that time comes, your next challenge is convincing people to put their chips on your table.

At its core, raising money is about creating demand. Most start-up entrepreneurs don't realize this, so they end up giving away much more than is necessary to entice investors. Think about it like the stock market: You don't buy a stock at $10 a share because you think it's going to remain at $10 a share. You buy the stock because you think its value will rise to $15, $20, or even $30 a share. People don't invest in what is; they invest in what may be. Accept this critical realization as the Holy Grail for raising money. It relies on convincing people that your idea has merit, it will work, and they can be part of a select group of early investors who will split that pot of gold at the end of the rainbow.

If you are lucky enough to grow your business to the point where you can take it public, you'll find that there is a person working for the lead underwriter on the syndicate desk called a book runner. This person has taken ...

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