Join the crowd (funding)

Posted 10/7/13

For 80 years after passage of the 1933 Securities Act, companies of any size were banned from advertising to find investors. But that’s now changed, and the world of startup financing is about to undergo an overhaul.

Fundraising websites (sometimes called “crowd-funding” sites) have been waiting years for this day. Now they can do more to tout their services for connecting entrepreneurs with “investors” from the general public.

Whether this is a good thing remains to be seen. It’s probably a boon to startups. But critics of the change fear that unsophisticated investors could be drawn into high-risk ventures they don’t understand.

Meanwhile, entrepreneurs seeking startup or growth money are both an abundant and an endangered breed. There are plenty of them, for sure. But most will never land the financial backing they need from traditional sources because they’ll blow the deal before it ever has a chance to develop.

Potential financial backers come in many forms, including angel investors, venture capitalists, bankers or just family and friends. Whatever the source, however, they all have common interests and need assurance that investing in your business – rather than thousands of others – is the right thing to do.

In their new book “Venture Capital for Dummies,” authors Nicole Gravagna and Peter Adams point out some of the most egregious errors that cause entrepreneurs to lose potential investment deals.

• Pitching an idea instead of a business. Those days are gone. Today investors want business plans, teams and prototypes that are as close to “ready for prime time” as possible.

• Being invisible. Attend networking or pitch events and trade shows so people in the investment world see you regularly.

• Pitching a product over a deal. When you pitch investors you’re essentially selling a piece of your business, not your product. Your pitch needs to be about the whole business, not just a product.

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