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First Light Ventures: Social Investors Share Their Best Practices For Raising Funds

Bill Roth | Monday May 23rd, 2011 | 0 Comments

How do I raise seed money? That is the top question I receive from entrepreneurs looking to start a company. And even more so from entrepreneurs who are attempting to start a company to create social and environmental good.

First the good news. As of 2010, $3 trillion of professionally managed funds were following Socially Responsible Investing strategies. That is a 380% increase over 15 years. There are funds available for entrepreneurs seeking to create a business focused on achieving social and environmental positive results.

To learn best practices for attracting socially responsible seed funding I interviewed Mark Hand and Nikhil Dandvati of First Light Ventures at the recently held Investor Circle conference in San Francisco.

Here’s a summary of their suggested best practices for raising seed money to fund a social enterprise:

Your business has to have a viable plan for making money. This is investment seed money, not a grant or gift. Financial return is the foundation for any investment including a socially responsible one. A key difference in socially responsible investing can be lower return expectations by the funding investors compared to venture capital sources of funding. But fundamentally, to raise capital a business needs to demonstrate its ability to at least achieve an investment rate of return comparable to “market returns” or the amount of investing profit an investor would receive investing in a stock market index of funds.

Know your targeted investor. Imagine trying to sell to someone you don’t know. Investors have their own criteria for making investments. If what you are proposing is a business that an investor has already defined as not one they will invest in then you are wasting their time and yours. Alternatively, imagine finding someone standing on a burning platform and you are selling fire extinguishers. That is what your investor due diligence should involve, finding that investor looking for exactly what you have to offer.

Know how to communicate to your targeted investor. I will tell you from experience that different investors have different expectations on how they want to see an investment proposal. Some investors want to hear an elevator pitch that has to propose a solution to a big problem that has strong intellectual capital protection and the potential to make a huge amount money for investors within five years. Other investors want to review your financial spreadsheet and detailed business plan before they schedule a first meeting. And in the middle are investors who want to see a one-pager outlining the opportunity. The key to raising money is to know what your target investor’s expectations are regarding how they want to be pitched.

Know the odds! Raising money is really hard. The odds are against you. The odds are the investor will say no. This means two things. First, you really need to be prepared to make a convincing presentation. Great ideas can overcome poor presentations. But great ideas presented in a convincing manner have a real chance of gaining investment. The second key point is that hearing no is not a reason to stop trying. Always ask the investor for their reasons for saying no. Typically, they are willing to be candid. Listen and learn. Then take that learning onto your next pitch. Continue this process until you finally win your first round of funding!

To learn more about best practices for raising seed funding watch this interview with Mark Hand and Nikhil Dandavati of First Light Ventures:

Bill Roth is the founder of Earth 2017, a website that posts analysis and trends on the emerging $10 trillion annual revenue smart, healthy and green global economy. His book, The Secret Green Sauce, profiles best practices of businesses making money going green.

 


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