by Casey Golden of Small Act

Every business needs at least some money to get started. Depending on your business, you might need to seek investors to help your great idea take flight.

In building my current business, Small Act, I've had the pleasure to work with angel investors. (For those unfamiliar with the term, angels invest their own funds, unlike venture capitalists, who manage the pooled money of others.) Working with angel investors requires a lot of personal interaction and building of trust, but you need to know how to lay the groundwork for a positive, mutually-beneficial relationship, how to approach the ask, and how to respond to those who will say "no."

Getting Started

Before you approach any potential investors, you must first ask yourself if you're willing to invest your own money in your business. You must completely believe in yourself and your idea. This is absolutely critical.

If you have one, the second person you need to ask is your spouse or partner. Starting a business will inevitably place some stress on your relationship. It's really important that this person believes in you as much as you believe in yourself, because any financial implications will directly impact this person as well as yourself. Plus, when people are slamming doors in your face, you'll need someone there who says, "Keep going."

Once you're fully prepared to proceed, you should build relationships with people whose careers and successes you admire. Also, focus on people who conduct business in the same general style as you. This is important for two reasons. Firstly, you won't need to spend as much time explaining your approach and methods. Secondly, because their methods yielded success, they'll want you to proceed similarly.

You can engage people whose business approach is different than yours, but my experiences have shown that talking to like-minded individuals simply helps move the conversation along more quickly and smoothly.

Your First Ask

Although it might be tempting, your first ask of potential investors shouldn't be for money. It should be for advice.

Getting people to invest is much like cultivating any other relationship. You wouldn't approach someone and say, "Hey, I saw your profile on LinkedIn. It looks like you have a good track record. Let's get married!" You have to earn each person's trust and demonstrate that you're worthy of it.

Be conscious of the fact that in this economy, the investor holds the power. They have the luxuries of time and having many different investment opportunities. The investor is effectively the bachelor and entrepreneurs are the 25 bachelorettes competing for a date.

It might seem counterintuitive, but the best investors are the ones who will invest in you as opposed to the business or the product. More than your business concept or your projections, the investor must believe in you. And reaching that point takes time. One of my guidelines in building toward an ask is that 80 percent of my time should be spent listening and 20 percent should be spent talking. It's not an easy ratio to achieve, in part because you're so excited about your product or service. But your excitement alone doesn't make the other person want to invest. You need to take their advice to heart, show them that you value the relationship and give them opportunities to connect to your product or company.

Ideally, you'll reach a point where you're almost positive a potential investor will say "yes" when you ask for money. How long does it take to reach that point? It depends on how long it takes to build a trusting relationship with that person. I've had it take anywhere from one to six months to get a commitment to invest, and it usually takes another six to 12 months to get a check. It's not a quick process, so don't expect to find success overnight. Or even in the first quarter.

As an aside, I should note that not every investor is going to be ideal for you or your company. And in this economy, it's hard to be choosy. If you find yourself in a position where you need to accept an investor who isn't the best fit, be conscious that you have some buy-out provisions so that you can gracefully exit the relationship if the need arises.

Moving Past Rejection

Because not every ask yields a "yes," you must be prepared to move past the rejection and determine how to best proceed.

If somebody says "no" or "not right now" to your ask, my experience has shown the best response is responding with a question: "Where do we need to be to make that a yes?" If the potential investor says something like, "It's just not the right industry," that's indicative that they either don't believe in you or your idea. At that point, it's best to pursue other prospects. But if the potential investor responds with some kind of benchmark, that means you can ask again later.

I don't think you can necessarily turn a "no" into a "yes." Efforts along those lines generally aren't worth your time. It's the people who respond with "not right now" that remain candidates for you. Carefully listen to them to determine what they're really seeking. It might be something your business truly needs in order to move forward.

One Last Thought

As a postscript to all this, I should remind you to be very conscious of the cost-benefit ratio associated with pursuing investors. Time you spend cultivating those relationships is time away from building your product and your business.

The old adage is true: "If you spend all your time looking for a gas station, you're not going to win a race." Think about how much time it might take to get a $25,000 investment. Let's say it's three weeks of your time. In that same amount of time, could you have secured some new clients to buy $30,000 in services? You have to walk the path that's best for you.

Based on my experience, I recommend a balanced approach with an aim toward being self-sufficient. Network and get investors as you go, but remember to build a plan where you ultimately won't need investment capital, so your business can become self-sustaining as quickly as possible.


A lifetime entrepreneur, Casey's latest venture, Small Act, develops software and offers consulting services to help nonprofits raise money, advocate and build awareness with social media. A frequent speaker at national events who also donates his time to serve on several nonprofit advisory boards, Casey is currently writing two books on technology and philanthropy, and has contributed chapters to “Do Your Giving While You Are Living” and a book on nonprofit branding by Carol Cone to be released in 2010. He recently won the “35 Under 35” award for top entrepreneurs in greater D.C. and was honored as a leader for social change as part of the Class of 2009 of Greater D.C. Cares. Casey lives in Northern Virginia with his wife, Beverley, and three-year-old twins, Tristan and Lilyrose.

Website: | Twitter: @smallact & @smallactguy

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