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How To Raise Capital From Investors

Guest post by: Ken Hollowell

Article Overview: Business Plans and Executives Summaries don't get the job done.

How To Raise Capital From Investors

The very first step that most companies take when seeking private capital is the creation of an executive summary and a business plan. While executive summaries and business plans are an important facet of raising capital they are not designed to be investment documents. Executive Summaries and Business plans typically just provide general information about the company, its business model, goals, etc. While this information is important to investors, it does not provide a basis or structure for accepting capital investment.

A business plan does not allow a company to accommodate multiple individual investors. Most business plans state an aggregate amount of funding needed, "$500,000" for example, but provide no structure to allow for fractional investment. This means the company must find one single investor with $500,000 to invest - and the patience to develop the transaction structure and documents to process that investment. This limitation is probably the single biggest reason why so many companies fail at raising investor capital. Raising capital effectively and properly from investors requires very specific documentation that far surpasses what a business plan provides.

Public companies don't raise capital from investors by putting a business plan in front of them. If you wanted to invest into Dell Computer - do you think Dell would send you a business plan to process your investment? Of course not - you would invest into Dell Computer through a securities offering. The same holds true for private companies seeking capital from investors. Don't expect an investor to invest unless you have presented them with a securities offering. Business plans serve a purpose (especially for start-up companies) - but they should not be relied upon as investment documents.

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Article Tags: capital, funding, funding your company, ppm, private placement offering, raising capital



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