Episode 217： How To Raise Money As An Entrepreneur
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Summary
In this episode, Patrick talks about the 10 questions you need to ask to raise money as an entrepreneur. 1. Should you even raise money today? 2. If you don t get the money, how would you make the business work? 3. How will the money be used? 4. What is an ideal investor?
Transcript
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I'm Patrick Bedevi, host of Valuetainment, and today I'm going to talk to you about
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Question number one, should you even raise money today?
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Because a lot of times, some company ideas may not be a big idea.
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You may have a small idea that you can go out there and pretty much bootstrap it yourself.
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Number two, if you weren't able to go get the money, how would you make the business work?
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I hear a lot of people say, I'm telling you, if I don't get the money, this thing's not
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If I don't get the money, this thing's going to fail.
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So how would you make this idea work if you got no money from anybody?
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Because, by the way, if you can answer that, angels and VCs are more interested in your
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business because no matter what, you're going to find a way to make your business work.
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The third question is, how will the money be used?
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A lot of times it's easy to ask for money, but many times I think the innovator, the idea
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And sometimes the best way to know how to communicate with the people that have the
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money is, if you were this person, if you were this person, would you give money to
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your idea having all the information and wouldn't you want to know on how the money's
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So you've got to be able to say, if you were to give me $700,000, here's how the money
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If you were to give me $50,000, here's how the money would be used.
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If you were to give me $25,000, I'm simply making a prototype so I can go and approach them
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And the prototype company that I found costs $18,000, $6,000 is designed.
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But if you have that, I will take you seriously if you're approaching me.
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Number four, what's an ideal investor for you look like?
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Because you want somebody that's going to connect you with somebody that used to work at
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Number five, are you willing to go big and lose control or do you want to have full control
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Because whenever you ask for money, there comes a lot of other things.
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These are people that are not giving you money.
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They don't sit there and say, how's your little baby doing?
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I expect $10 million within five to seven period.
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So if you don't want that kind of a relationship, you want full control, maybe it may not be
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It is not the easiest thing for entrepreneurs to take orders from other people, but that's
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It's not necessarily orders, but they're going to be kind of looking for you being nimble
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and being willing to listen because there's nothing worse than a relationship being bad
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between the investors and the entrepreneur and the team because once there's friction
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here, listen, there's a lot of ways the investors can make your life a living hell, absolutely
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And sometimes the entrepreneur says, they can't do that.
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Believe me, there's many, many ways they can make your life a living hell.
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Have you done enough research about the industry you're getting involved in?
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And I had a guy come up to me the other day, this was so funny, real nice guy.
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He says, I'm thinking about creating a company that allows me to go out there and do auto
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detail link, but I'm going to do auto detail link mobile.
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So you simply, it's like Uber, you request it and I come to you.
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I said, let me go out there and do some research.
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So I go out there and start like, what are you talking about?
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See, what I did with that guy, I will never listen to any of his ideas because he didn't
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respect my time and he didn't do research for what he was doing with his business.
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If you do some research, for instance, if you approach me and say, there are seven people
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I'm going to sit there and say, oh wow, okay, I'm taking you seriously and this is the
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These are the, I'm being willing to listen to you.
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So make sure you do a lot of research with your idea before you go in front of investors.
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We're not necessarily, I'm not looking for everything to be different.
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I'm not looking for the perfect, like what was really different about Facebook over
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MySpace had music being played and Facebook didn't have it.
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So what is the real differentiator between Facebook and MySpace?
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It allows you to stay in contact with your peers, like MySpace.
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It's not a perfect thing you're looking for, but there's got to be a certain place that
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No, it's purely business professionals and we're going to have a monthly membership.
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I'm getting a better idea about what you're talking about.
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So there's got to be a differentiator and unique positioning that you're having.
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So I'll hear people say, well, I'm looking for a quarter million dollars and the valuation
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of the company is, you know, a million dollars and I'm giving you 40% for a quarter million
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Well, I'm giving you 40% quarter million dollars.
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So you've got to understand how the math is as well.
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So you've got to have the math down when you tell me what it is.
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Because the moment you miss that, you know, I question the investor's going to say, if
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this guy doesn't know how to do basic math on how much it's going to be, is he going to
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be able to do basic math when it comes down to running out of money?
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And if they run out of money, what happened to my money?
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And last but not least, this is sometimes more relevant when you're talking to venture capitals
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than angels, but it can be also relevant to angel investors, is are you building to sell?
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So how soon are you planning on selling this company, right?
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Is it something that you're building because you want to keep it forever?
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So I need to know as the investor what I'm getting out.
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And are you building a company because you're planning on selling within a five to seven year
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Remember, the sooner they get their money out and the higher the return they get, that's
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So if I give you a million and I get seven million in five years, guess what?
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If I give you a million, I get three X in 10 years, I'm not happy because I could have
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used my money in a different place to get a return.
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So when you do approach an angel or a VC and you've done proper research, you will
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know they like to buy companies that are built to sell or they like to buy, I met with
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He came and visited my office two weeks ago and they don't like to buy companies that
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They like to buy companies that are real solid businesses, bringing value to the consumer,
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employee, staff, executive, all the team and it stays.
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So it's a long term income that they're generating.
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So if you approach them about a build to sell idea, they're not going to be that interested.
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Again, those are 10 questions you ought to ask yourself before even thinking about raising
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It's a big mistake people make without answering those 10 questions.
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Now there are different places you can get your money from.
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That is probably the best way for you to do it.
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Another one is that you hear about a lot nowadays is ROBS.
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I think it's Rollover for Business Startups is what ROBS stands for.
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Literally, R-O-B-S, which means you have $300,000 in your 401k.
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And typically, if you take money out of your 401k, you're going to have to pay the taxes
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on it and you may be paying the penalties if you're under the age of 59 and a half.
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Talk to your accountant where you can take that money, put it into your business, not
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pay any taxes or the penalties, but you have to start a 401k to be able to use that as an
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I don't recommend it, but there are some people that do recommend it.
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And then there's HELOCs where some people take money out of their mortgage and they get
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a home equity line of credit, low interest rate.
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I take that money and I fund my business at $700,000 of equity in my company.
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And as some do with credit cards, which is absolutely pathetic.
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There's a lot of people out there that will recommend you to finance your business with
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Matter of fact, there is guys that literally will go and sell you the idea of, I have 50
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If I use this money and it fails, it's not my problem.
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It's shysters who want to make money off you and the banks.
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And quite frankly, that's somebody that's not thinking long term.
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Because if you ever want to build a massive company, guess what?
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You got to be thinking about that one day, I may be needing a big bank to give me $600
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I ought to start building those relationships now.
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But bootstrapping the basic way, it's your own cash.
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Now, one of the reasons why people do that is the following reason.
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You get to keep control longer and you get to have a better proven product so when you
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go to investors, you have something to show for.
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That's the formula I took for myself on one of my businesses.
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So it's bootstrapping, you're on money, you're on savings, you're on the line.
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The investor says, if this guy put his life savings into it, guess what?
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I took the approach of putting my entire life savings into it.
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I grew the company and then I got an investor, Oscar de la Hoya, Gabriel Brenner, who is the
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Adelaia Group is a good size fund out of New York.
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Then I went and got an eight figure check from these guys on raising money, but I had
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proven track record on what the numbers were looking like.
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You keep more equity, you give up less later on when you ask for money.
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Okay, so the second way you can raise money is a traditional loan from a bank or some call
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Now, this used to be more common back in the days, but the banks are not as loose with
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Now, what will work for you with these banks is four different criterias they'll typically
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A steady income, a 700 plus credit score, equity in your home, and the last but not least, industry
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Obviously, you've got to bring your business plan and the SBA program has two different
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One is called the community program that they have, which is up to a quarter million dollars
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And then the other one is a micro loan, which is $50,000.
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I think you've got to give 30% down payment up front for them to be willing to do that.
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It's the slowest, just so you know, and it's not a fast process you're going through.
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It's the least likely, and it's very slow, very annoying to go through that route, but
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it is one of the routes to go to on raising money.
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Crowdfunding is this whole thing with GoFundMe, Kickstarter, Indiegogo.
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And what crowdfunding is, is exactly what it says.
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Crowd, audience, large audience, funding your idea.
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It works typically if you have a prototype product and you say, here's my prototype product.
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This is when I said earlier, the guy who goes and raises $25,000, you know, $18,000 for
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And then he takes this idea and puts it on a video and says, here's what this does.
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This, this, this, this, this, this, this, this, that.
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And if you want to be an investor, level five, $100,000 gets you 2% ownership in a company,
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You can do that part with some of these sites you go to.
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You saw J.J. Watt from Houston Texans started a little, wanted to raise a couple hundred
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thousand dollars for what happened in Houston after Harvey, the hurricane that hit, ended
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It spread went wild for a linebacker turned this thing into a 40 million dollar fund that
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We started off with one of our guys was raising small amount of money with a couple thousand
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All of a sudden we got it to $55,000 and we helped so many families with their cars, homes.
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So it's not that hard to do it today, especially with the access to Facebook, Twitter, social
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There's a lot of great incubators and accelerators.
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You literally come and they'll give you a little bit of money and you have mentoring.
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You have people that advise you on what to do with your idea and they're kind of getting
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You know, they have 300 different businesses there and you're literally sitting there.
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Hey, have you thought about doing this to your side?
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And they give you some money and it's incubator, accelerator.
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And eventually the goal is to go out and open up your own office, your own operation, but
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You'll see a lot of 18, 19, 22, 23 year olds and incubators.
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There's a good one in Austin, Texas, New York, Chicago, Florida.
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There's a lot of great incubators that you can be a part of.
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You're a 19 year old with a good idea and you drop out from college because you're obsessed
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with your idea that you have and you got three friends you guys want to make it work.
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Search which one's the best and find out a way to get connected with them.
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Okay, so now that we've covered the first four, let's talk about the difference between
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And then we'll talk about venture capitalists right after that.
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An angel investor is an individual, wealthy person who made their money and is willing
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And the other one is cold market, somebody you don't know.
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Let's first talk about an angel that's a warm market.
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Typically, angel is less than a million dollar investment.
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Many times, it's only $25,000, $50,000, $100,000 that they put into it.
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Okay, so you got a mom, dad, brother, sister, uncle.
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Your best friend's dad who loves you, always saw you there, loved the fact that you gave
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good influence to his son or, you know, your girlfriend's father who never had a son that
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likes you or your boyfriend's father who never had a daughter that likes you.
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And you go up and say, you know, hey, Uncle Johnny, hey, Pops, hey, Mom, hey, Bro, hey,
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This is what I want to do and I'd like to be able to raise some money.
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Say, I think I need around, they're going to ask you, what do you think, how much do you think
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And sometimes the best question to ask is, who do you know that would be willing to help
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I would love for you to be because I'll look up to you so much.
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But regardless of what it is, if you can get some of your friends and family that invest
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into your idea, that opens up the willingness of a cold market angel investor to be interested
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They look forward to see, if you're coming to me, has anybody in your family invested
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Have you had anybody in your friend and family invest into the business?
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My father and my girlfriend's father did as well.
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Tell me what else you know about this industry.
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Tell me what's the differentiator, those 10 questions that I asked you, that I told you
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I think we can make this kind of money, this if we do this.
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Then you're doing the math and negotiation about what it is.
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And this video is not about the negotiation side.
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This video is simply about raising money and different ways you can go about doing it.
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These are people that have dealt with a lot of different businesses.
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These are people that have access to incredible resources, contacts, networks.
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And so when you're dealing with them, you got to know what they want and what they're looking
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This is when you hear about such and such person had a series A funding of, you know,
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$9 million, $15 million, or they raised this much dollars.
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Matter of fact, they're offended if you're coming in for a small-time number because,
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Don't forget to ask somebody who rejects you because you're asking for too little money
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if they know anybody that's in the market of the amount of money that you're asking
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Number one, they want returns in five to ten years.
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And here's why very rarely you'll get them ten years.
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And the first three years, they're just kind of warming themselves up on who they want
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And then once they get it, they're saying, we have seven years.
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If you can get them at seven years, that's the sweet spot.
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And they'll typically tell you, we like our returns to be around 10x is what we're looking
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You know, we like our minimums to be 5x within a five-year period.
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They're going to tell you if you're asking these questions.
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And matter of fact, they'll be impressed with the fact that you're asking smart questions
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When I'm saying strong team, they want technical skills.
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Like, for instance, we have a visionary entrepreneur.
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He thinks he's going to go out there and take over the world.
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Yes, he's got a technical guy with him that's incredible coding.
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And he has this other guy that's on the board that da-da-da-da-da.
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So they're looking for the team that you've put together, right?
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And obviously, if you're taking money from a VC, you're committing to pretty much doing
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Because if you're not, they have zero interest in it if it isn't something big that you're willing
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Where do you find these angels and these VCs that you want to be working with?
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Where do you go about these guys and finding them?
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You literally go to people that you like and you admire and you ask them, who do you know
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Remember, if you answer those 10 questions and you go to your personal mentors and advisors
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to ask them those questions, you're going to get more of a credible person that they
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If you have those questions answered, hey, Uncle John, I admire you a lot.
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If they don't say themselves, they'll say, yeah, you got to talk to Billy.
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You know, he's a guy that owns an accounting firm.
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So number one is people you know, your personal mentors and advisors.
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There's a lot of different sites you can literally, if you're right now, go on Google and type in angel
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You will literally find these lists and get on there.
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Best angels to be working with in, you know, your city, Austin.
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Best angel investors in Memphis, Tennessee, in Nashville, Tennessee.
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You will generally find them if you look for them.
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Then another one that works very well, which is quite frankly pretty simple to do, is local
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You know, if you went to university, it's even easier because you're like, hey, I'm a USC
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So you can go through that program to find them.
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And then obviously, last but not least, you always have LinkedIn.
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You have these websites on ways to communicate with them.
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These seven will be very ideal for what you're looking for.
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You've got to keep it very, very simple and not a long-winded email that you're sending
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One of the best things that works when people send me an email is the following.
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They'll send me an email and they'll say, hey, Patrick, I just want you to know I watched
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And in minute 17 to minute 18, they'll put a link.
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You talked about this and it changed the way I viewed business.
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A lot of these angels and VCs, these personalities are out there.
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Either they've written a blog, they've written an article, they're on a video.
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So it's not hard to find them if you do proper research.
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I am a 26-year-old USC graduate entrepreneur who has an idea that I want to share with you.
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I am an age, executive, entrepreneur, graduate, whatever it is that I have an idea that I want
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I'll say, ask your question in one or two sentences, max.
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And they'll respond back in one or two sentences because you can do it.
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It makes you actually think when I say, ask it in one or two sentences.
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So after the idea, you want to put a link in there as well to say, here's a link to a website,
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a video, a promo, something that's going to explain to them what it is.
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I would like to meet with you for 10 or 15 minutes to explain to you what it is that I'll
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That simple email you put out there, they'll respond to that.
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So let me explain to you what happens when I get these emails myself.
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I look at it and I'll typically click on the link and I'll say, okay, if it's too much
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And then I may immediately get busy doing something else and then I may forget about
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So you could follow up with me a week later on that email you sent me.
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Hey, John, I just wanted to follow up with you.
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By the way, great article you wrote this week about this.
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I just wanted to follow up and see if you were able to look at my email last week.
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An email like that gets my attention and it almost makes me be committed to responding back
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to you because angels and investors also don't want to be somebody that doesn't get back to
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They won't even take your email seriously if you're not sending an email that's actually
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If it's too long winded, if it's copy paste, if all of a sudden the font changes and it becomes
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HTML because you wrote it on a complete different platform, then you copy paste and put it on
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and they can tell that you're doing copy paste.
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I had a guy send me an email and he said, dear Mark Cuban, I really respect what you are as a
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And then he apologizes and he says, I'm so sorry, I feel so embarrassed, I did a copy paste
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He already lost me and he probably did that to other people and you can tell he's doing
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People know that because they get those emails all the time.
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So be able to differentiate between those two as you send it to them.
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Okay, so that's number one way on how you send a letter.
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The best way to get introduced to an angel or VC is somebody else introducing you to them.
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If you can get another high profile, reputable person, send an email saying, hey John, this
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is Patrick, I sat down with Billy and I listened to what he had to say and I think this is something
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that you ought to sit down and listen to as well.
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If there's any interest, please schedule a time for you and him to get together.
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But I leave it up to you guys, you are not committed to do this for sending this email
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and if you guys communicate moving forward, you don't need to keep me in your emails or CC
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When people ask me to make an introduction to somebody, it happens.
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You see, raising money can be a full-time job by itself.
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And the key to all this is to be patiently aggressive.
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You've got to be aggressive and assertive, yet you've got to be patient because the process
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may take 6 to 12 months as you're going out there raising money for your business.
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So everything I cover with you here today is how to go raise your money.
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But I can tell you, above all, if you go out there and build a real business, if you go
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out there and build a real model, if you go out there and prove that your business model
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works, if you go out there and do it in a way where you're attracting people to you,
00:26:31.740
where investors want to have their money in there, where this is getting to the point
00:26:34.960
where syndicates are begging to say, I also want to get a million in, I also want to get
00:26:38.200
a half a million in, I also want to get this, because all these guys want to be part
00:26:41.500
of your business, then you have more influence and people that want to help your business
00:26:44.840
get to the next level, more context, more introduction, more site edifications, opportunities,
00:26:51.380
If you truly focus on building a real legitimate business based on systems that's replicatable,
00:26:57.300
that's scalable, that brings more interest from other people that want to invest into
00:27:01.600
And keep this in mind, I didn't really get into revenue-backed funding here and mezzanine
00:27:06.340
and what it is to do mezzanine and what happens if you're in a bad place and you're
00:27:10.540
trying to get money but your business is going down, you're not really selling so you need
00:27:13.660
to get money and it's a different kind of money and they negotiate harder, this is not
00:27:17.160
that video, we may do it on another time or we may do it on a private mentoring, this is
00:27:20.760
purely an episode to teach you the basics when it comes on to raising money.
00:27:24.800
And last but not least, listen, let's come together and help shift the way people think
00:27:29.660
about business, entrepreneurship and capitalism because the true vision and mission of
00:27:34.260
Valuetainment is to one day have a world unemployment of 0%.
00:27:37.880
If Bill Gates says he wants to eliminate malaria, we want to eliminate unemployment around the
00:27:43.360
world and I believe it's possible, it may take us 50 years, it may take a generation
00:27:46.440
or two, but I believe it's possible only if entrepreneurs around the world come together
00:27:51.660
and spread this message to as many people as possible so people see the value and the
00:27:58.640
Thanks everybody for listening and by the way, if you haven't already subscribed to
00:28:01.980
Valuetainment on iTunes, please do so, give us a five star, write a review if you haven't
00:28:07.220
already and if you have any questions for me that you may have, you can always find me
00:28:10.840
on Snapchat, Instagram, Facebook or YouTube, just search my name, Patrick VidDavid and I
00:28:16.040
actually do respond back when you snap me or send me a message on Instagram.
00:28:20.680
With that being said, have a great day today, take care everybody, bye bye.
00:28:32.580
Talk to you today, it's been one for the next 3060 to 25.
00:28:33.000
Let's listen to you, everything you do the next and yeah.
00:28:35.760
And the day you can't wait for it to listen to everybody.
00:28:50.020
I say frulla for you, but I play mostly pretty much this big house and see you see.
00:28:52.080
My rapper тон hy 55, there's a horrible book or home.