Raising Angel or Early Round Equity for Your Business – a few tips

Recently a good friend ask me for some tips on business strategy for raising angle equity or early round equity money for his successful young business.  My answer:

What I would say without knowing a lot of details – assuming the money would really help you but you do not “have” to have it –

  1.  Take money from someone who can do more than give money.  Particularly if they can provide contacts into highly valuable areas that will take you a long time to access on your own.  There is a lot of “business acumen” out there.  If it is the right person that counts but not as much as sales growth/access (at least to me).
  2. You should do a cash flow of what your growth will be with the money.  Discount it back and then you have something to start a “value” conversation with.  Often that figure will be discounted 50-75% so a little “doable, pie in the sky” is a fair starting point for your projections.
  3. Have a divorce in the marriage agreement if possible.   Know how you will get rid of the person/money if you need another round of financing, you don’t enjoy them, or if they do not provide the other things they were supposed to provide.

Certainly not complete, but a good starting point for thoughts on raising equity.

Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
Business Brokers, Business Valuations, Business Transactions
Maryland, Pennsylvania, New Jersey, Virginia
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