Big network? Big deal!
The reality is that only one network matters when it comes to raising capital. That network is the group of individuals who are absolutely passionate about your industry and the business opportunity. And for 99% of us, that isn’t our friends, family and former colleagues.
Overconfidence in an existing network is one of the top fatal flaws that entrepreneurs have.The entrepreneurs at the greatest risk of failure are the ones that come from a corporate environment and/or wealthy social settings. These people often have a false sense of financial support. Many times these entrepreneurs are shocked that their existing network is unwilling to support them financially to start a new company. They shouldn’t be so surprised.
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In most cases, the entrepreneur’s existing network won’t provide the ideal investors for their enterprise because they don’t share the vision, the industry knowledge or the industry connections to create the motivation needed to put money into a non--liquid, speculative investment. That’s right, the investments of capital in the early phase of a company will not have a near--term payoff for investors, no matter how much potential there is. And compared with most other places investors can put their money, a new business -- even one with an exceptional idea, is speculative. When investors are told “Invest in something you know,” that didn’t mean invest in a brother-in-law!
Instead of coercing family and friends to dive into your deal, entrepreneurs need to associate with the influencers from the industry their business is in. The people that influence decisions inside the entrepreneur’s industry are often outside of an entrepreneur’s existing network. Entrepreneurs need to find fellow passionate people that share their vision and see the potential in their business opportunity. When these people truly understand your vision and know the industry from their own experience, they will invest their capital because they are excited to participate in a real opportunity. They often will also offer other kinds of assistance that can be invaluable to a start-up, such as connections to others with expertise, capital or resources needed in the early stage.
There’s no possible way for entrepreneurs to know all of these people ahead of time. That is why entrepreneurs think it’s easier to tap into the existing network of people they know than to start fresh. It might be easier, but it’s far less productive than targeting the right investors, those most likely to help fund your business.
Entrepreneurs can waste massive amounts of time trying to reconnect the dots with past acquaintances in hopes of getting someone to invest in their company. Tracking down that long-lost college buddy who just sold his own business and now might have some loose cash is NOT the right way to target investment capital. An entrepreneur’s time is much better spent identifying and approaching the people who are influencers in their industry.
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So stop reading and go connect with three people that are thought leaders in your industry! Don’t have a connection? Don’t worry. Tell them you are a passionate entrepreneur that wants to discuss industry trends. You’ll be surprised at the response rate.
Have no clues where to find thought leaders in your industry? Scour industry journals, influential blogs, and LinkedIn for contacts.
Don’t get me wrong, if your family and friends are as passionate as you are and know your industry, they are perfectly fine investors too. But if you are trying to start a pig farm, go hang out with other farmers. If you’ve got a new medical device, then hit the right local or national conferences and talk with others in the field.
And if you want to raise money for a football team, go hang out with football fans.
Case in point: The Green Bay Packers are the only professional team in US sports that is publicly owned. They’ve only offered stock five times in heir history. In 2012, the Packers offered shares of stock for $250 apiece and fans bought it like crazy!
Why did they do this? Emotional attachment to what the stock represents is what made them buy. People want to be a part of the team, and a stock certificate is a show of proof that they support their team. And this draws on one the strongest human emotions – love. Love is typically associated with feelings of personal attachment to people, but love
can fall anywhere on the spectrum from passionate affection to mere enthusiasm.
And that includes feelings that go beyond people to teams, companies, brands and material goods.
But the real catch is that from an investment point of view, it makes no sense to purchase Green Bay Packers’ stock!
There are no investment return opportunities in Green Bay Packers stock as one would expect from owning stock in a company. There are no benefits conferred onto the owner, nor is the stock tradable in any way. In fact, there are only two benefits which come from owning this stock: receiving a stock certificate which demonstrates your support and the privilege of purchasing special Green Bay Packers memorabilia. The Packers used the money from this sale of stock to fund an expansion to their stadium.
From a die-hard fan’s point of view, it makes perfect sense because they are showing support and emotional investment into the team. We love to feel like we’re a part of something bigger than ourselves.
We want to know that we’ve done our part. Many people thrive on that warm feeling that they get when they help out a friend or give money to charity. That makes us feel connected to the world around us. That feeling of connection is what keeps us holding on to investments that are ‘worthless’ in investment terms, but full of worth in
emotional ones.
And the result? In 12 weeks the Packers sold 268,000 shares that brought in $67 million!
Go to where the PASSION is – not where the money is! Do this and the path to investment capital will reveal itself.
Patrick Donohue’s e-book, The New Fundraising Reality for Entrepreneurs, will be published this month on Amazon. The book describes how myths about fundraising are blocking the path to capital for the start-up businesses that our economy desperately needs.
