This post was co-authored by Laura Faulkner and Renata Hron Gomez of The Hitachi Foundation.
This is the first post in the Entrepreneur Xchange Series, a collection of articles that feature insights on five topics that entrepreneurs consider critical to success: investing, scaling, customer acquisition, human capital, and social impact. This first post focuses on the challenges that early-stage ventures face while raising capital – and features five entrepreneur perspectives on how to best address these challenges.
Securing investment capital. These three words are top of mind for most entrepreneurs running early-stage ventures. Having sufficient capital to scale, acquire customers, and pay employees is a vital part of growing a successful business. Raising capital is even more complex for those running social impact firms, as these entrepreneurs must attend to a double bottom-line.
According to the Bureau of Labor Statistics and Gallup data, between 400K and 500K new businesses are created each year with less than half surviving five years and one-third lasting ten years. In most cases, outside investment is essential for business growth. According to the Harvard Business Review, angel investors propelled more than $22 billion into approximately 65,000 companies and venture capitalists invested around $28 billion in about 3,700 companies in 2011 alone.
Self-defined impact entrepreneurs are included in these broader statistics as is the developing field of impact investing which has gained momentum and notoriety — growing from more than $40 billion in 1984 to over $3.07 trillion in 2009. Well-known “traditional” investors such as Blackrock, Morgan Stanley, and Bain Capital have entered the impact investing space over the last few years. This creates more opportunities for impact entrepreneurs to secure capital, particularly at the seed-stage, but it also presents challenges as entrepreneurs plan for their funding rounds.
For early-stage businesses, determining how much funding is needed, when to raise it, and how to select investors is no easy task. Entrepreneurs receive a lot of advice on how to play the investment game. This advice can run the gamut – from “only raise what you need” to “take any and all money offered.” Sometimes the most useful perspectives for entrepreneurs can come from those who have been there before – their peers.
Tyler Gage, CEO of Runa shares his experience with developing his company’s investment strategy: “We took very small investments early on. There is traditional fundraising wisdom that you want to have fewer investors because it’s easier to manage. For me as a young entrepreneur, that was a very laughable statement – as if I have this huge application of investors looking to throw money into my business.”
WorkSquare’s founder Vanessa Bartram stresses that impact entrepreneurs need more than just money; they need quality relationships with investors: “An investor in a social enterprise also needs to be a strategic partner…someone who understands your mission and can help grow and develop [your firm].”
The videos below feature a range of lessons learned by entrepreneurs – from those that have successfully raised multiple capital rounds to entrepreneurs that said no to private investment completely.
Why one firm decided to take a number of small investments early on:
Why investors should bring more than money to the table:
Why one firm decided against private investment completely:
Why meeting investors is like dating:
What one entrepreneur learned about diversifying sources of capital:
As the Entrepreneur Xchange videos illustrate, there is no “one size fits all” mechanism or approach when it comes to raising capital. As entrepreneurs develop their investment strategies in order to scale, there is no clear-cut right or wrong way to finance a firm – but listening to the lessons learned by other entrepreneurs can help steer those seeking funding on a path towards sustainable growth.
Entrepreneurs - What advice have you received about investment capital? What advice do you have for your peers?
