Types of Funding

There are many Types of Funding for Business. If you want to Raise Capital, read this article from a respected writer Elizabeth Yin on the types of funding for businesses. You can Follow Elizabeth here.

One of the things that I’m noticing is that the early stage financing scene is changing quite rapidly. It may not feel like it — it’s still hard to raise money of any form, but there are a lot more options now than say even 5 years ago.

Traditionally, you have a lot of tech startups flocking to venture capital firms to raise money, because VCs have done a great job, as an industry, in marketing themselves. But the vast majority of startups who seek VC funding are not the right profile for that type of funding. As an entrepreneur, this is something I didn’t understand — what types of funders are out there and who is a good fit for what?

For example, angels and VCs are often lumped together in the same category. Afterall, they both invest in early stage startups on an equity-basis (this includes investing in convertible notes and convertible securities as well)  But they could not be more different. (See my post on closing angel investors)

In this post, I want to talk about different categories of funding beyond equity-based financing. These are categories I’d not even thought about as a founder. Here are the rough categories of financing options for early stage founders:

1) Equity financing (priced / notes / convertible securities)
2) Revenue based financing
3) Debt financing

…and some permutation of the above!

1) Equity financing

This is the one that everyone knows about or at least has heard about. In its simplest form, with equity financing, you as the founder sell shares in your company for cash.

Variations on this include using convertible notes and convertible securities (SAFEs / KISS doc). (see here for details on the differences)

What most people don’t realize is that this is the most expensive form of financing if you are successful. Why? Because your payback amount is delayed significantly and the amount you end up paying back is a LOT if you are successful.

Let’s say you sell 5% of your company for $100k. You think “whee! I have $100k to work with.” In 10 years, if you do incredibly well, and now your company is worth $100m and you sell your startup for an all-cash deal, you pay your investor $5m (assuming no dilution in this example). That is a 50x return for your investor.

Now let’s suppose you had a crystal ball and you knew this outcome would definitely happen.  Knowing that, would you take this deal? Of course not. $5m is a ridiculous amount to give up for a $100k investment. If you knew for certain that this outcome would happen, you would likely try to fund your business with other money so that you could retain the extra $5m for yourself. Right?

Now of course, the reason entrepreneurs take this deal is that you don’t know ahead of time if you will be successful in 10 years! And most founders don’t get to this outcome. A common phenomenon that I see successful founders face is that they are at first incredibly excited to raise their first couple of rounds of equity but then later, they become a bit frustrated that they have taken too much dilution.

Guess what — equity investors need to take a lot of your company in order to justify the risk they take so early on in your business. The heavy amount of equity you sell in your business needs to offset all the losers in a given investor’s portfolio (plus more).

People don’t realize that equity financing is one of the most expensive forms of financing — because you don’t feel it until years later.

The flip side is if you raise equity financing and your company does go belly up, you don’t owe anyone anything. The investor is taking all the risk here as well.

2) Revenue based financing

Revenue based financing is a bit akin of income-shared agreements (ISAs) for individuals. With revenue based financing models, an investor invests money not for shares in your company but for a repayment percentage until you hit a certain cap.

In this model, say we invest $100k and the deal is to pay 10% of your revenue every week until you hit 1.2x or $120k in total repayments. Let’s say that next week, you generate $10k in revenue, so in this model, you pay back $1000 that week. And the week after that, let’s say it’s a great week, and you generate $20k in revenue, so you pay back $2000 that week.

Now let’s say that the following week, you have a bad week, and you make $0. You pay back $0. In this model, the investor is with you through the highs and the lows — always taking 10% no matter what. If it takes you 6 months to hit $120k in repayments, that’s a great fast return for the investor, and if it takes you 3 years to repay back $120k, that’s probably a lot slower than the investor would have liked with a much lower IRR. He/she is with you through the ups and the downs — that is the risk that he/she takes.

Investors in this model make money by essentially picking companies that are generating fairly consistent revenue that have low default risk, and they are trying to target quick payback periods so that their IRR is high.

Now, let’s compare this form of investing vs equity investing. Suppose again we are pretty certain we can sell our company for $100m in 10 years, I would rather take $100k in revenue-based financing. After all, I would only have to pay back $120k instead of $5m.

But, let’s say we are at the very very beginning of our startup, and we don’t have many customers and not a lot of revenue. Equity financing allows us to keep all of the cash we make to pour back into the business. We don’t have to pay anyone out each week, and that extra cash can help us get to the $100m outcome faster on an equity investing model. Moreover, we probably wouldn’t qualify for revenue-based financing at that stage.

3) Debt financing

The last form of common early stage financing is debt financing. Unlike revenue-based financing, this is time based. This is also the cheapest form of capital but also the riskiest to the entrepreneur. In debt financing, if an investor puts $100k into your company, he/she is looking to be repaid back with interest by a certain date. So, say we do a debt investment of $100k into a company, we might ask for $120k back after 1 year (the principle plus 20% annual interest).

In addition, often, you have to personally guarantee a loan if your company cannot pay it back. Sometimes, debt financing come with warrants as well — if an entrepreneur cannot pay back the debt within a certain time period, the entrepreneur must give up other things including equity in the business.

So even though this is the cheapest form of financing, it’s also the highest risk for the entrepreneur.

Tying this all together…

Let’s analyze all of these forms of financing. First off, usually debt is the cheapest form of capital and equity is the most expensive. Now you might think, “Wait, a minute! 20% annual interest in this last example feels really expensive!” But when you compare the interest to the revenue based financing model and the equity model, it’s not.

To compare all 3 of these financing options, we need to look at the returns on the same time scale.

  • An equity investment of $100k that turns into $5m 10 years later has an average annual IRR of 48% per year.
  • A revenue-based financing investment of $100k that turns into $120k in 6 months has an average annual IRR of 44% per year.
  • And of course, a debt investment of $100k with 20% interest after 1 year has an average annual IRR of 20% per year.

Of course, if the time scale for the revenue based financing model changes, that will impact the IRR. And if the company that raised money on an equity basis exits earlier or later, that will also change the IRR for the equity-based investment.

Now of course, we are just looking strictly at what capital each scenario can provide. However, it’s possible that with a value-add investor, he/she can change the trajectory of your company. In the equity example, what if it were your $100k investor who introduced you to your would-be acquirer? Then the $5m repayment seems totally worth it. Or what if he/she introduced you to your key hire that led to the acquisition? Totally worth it.

Wrapping this up…

Even though it’s a much cheaper form of financing, founders are typically averse to debt. It’s a natural reaction, because in our personal lives, we go around saying, “Oooooh, debt is bad.” In our personal lives, debt is often bad, because your own cashflows are generally not growing faster than your interest rate. You typically are not getting 20%+ year over year raises each year.

In a startup, if your revenues are growing 20% MoM and your interest rate is only 20% year over year, you are growing your business significantly faster than your debt. And so not only will you have the cash flows to cover this 1.2x multiple of investment, but cash that you can put to use today will make your company worth (1.2^12) 9x more valuable a year from now, while you are only required to pay back 1.2x of the cash you took in.

In the early days when you have no revenue (and maybe you cannot get other forms of financing), equity financing is the least risky for you as the entrepreneur, because not only are you NOT on the hook for losses, but you can pour all revenue back into your business. But once you start to get some certainty around your revenues and some predictability around your cash flows, it may make sense to look at a blend of different forms of financing.

For example, let’s say we’ve started a business, and we are doing $12k per month in revenue and growing on average 20% MoM. What if we did $90k in equity financing and 10% in revenue based financing? If our revenue and cash flows are growing at more than 20% year over year, then this could makes total sense.

On the surface, it may seem insignificant to only raise $10k in revenue based financing, but when you think about what that could potentially become in 10 years,  using the example above, it would be $500k in liquidity in 10 years on a $100m company exit, which is pretty significant.

I think that once you have some level of understanding of your cash flows, it makes sense to look at your composition of financing and try to figure out what proportions of various forms of financing make sense based on your risk tolerance and predictability of your cash flows. I don’t think we do this enough as business owners. 

Questions a Potential Investor Might Ask:

If you are going to raise capital for your business and you are seeking an investor, you should be prepared for the types of questions you’ll get. Here are typical questions a business investor or Venture Capitalist might ask you. You might also consider these questions as you create your pitch deck presentation. See here for some winning pitch decks

Here is an article by respected writer Elizabeth Yin regarding the questions a business investor or VC might ask you. You can Follow Elizabeth here. Elizabeth is a former founder who’s reviewed over 20,000 pitches as a General Partner at Hustle Fund and as a former Partner at 500 Startups. 


  • Tell me a bit about your background and your co-founder(s)’s background.
  • How do you all know each other?  
    • How long have you worked together and in what capacity?
  • Why is your team uniquely motivated to solve this problem? 
  • Why did you pick your co-founder? 
  • Who do you need to hire during the next 18 months to be successful?
  • When was the last time you had disagreed on a business issue?  How did you resolve it?
  • Do the founders have the knowledge to build the technology or would they need outside help?
  • What does the cap table look like? (equity distribution across founders)

Problem You’re Solving

  • What is the specific problem you are solving? 
  • How big / serious of a problem is it?
  • Why is this a problem? 
  • Who has this problem?

Solution / Product

  • How are people solving this problem today? 
  • Describe your solution to this problem.
  • What effort / timing is required to switch from a different solution to yours?
  • (For deeptech) What is unique about the tech?  (Do you have any patents / IP?)
  • What are the external factors that may affect the solution? (e.g. limit usage by regulation)

Market / Market timing

  • Why now? 
    • Why hasn’t this worked / been done before? 
  • How big is this specific market? 
    • How many people does it affect? 
    • How much money are people spending to solve this?
  • What is your unfair advantage?

Customer Acquisition / Unit Economics / Go-To-Market

  • Who is your customer persona? 
    • Who is the end user? 
    • Who is the buyer?
    • What does a day-in-a-life look like for these people?  
  • How much are people paying today?  (range?) 
    • How much do you think you can charge in the future? 
  • How are you currently getting users / customers? (what customer acq channel(s)?)
  • How do you think you will get users / customers in the future? 
  • How much does it cost you currently to get a user?  And in which channel? 
  • How much does your solution/product cost (COGs)? 
    • How much will it cost in the future? 
  • Why do people buy / use your solution? 
  • What is the sales cycle to-date? 


  • What differentiates your solution from other alternatives?
  • Who are you more afraid of: Google or another startup?  
    • Who are you most afraid of? 
  • What happens if a Google (or equiv) does this?  
  • Who are the major players? 
  • What is your moat?


  • When did you start the company?
  • How many customers do you have to-date? 
    • Or how many pilots / contracts signed?
      • When are the start dates of those pilots / contracts? 
      • What are the contingencies? 
    • Or how many LOIs signed?  What do those look like?  
  • How much revenue have you generated to date? 
    • (Note: GMV is different from revenue)
    • As product revenue vs consulting / services revenue? 
    • What are your margins?  
  • Any notable customers? 
    • Any enterprise customers paying big money?  
  • What does retention or churn look like? 
  • What does engagement look like? 
  • Any upsells? 
  • When will your company break even in terms of profitability and cash flow?

Fundraising / plans

  • How much have you raised to date? 
    • At what terms? 
    • Who are your current investors?
  • How much are you looking to raise? 
    • What are you looking to achieve (milestones) with this round if everything goes well?
    • Use of proceeds?
  • Where are you in your round? 
    • Have the current terms been set?  And if so, what are they? 
  • What is your burn rate? 
  • What is your top priority for the next 3-6 months? 
  • What are your capital costs? (if capital intensive, like hardware / e-commerce)
    • Minimum batch sizes / inventory / etc? 
  • Have you secured a lead investor for the round?  If so, who and how much is the lead investing?

Connecting to Capital During Covid-19

For all of the suffering 2020 brought to Toronto, Canada and the world, crises also catalyze adaptation and innovation for good.

Leading into 2020, PWC Canada reports that Canadian VC-backed companies raised $4.1B USD in 2019. Total funding was up 16% over 469 deals despite deal activity being down 11%. 2019 was a record year leading up to 2020 and Covid-19.

Businesses are now challenged like never before; inability to meet face to face, manufacturing and supply chain interruptions, unprecedented health and welfare concerns for employees, events and gatherings outlawed in many countries and in some (fortunate) cases, managing stratospheric growth of health care and technology-based businesses.

2020 also accelerated the evolution of societal norms.

We no longer shake hands; a standard etiquette with origins in medieval times intended to establish goodwill by proving that one’s right hand did not bear a weapon.

We are comfortable using technology to connect where travel, financial costs and time were loss-leaders accepted as requirements of sales prospecting, customer and partnership interaction.

We were also forced to innovate; investing significantly in opportunities created by the vast product and service gaps expected in a post-pandemic world.

And this is where businesses are changing the world. With vision, persistence, and capital.

Founders and leaders adapted. Every aspect of business in every industry has seen innovation and opportunity. However, the greatest constraint to the rapid development and deployment of these innovative solutions is the capital required to produce and scale these evolutionary advancements.

Powerful technology to the rescue.

Fundraising and capitalization requires identification of investors, pitching, negotiations and due diligence in advance of all transactions. The vast majority of transactions fall apart during due diligence; where the business fundamentals are tested against the criteria investors set for their desired returns, timing and risk tolerances.

Simply put, a company will invest its limited time and money to identify investors, pitch investors, negotiate with investors, only to see investors walk away when a mismatch of goals and fundamentals is identified at the end of the due diligence process.

This is a tragic waste of time and resources for both companies and investors.

Starting with the end in mind, a unique technology platform was developed that enabled both companies and investors to use due diligence to filter their lead flow, protecting themselves from spending their limited time and money wining and dining, pitching and negotiating, writing legal LOI’s and MOU’s when a fundamental gap existed that would derail the deal in its final stages.

The founders of Sploda.com experienced first-hand the challenges of raising and investing capital.

When trying to raise capital, their greatest challenge was getting connected to real investors. If any introductions could be secured, the person making the introductions demanded punishing finder’s fees simply for connecting the two parties. Paying fees of 5% – 8% (or more!) of a total investment to people for making introductions would have been crazy if there were other options.

Similarly, if they hired a fundraising service, they had to sign an exclusive agreement and weren’t allowed to work with any other fundraising services or networks. It was an expensive, inefficient and limiting process being forced on companies who were already financially at risk.

Another paralyzing step in the fundraising process was the need for a company to manage the due diligence rooms for every investor reviewing their data. This meant that each month as new data arrived, every single investor had to be updated separately. The fundraising model was critically flawed.

For investors, the number of hours being wasted reviewing pitch decks and meeting with inappropriate companies was staggering. Unbelievably inefficient for people whose time truly represents money.

In Canada, Toronto was the top city for venture capital investment which also means that by volume, Toronto wasted the most time and money. Something was required to shake some common sense into an archaic process.

One round of diligence to rule them all.

Sploda.com became the solution. Operating in twenty-eight countries, Sploda connects companies of all stages (pre-revenue to profitable), public and private, in all industries to verified investors around the world.

When a company makes an update to its diligence data in Sploda.com, the update is automatically shared with all matched and future investors.

In the fundraising industry, Sploda.com is a massively disruptive technology platform. The fundraising model is filled with toxic practices like exorbitant finder’s fees, exclusive contracts limiting access to resources, and predatory transaction fees, Sploda.com connects companies to investors for a trivial monthly fee ($29.99 USD), and investors to companies for free.

Sploda.com is the only financial services network to automate the due diligence process. Their technology enables powerful filtering capabilities that significantly decrease the risk of a transaction failing in the due diligence stage of negotiations.

Investors spend five minutes selecting the criteria that they seek in an investment. Companies spend thirty minutes answering a due diligence questionnaire. Sploda’s matching algorithms automatically isolate the key data and connect the two parties when critical alignment is met.

No finder’s fee. No contracts. No exclusive service agreement.

The record 175 funding deals ($1.3B+) consummated in Toronto are the result of millions of people-hours and dollars invested. Deal volume however was not a record; five fewer invests were closed than in 2018.

A decrease in deal volume should be a surprise considering technologies now available to improve processes and procedures for identifying and pre-qualifying lead flow. With better lead flow, the same number of people should close a greater number of deals, not fewer. Toronto should have set a record in deal volume as well.

For all the tragic outcomes resulting from the COVID-19 pandemic, many positive innovations have emerged. New technologies have been developed, creating efficiencies where archaic practices remained in place. Corporate cultures leapt forward, forced to accept new norms for communication and remote project management. Perhaps most importantly, new technologies have been welcomed to disrupt established business practices and bring new and improved tools and processes to the twenty-first century.

Sploda.com is just such a technology.

Companies and investors still rely on proprietary processes to vet each other, negotiate terms and build successful ventures together. However, both companies and investors will waste less time cultivating deals that are likely to fail.

Sploda.com sends high-value lead flow to investors while enabling companies to efficiently and inexpensively connect with verified investors. Visit www.sploda.com to learn more.


How Technology is Changing Investor Relations for Public Companies

Established in 1602, the Amsterdam Stock Exchange is considered the oldest exchange in the world. It goes without saying that the same week the exchange opened, the first “investor relations” job was created.

Very little has changed since 1602 on this regard.

Public companies hire individuals and firms to broadcast news to their target investors. This news is intended to spark buying of their stock, increasing their liquidity and giving confidence to investors that they will be able to sell the stock when they choose to reap the rewards of their investment.

Tools available for broadcasting public company news include newsletter services, newspaper editorials, paid advertising on radio, tv and internet, fundraising service providers and investor relations companies. Each service offers a connection to potential investors and as such, validates its costs through share price performance metrics.

In the high stakes game of investments, fees for these services are similarly high. Often, service providers require minimum contracts of 6 months, exclusive finder’s fees payments for bought deals, unrestricted shares in the client companies and performance bonuses throughout.

Until recently however, technology hasn’t been leveraged to create efficient and inexpensive access to verified investors.

One such technology platform is Sploda.com. Sploda is unique in that it automated the first stageof the due diligence process, enabling investors to gain lead flow and insights into public companies based not on press releases but on real due diligence data.

Five minutes to sign up on Sploda.com (without charge) and after a quick verification process, investors automatically begin receiving due diligence summaries of companies that meet their unique investing criteria. Investors can open a fire hose of lead flow or tighten their filters and receive one or two leads per year. The filtering technologies are powerful when data like due diligence is available to be leveraged.

Interestingly, Sploda is 100% free for investors. Investors receive the due diligence summaries and contact information for their matched companies should they wish to learn more directly. Companies do not receive the investors’ contact information but are notified of matches, types of investors and their geographic region.

Technology platforms like Sploda.com earn their monthly subscription fees from companies who want to broadcast their investment opportunities to relevant, verified investors. A single month of unlimited matches to a global network of investors is less than lunch with a single investor target ($29.99 USD). And Sploda.com does not charge finder’s fees or require any contracts.

Targeted networking platforms are not new, just new to the quiver holding investors’ arrows.

In fact, the online dating industry proved that pre-qualified lead flow creates better odds for constructive relationships. Mismatches between people who do not agree on kids, smoking, drinking, travel, language and social interests are now managed using algorithms intended to improve the networking process for everyone.

Sploda.com brings the proven “online dating” model to the world of investors and companies seeking capital. And it is the least expensive, most efficient method for public companies to connect to verified investors anywhere on earth.

Investors will continue to benefit from listening to pitches, attending promotional events, subscribing to newsletters, and engaging other lead flow and analytic services. However, incorporating lead flow and analytic technologies like Sploda.com are no-brainers when it comes to leveraging efficient and inexpensive resources to make more money.

Visit Sploda.com to learn more.

Fundraising 2.0 – Leveraging Technology to Fill Your Pipeline Efficiently and Inexpensively

Twenty-Five Years ago, single people connected at bars, events and leveraged friends for introductions to other single people.

The dating model worked but the strategy of pitching a date to anyone accessible was also inefficient and emotionally taxing. Reasons for failure were sometimes superficial (example: no attraction) and often deeper (children/no children goals).

The global population had grown for millennia however so why change the dating model if it was not broken?

Enter stage left: online dating services. The premise that “incompatibilities could be identified in advance of people spending time and money courting other people who were not fundamentally a fit” was at first socially unacceptable.

Couples were shy to admit they met online. But more and more couples dated, got married, shared the stories of how they finally met their soul mates, and culturally it became acceptable to admit that a successful relationship could have been started from a technology platform.

The dating scene and the investing/fundraising scene are the same.

Investors and companies connect everywhere. The failure rate of first pitches may even exceed the failure rate of first dates decades ago… but investors generated returns and companies received funding.

So why change something that isn’t broken?

The opportunity for eliminating fundamental gaps between investors and companies is the exact same as the online dating solution. Where singles were no longer going on first dates with incompatible singles, investors now have access to technology platforms that protect their time and resources from being sucked up by companies that do not match their unique investment criteria.

How to choose an investing and fundraising platform? Start with the end in mind.

Investment does not happen without due diligence. Due diligence is typically the final hurdle a company must clear in advance of capital exchanging hands. Unfortunately, due diligence is often where deals collapse because the data uncovered in due diligence can reveal fundamental gaps between the two parties.

A perfect example is where two people date for a year before realizing that one of them hates the idea of marriage and the other dreams of it. Unnecessary pain and suffering for two people whose incompatibility was fundamental. It was a problem easily solved by online dating algorithms.

There is now an investment technology platform that has automated the primary due diligence process for the purpose of connecting like-minded investors and companies seeking capital.

Sploda.com is a global due diligence database of investors and companies seeking capital (equity, debt and sale). Its network includes public and private companies of every stage from every industry and investors of every type (but all must have capital intended for investment).

Brokers use Sploda to identify public company profiles with the criteria they target for investment. Fully automated, Sploda.com sends them due diligence summaries matching their criteria.

Venture Capital firms want their lead flow filtered so that their employees’ time is spent assessing high value companies. Sploda.com is used as a filtering system for every company emailing pitch decks and requesting meetings.

Companies seeking capital complete a single round of diligence for a global network of investors. Instead of having to update diligence rooms for every single investor, there is only one diligence room to update and every matched investor is automatically provided news of their progress.

How does Sploda.com work?

Companies are required to complete an automated round of due diligence in order to join Sploda.com. The online due diligence questionnaire requires approximately 30 minutes for the first round and updates can be completed in seconds.

Investors spend five minutes selecting their target due diligence criteria and are provided due diligence summaries of companies matching their goals.

Investors are matched to companies for free. Companies pay $29.99 USD per month with no other fees.

Investors receive the contact information for each matched company. Companies are notified of investor matches, the type of investor and their general location but do not receive the contact information for the investors. There are benefits to controlling the capital…

Learning from the online dating model.

An investor who targets “pre-revenue companies in the technology industry that are forecasting “X” revenue within 12 months based on a predetermined number of LOI agreements” should be able to receive introductions of companies meeting these criteria.

In this day and age, investors should not be sitting through pitches from companies that don’t meet their due diligence criteria.

And companies should not be wasting their valuable time pitching incompatible investors… “Well that’s an hour we’ll never get back” should be a phrase from the past.

Investing and fundraising is all about lead flow. If each entity fills their schedules with high-value targets, their success rates will rise. Everyone will make more money.

Sploda.com provides efficient and inexpensive lead flow for investors and companies seeking capital.

It’s time for investors and companies to date responsibly.

Investors Finally are Embracing Technology Twenty Years After Online Dating Proved it Works

Investment conferences, business pitching events, business financing workshops and wealth strategy presentations are but a few of the resources available to investors and companies who hope to make more money together.

Events of quality share unique nuggets of wisdom, tales of success and failure, and provide additional perspectives on the complex art of investing and portfolio management.

Experts on stage often highlight the importance of understanding your target markets, having industry experience incorporated in your decisions, proper due diligence and negotiation practices that extract as much value as possible from each investment and acquisition opportunity.

They also focus on disruptive companies whose technologies or widgets create a unique value proposition within their target markets. Everyone knows that a me-too product is simply playing a pricing game when a first-to-market product often ends up owning the category…

The best-known investors often share insights into their investment models and processes. Some explain how they value profit more than earnings per share. How they prefer identifying early stage companies before they become unicorns or how they diversify risk based on micro economic factors specific to each country where they target their investments.

What’s interesting is what they don’t say… They don’t discuss the archaic process of investing and why it has taken so long for investors to incorporate technology into their business models.

For millennia the investing and fundraising dance has played the same song. Companies pitch anyone who will listen and investors listen to thousands of pitches that never had a chance of being a fit. While the props being leveraged during pitches have evolved, the time wasted by both investors and companies remains largely unchanged.

The reason is cultural.

Take dating as an example. Thirty years ago, people went on dates with anyone who said “yes”. Most dates failed to advance and significant time and money was wasted wining and dining people who were fundamentally not a match.

Twenty years ago, online dating services started offering introductions to people based on emotional preferences and some personal data. People still dated before getting married but now their first dates were being filtered so that less time was wasted courting partners who were obviously not a fit.

It is important to note, while people were starting to use online dating services twenty years ago, they wouldn’t discuss it publicly. At weddings it was rarely admitted that the couples met using a dating service. It was not yet culturally acceptable to admit that technology could add value to the dating process.

Nowadays, online dating services are the commonplace. They connect people using algorithms that are intended to provide greater chances of success in meeting a mate than by natural selection.

The investment process is twenty years behind the dating process.

On stage, famous and successful investors admit freely that they waste a significant amount of time listening to pitches and companies who would never have been a fit. They date without filtering their partners…

It’s now time for investors to embrace technology in the same way online dating disrupted the dating scene.

Technologies like Sploda.com have automated the due diligence process, empowering investors to use real due diligence filters to ensure that the companies they “date” meet their investment criteria.

On Sploda.com, investors spend five minutes selecting their unique due diligence criteria and metrics. Automated algorithms filter out a global database of companies seeking capital or sale and the investors are sent due diligence summaries of the companies meeting their criteria. Free.

Why free for investors? Because cash is king and queen.

Companies pay $29.99 USD/month to have the opportunity to be matched with real investors. Businesses like Sploda.com are global networks of companies and investors and are successful based on the volume of users rather than high priced transactions.

Investors use technologies like Sploda for simple and efficient lead flow of investment and acquisition opportunities, or they can set Sploda.com up to filter every single pitch submitted to their firm.

Instead of combing through pitch decks and emails, a succinct due diligence summary for each matched company is available to investors, including the contact information for the company.

Investors’ contact information is not available to their matched companies however, investors use Sploda.com to protect their privacy while adding to their valued lead flow.

This is a technology match made in heaven.

As investors embrace disruptive technologies like Sploda.com, the fundraising dance odds improve and more transaction marriages result.

It won’t be long until investors begin admitting that they met their most celebrated investment companies using services like Sploda.com as well.

What People Won’t Tell You About Raising Capital For the First Time

You’ve got a brilliant idea for a new business. A clear path to revenue and your risks are manageable. You simply need the financial runway to start.

In the news you’ve read reports of investments into businesses you’ve never heard of. The figures are usually quite impressive (which is why they were reported in the first place), and indicators suggest that a significant amount of capital is available for investment and waiting to be deployed.

Your friends and family are supportive. You have trusted business partners who are ready to make the leap with you and good people and good ideas are a formula for success. Right?

Yes. Yes. And yes. But that doesn’t mean that raising capital for your first start up will be easy.

Understanding investors’ motivations, internal processes and goals are essential to successfully raising capital. Also, it is important to understand why some companies are funded while others are not. Comparing your opportunity to other funded companies is rarely comparing “apples to apples” and while insights can be helpful, drawing incorrect assumptions can negatively impact morale unnecessarily.

Let’s stay positive and start with the most important information first: How Investors Think.

For the purposes of this article, we won’t be discussing investors who are categorized as friends and family. The reason for this is that friends and family will support you because they care about you. They will assume that you are honest, hardworking and that you will be successful. None of this applies to a sophisticated investor; it will be up to you to convince professional investors that all of the above is accurate.

Please also note: the terms “professional” and “sophisticated” are interchangeable when labelling investors. The titles are simply meant to imply that an investor is experienced, adept at business analytics and is process driven. Repeatable processes create predictability and investors want to repeat successes and never fail twice the same way.

Let’s begin. If there is one message that you take away from this article let it be the following:

Investors want to know how much money they will make, how quickly, and at what risk.

Your role is to focus on these three questions when pitching profit-driven investors. Everything else is secondary.

The first two questions are easily addressed by your busines model’s financial forecasts. Where inexperienced companies err on these topics is that they focus on presenting the financial success of the company and fail to translate the value being created for the investor.

You need to be clear. For example: Investors need to know that if they invest $100,000 now they will receive $250,000 back in 24 months.

This, my friends, is called the “hook”.

Once the hook is set, the real work begins.

You need give the investor confidence that this investment opportunity is within their risk tolerance profile. Investors believe that the following items reduce their risk, and as a result make your proposal more attractive:

  • Have you already built a company from scratch and sold it, generating a positive return for previous investors?
    • A track record of success helps predict future success in similar ventures.
    • Often, companies reported as start ups successfully raise capital from the same investors who benefited from their previous exits together. While these are technically start ups, the people raising capital successfully secured investment for their new venture based on their track record of generating returns for investors.
  • Has another sophisticated investor already invested in your new venture?
    • The first investor is known as the “Lead Investor” and as such they endorse your venture simply by buying-in to your vision.
    • Other investors like to see 3rd party investment validation by their peers; if you’re good enough for investor “X” you are good enough for them.
  • Have you raised capital for your business already?
    • Whether debt from a bank or investment from a sophisticated investor earlier in your company history, validation from another lender/investor will give new investors confidence that your company withstood due diligence from a sophisticated entity and they endorsed your company with their own capital.
  • Have you invested a lot of your own money in your opportunity?
    • The more you have to lose (money, property, marriage…), the more confidence and investor will have that you won’t let the company fail and that their money will be protected.
  • Do you have a Board of Directors or Advisors whose credibility will influence investors?
    • Your Board helps to establish your credibility in the investment world. By putting their names behind you, they are endorsing you and your business.
    • Successful start ups are often surrounded by other successful start up leaders and investors. Credible supporters give confidence to investors that you will be as successful as your peers.

Convincing investors that they should trust you with their money is not easy for anyone. When you read about successful investment rounds in the news, it’s worth digging to better understand why they were successful. Don’t assume that other companies faced the same challenges as your start up especially when they may have had several of the issues above working in their favour.

Furthermore, set the hook deep by focusing on the “what’s in it for the investor” before focusing on what you do and what makes your company special. Investors will pay far more attention to an opportunity to make money than simply learning about a new business.

Finally, focus on de-risking your company in the eyes of investors. Recognize that there are thousands of other companies competing for investment dollars right now; investors will invest in you because you will make them a predictable return in a predictable time frame at a predictable risk level.

Raise Faster. Invest Better.