The #1 reason businesses fail in their first 5 – 7 years is due to lack of capital. Looking to raise money for your business? It’s a fact that businesses need capital to grow and gain market share, but what you may not know are the key ingredients investors look for when considering whether or not to invest in your business. No matter how innovative or disruptive you think your business is, if you lack these four ingredients, you won’t raise capital.
In this episode of Minority Business Access, host Solomon RC Ali, shares the top four things that he and his colleagues will look for before investing in your business, and the deal breakers that make investors walk away from the table. Is your business a good investment for an angel investor, venture capital firm, or private equity firm? Tune in to find out.
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Watch the episode here
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The #1 Reason Businesses Fail & How To Raise Money
We’re here again, to give you another wonderful demonstration and hopefully, you can find some good business tips and things of that nature. How to raise capital for your company or other companies that you might have clients for that you’re trying to raise capital for and things like that. If you’re the CEO or manager and your company made some money, here are some great tips on how to raise capital for your business.
My team went out and found another awesome video. All I’m going to do is narrate and give my two cents here and there. That should do it. I’m going to stick to my core philosophy, what I believe it takes to get there. I do that because there’s nothing new under the sun. It’s just packaged differently, but I have been successful in cornering the market in two different industries. We’ve had several companies that we have made successful in three totally different industries.
That’s why I stick to a formula that I know works. We wash, rinse, and repeat all over again. If it’s not broken, we’re not trying to fix it. Minority Business Access, I want to thank you all for reading. I hope again, we can deliver you some great tips that you can actually use in your business world. If you have any questions or anything of that nature or need more information, reach out to my team or I at SolomonRCAli.com. We’re going to get to the video now.
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“This is Daniel Ally. A lot of people ask me, how do I gain capital to start my business? How do I raise money? How do I get the money that I need in order to start my business successfully? In this video, I’m going to share with you some tips that you can use to help you do exactly that. Listen up. The first question that you have to ask is, do I have enough right now? Do I have enough skills, knowledge, money, and experience all those things? That’s what matters when it comes to starting your business in the first place.”
“There’s no point in raising capital if you don’t have the skills, if you don’t have the experience, or the know-how. You need to gain these things first and then seek money. If you do that, then you will be rich. Listen to this video because I’m about to drop some tips on you that you absolutely need. The first tip is to ask. You need to ask investors. If you’re serious, you have a business plan, and you have something in place that’s going to grow and is a promising opportunity, then you need to ask investors for the funds.”
“In order to do this, you have to understand how investors think. You have to understand that they want profit. They don’t want to play around. They want money. What that means is that you need a proven plan. You need a strategy, a marketing, a sales plan, and a brand in place necessary to prove to them that you know exactly what you’re doing. You got to ask yourself, ‘Why would an investor want to give me money? What is it that I do differently that other people don’t that can help me to secure the funds from that investor?’”
No one is going to throw money at you if you don’t have any proven experience.
I agree 110% of everything he’s actually saying. Here’s the thing though, when you’re trying to get money, it is critical that you understand your use of proceeds. Why are you trying to get the money and exactly how much you’re trying to get? Also, what the investors are looking for in return. That’s critical. That’s huge. The next thing you have to understand is, who’s on your team? Who are the consultants that are helping and guiding you? Who is the management team? Who’s the CEO? Have you been operating the business in the past or is this a startup? What’s your previous track record? All of this is important.
Running a business is totally different and asking people for the money, they’re looking at various things. When I invest, here’s what I look for. I invest millions of dollars into companies, but here’s what I look for. I look for, one, what is management doing? How has management performed in the past? Two, is it an upward trend within their industry? Three, and this is important, does the company have a chance to have either double-digit growth or triple-digit growth? It must have one or the other. I particularly like triple-digit growth, which means I want to see the revenue grow by triple digits. I want to say a $1 million company go to let’s say a $3 million, $4 million company. I’m looking for that.
The next thing I’m looking for, and most other investors are, is the use of proceeds. I don’t want to see my money going to pay off your previous debts or your previous mistakes. I want to see my money that’s going to be used to move the company forward, to scalability, to grow that company. Those are the things that I look for. There’s a lot more than I look at and look for but he’s on the right track. We’re going to play the video some more, and I’m going to chime in from time to time. If you’re a CEO or management team, you’re looking for money, and you’re trying to understand what it is that an investor, private equity, or VC is looking for, those are some of the things that I mentioned that they are looking for. It’s a must.
There’s a lot more that’s involved, things that we look for, but those four things I’ve shared with you are a must. That’s the cornerstone before you got to get any money. The next piece that we’re going to talk about a little bit later, that’s the structuring of your deal. How much equity you’ve given me? How much returns am I getting? If you sit back and tell me, “The bank is paying out a 3% return. Solomon, I’ll give you 10%,” you’re not getting my money. Let’s go back to the video.
“What I’m saying this is that no one is going to throw money at you if you don’t have any proven experience. If you’re coming out of nowhere and you’re saying give me money without showing them anything on paper, there’s no way they’re ever going to give you the money. If you come with that business plan, if you come with that experience, if you sound like you know what you’re doing and you look like that person who has potential to grow that business, then those investors will fork up the money.”
All of you who know me or follow me know this. You don’t have to lie. You don’t have to cheat. You don’t have to steal. You do have to do the work. You might be able to pull that off with a green investor, but you can’t come to a true investor and ask for money if you don’t know your business, if you don’t know your craft. You can’t perpetuate it, you can’t fake it until you make it. That’s not going to work. You must know your craft, you must be able to do the work. You can’t lie, you can’t steal, you can’t cheat a real investor. You must be able to do the work. He will see through that perpetrating. Don’t even try it. If you’re not ready, learn your craft first. Be able to do the business, be able to do the things you say you can do before you go ask somebody for some money.
“The second way to raise money in your business is through credit. There are all kinds of credit options that you can take. You can borrow money from your family. You can take a loan from the bank. You can use credit cards but either way, you got to understand that money has to be paid back. When it comes to borrowing money, you have to understand how credit works. Yes, there’s a payback period, whether it’s 5 years, 10 years, 20 years, you got to pay back that loan.”
Raising Money: Running a business is totally different than asking people for money.
“Yes, there’s the interest rate, maybe it’s 5% or 10% but either way, you’ve got to pay the interest. Yes, when you borrow money, there’s a little timeframe in which you have to pay it back. Not only for the timeframe that you have for the loan but the timeframe that you have for yourself and your own personal goals. There’s a big history of so many entrepreneurs who have borrowed money from their parents, from the banks, from their credit cards in order to make their business happen.”
“Don’t be afraid to use credit. Use it as an advantage and never use it as a liability. If you use it correctly, you will be able to grow your business in the future. The third way to gain more capital in your business is to collaborate. Maybe there are people in your life that want to give you some of their money, that want to give you some of their time, experience, and knowledge. Maybe they have some resources that you can use. You need to understand that collaboration is a great way to start a business.”
He used the word collaborate. I’m going to use the word called networking. Network with other people. Share your vision, share your dream, share what you’re doing. Let people know what you’re doing. People are willing to help if you’re earnestly are trying to get it done. People will be willing to help. If you’re turning around and you say, “I’m in business. I have this business.” You do work the business two hours a day and every time someone calls you or whatever, you’re at the mall, you’re out shopping, you’re eating, or things of that nature, or if your person is always making excuses, I’m not investing with you. I’m not going to take you seriously, and neither is anyone else.
If you’re out there and you’re doing this, you’re doing the work. You’re putting in 10, 12, 15-hour days, 6, 7 days a week, and every time you’re talking to someone, you’re on your way to take care of your business. Now, people are like, “Wow, they’re good at what they’re doing.” “Wow, I need to be a part of that because when they blow up, I want to be a part of it so I can blow up too. I’m willing to take some money out of my pocket and put it on the table for it. I know you’re going to blow up because you’re putting way too much time in it for it not to manifest.”
“When it manifests for you, I want to be a part of that because it’s going to manifest for me as well because I was one of your first investors.” I like investing in companies and investing in people in their early stages. What I’m talking about is I don’t particularly like startups. Those who read this, I don’t believe in startups. I will tell you to buy a company. Save your money and everything, put a group of people together, and buy a business first, and whatever great super idea you have, add to that business line.
That advice will save you a lot of heartaches. I like people when I turn around and I’m investing with them, if they’re going to scale their business, I like these companies right before they go public or right after they go public. I have found that’s where the huge returns are. There are many different types of investors. You have debt investors, people who will loan you money. They will collateralize it with the assets and things of that nature you have, the contracts, or whatever it may be. You have a way the banks will do it. You have people who will provide you with a line of credit. You have equity investors, who are going to take a piece of your business.
People are willing to help if you’re earnestly trying to get something done.
Depending on the structure, you have an investor like myself who does mostly private equity. Here’s what we’re going to do at Solomon RC Ali, when we help you to arrange capital, most of our deals is a combination of debt and equity. It’s long-term. It’s all dependent and always based on your growth and performance that determine how much equity you’re going to be giving up and things like that. That’s important to understand, the structure of what an investor is actually looking for, why they’re looking for it, and why do they need it?
“I had a friend that wanted to start a business, but all she had saved up was $10,000. Now, she needed $40,000 in total. The question was, where would she get the extra $30,000. Thankfully, she had a supportive system, and her three friends stepped up. Not only did they give her the money that she needed, but they also gave the time, the experience, and the knowledge necessary to help that business take off. Now, she’s a multimillionaire because she collaborated with her friends, and made that investment. Do you have some people in your life that have the same vision, that has the same ideals, that have the same values? If you do, then you need to write them a letter, pay them a visit, or give them a call.”
“The fourth way to gain capital in your business is to earn more money. This, sometimes, could be the longest way, but it can also be the best. If you can find a way to save up a certain amount of money, then you can eventually use that money that you’ve saved to invest in your business. There are some people who start a business that think they need so much money. They write down all the expenses that they have, and they calculate a price that’s higher than they need to pay. What you need to understand is that not everything needs to be bought at once. Some of those purchases could be delayed, some of those purchases could be discounted, and you can find them for a bargain.”
A lot of you do exactly what he’s talking about. You turn around and you punch a budget together. In that budget, you say, “I need $3 or $4 million.” Some of the money that you need, you don’t actually need. However, that being said, I have found, in my years of experience, that most of the time, CEOs and management teams need more money than they actually thought they needed initially. Here’s the reason why. Typically, they burn through money because they don’t have a good solid, plan. The plan that they initially had normally gets changed or they modify.
Think of it this way, they have sold you on something, they sold me on something, and to come back and try to rework the plan six months or a year later and do a whole 180 on it means you didn’t know what you were talking about and doing in the first place. The other thing I want you to keep in mind, sometimes, what you may need is a partner who can qualify for the various loans, who can qualify to get that money, that investment into your business. They can turn around and lease the equipment that you may need, who can lease the facilities that you may need, sometimes, that’s all you actually need.
You don’t know that because you don’t truly understand. You’re so focused on the wrong things. One of the things at Solomon RC Ali Corporation that we do is this, we help CEOs find out exactly how much they may need and put a good solid strategic plan for their growth, for their scalability, for the use of their proceeds, and things of that nature. We then arrange investors for them to actually talk to. They then negotiate the deals, but when they go in to talk to those investors, guess what they know?
They understand what those investors are looking for. They understand why those investors are looking for, and they understand what they may have to give up ahead of time. It’s not a waste of the investor’s time nor is it a waste of the CEO’s time. I don’t negotiate the deals for people, I just say, “Here’s party B, the lender, the investor. Here’s what they look for typically. Here’s the company. It’s a good fit and a good model for what you guys invest in. You guys may be a good match.” I put them together. That’s why we say arrange the funding and the capital. A lot of times, guess what? It works out. That’s because we’re good at what we do.
Raising Money: Not everything needs to be bought at once. Some of those purchases could be delayed to gain access to discounts and bargains.
“Some of those purchases could be borrowed, and you don’t even have to pay for it at all. Let me give you an example. There’s a guy that wanted to start a YouTube channel. He had in his mind that he needed $50,000 in order to grow a successful YouTube channel. On this list that he created, he wanted everything. He wanted the most expensive camera. He wanted the most expensive advertising budget. He wanted the most expensive PR firm, but he didn’t need all that.”
I was a part of a technology company. I was brought in as an officer and the director responsible for raising the company’s money. I raised them somewhere between $3 and $5 million in a short period of time. That being said, they wanted to build the Rolls Royce of cameras. My first question was, “How do you compete with companies like Sony and Panasonic?” I started naming all these different people who made cameras, security systems, and things of that nature. They had no clue or idea. All they thought was what they had in their intellectual property was the best thing since sliced bread.
It was, to a certain degree, but we had to bring some more people in. We had to change our thinking. We had to go from thinking about manufacturing something to, let’s go and license our intellectual property where the barriers of entry to the marketplace were a lot more frugal. It’s cheaper to actually enter that marketplace versus trying to manufacture and compete with huge companies that put out cameras and things of that nature.
Those are the things that we’re talking about. Sometimes, the CEOs have an idea where they want to go, but they don’t know how to get there. The vision may need to be tweaked a little bit. The thing I always ask the CEO is, “Do you want to have a vision that dies on the vine, or do you want to have a vision that ends up being successful? You choose.” We’re going to get back to the video, and then we’re going to go ahead and try to wrap it up and keep it quick.
“All he needed was an iPhone and some good camera lighting so he can start his YouTube channel. All of that costs less than $1,000 for him. What I’m basically saying is, how much money do you need? Do you need $50,000 or do you need $1,000? What’s important is that you start. You don’t have to keep on delaying by thinking that you don’t have enough money to start with what you have, see where it goes, and build the confidence and eventually more money.”
I like this guy. A good-looking guy. A smile on his face, excited and enthusiastic. When you start a journey, you must ensure that you have the proper equipment, that you are ready for the journey. Never start or go into a business without being properly prepared. Before you spend one dime, you need to sit down with a consultant, whether it’s someone like myself at Solomon RC Ali Corporation or somebody on my team. You need to sit down with someone and go over your vision and business plan to see if it’s realistic and it’s practical before you spend one dime.
Use your money to go ahead and get more money.
The next thing that I have found that most businesses fail is because of a lack of capital. Almost all businesses fail within the first 5 to 7 years because they lack capital. Why do they have a lack of capital? It’s because they use the money incorrectly. They do the things that they think are important without consulting a professional first, who can help guide them and say, “No, you don’t want to spend that money here. Because if you spend it here, you’re going to step in a booby trap.” You then won’t have any more money.
When you talk to people like us, we’re going to tell you, “That’s a booby-trapped there. You want to come up and go around.” It’s important to use consultants. You think it’s more expensive, but it’s not. It will save you a lot of heartaches. It will save you a lot of money. The next thing is, before you spend your money, think about using your money to raise more capital. The number one reason businesses fail in the first 5 to 7 years is because of a lack of capital.
“Why would I use my money and go buy some equipment, go set up a website, and go buy some business cards? No, sir. I’m not doing that.” Now, just like you, I’ve made that mistake time and time again. I got a pretty big kit, so I kept having to learn the hard way because I kept taking whatever money I had and throwing it into a business. When I lost it all, I had to wait and go work 2 or 3 jobs to get some more money. Guess what I did? Yes, I did. I threw it into the next business, and then lost it all again.
Finally, some people say I got lucky. I don’t know if it was luck or not. All of a sudden, I had a successful business. Once I understood the keys, I can prop them up. That’s the key. I’m telling you from personal experience, if someone would have told me that, I probably wouldn’t have believed them. I probably would have been like you because you want to get started. That’s what everyone says, “Get started.” Bull. Don’t just get started.
Use your money to go ahead and get more money. Money attracts money. Don’t go put on a dang fancy suit. Don’t go buy a dang fancy suit and say, “I’m looking good. I’m trying to attract money.” Don’t go buy a car you can’t afford or a house. Don’t go do that. That’s not what I’m talking about. Not even close. What I’m speaking about is something that’s simple. You hire someone who can go raise you the capital that you need to launch your business or to buy a business successfully. Now, all of you who know, I like purchasing businesses. I would like for you to purchase a business. I would not like to see you launch a startup. It is extremely difficult to launch a startup. You must have a strong network in place starting with your board of directors. They must know people.
If you’re going to launch a business from scratch, you need a good, solid Board of Directors, who’s going to hire the right CEO. It may not be you. If you want it to be successful, you’re going to have to pick. Do you want a successful business or are you on an ego trip? You got to determine what it is because you’re trying to start something that you don’t know anything about probably managing people, leading people, or business. You may not know anything about marketing. Let’s say you know everything about financials because you’re a CPA, you’ve been an auditor, accountant, or something like that. You might know that skillset, but you don’t know anything about the other things. Those other things are extremely important. They’re critical. When you run a business, everything has to hit on all cylinders.
Raising Money: Sometimes, CEOs have an idea of where they want to go but don’t know how to get there. Therefore, the vision must be tweaked a little bit.
“Sell your possessions. Sell that extra yacht you might have. Sell that extra car. Sell those collectible guitars. Sell that PlayStation 4, or whatever it is. Make sure you sell so you can liquidate and eventually put that money back into your business because that’s what you’re going to be putting most of your time into anyway. If you look around your house, there are probably so many things that you can sell, maybe your furniture, fish tank, or extra bedroom sets. Whatever it is, try to use that money to your advantage so you can grow your business. Sometimes this is hard to do, but this is a necessary step that many people need to take in order to get started.”
He forgot one quick sale. He’s doing a good job, sell all your assets and things of that nature and put it into your business. That’s great. When you form the right legal entity, sell your stock. Sell your membership interest. That’s what we’re talking about here. Your business has value so sell that. The whole idea is not to bring the pain home. It’s to let other people share in your dream and your vision. Let them reap some profits, rewards, and things of that nature.
Sell the stock and things of that nature, but sell it properly. You have to hire attorneys to put your private placement and everything together but sell the stock. That’s what I was talking about when I said use your money that you already have to go ahead and hire the attorney to put a private placement together so that you can go ahead and properly raise more capital. That’s going public so that you have access to more capital.
You hear me use a lot of the times Amazon. They were basically losing money for 14.5, 15 years. The CEO comes in saying, “Don’t ask me when we’re going to make money. I don’t know. We’re working our plan.” He stayed faithful to working his plan and look at him now. That’s what I’m saying to you. Don’t just go ahead and sell and then use the money to buy some equipment or buy this. You’re going to be out of business. Use the money to get more money. Money attracts money. I’m sorry, that’s the way it is. I didn’t create it. It’s the universal law.
Don’t go perpetrating, don’t go driving a fancy car that you can’t afford. Don’t buy fancy clothes and putting them on credit. That doesn’t make any sense. People who have money can see right through that. They’re looking to invest in your dream because they’re betting that you can make it and that they will receive some of the returns as well from you doing the work and fulfilling your dream. Hire the right people. Let’s say, in this case, you want to sell some stock, sell some stock. Before you can sell the stock, what do you need to do? You need to hire a law firm.
A lot of people come to us and say, “Before I even talk to a law firm, the CPAs, accountants, or auditors, I need to have a good strategy.” That’s where Solomon RC Ali Corporation and his team come in. We help get you prepared to have the right conversations, to have that intelligent conversation, the things that you don’t know to actually say and ask of the attorneys, of your accounting people, and things of that nature.
If you’re asking someone for money, be prepared to know what you need to give them in return.
It’s important to get the right people around you. They will save you a lot of heartaches, a lot of money, and help you to make money because now you get to leverage their network. You get to leverage the network of a Solomon RC Ali Corporation, that law firm, the accounting. If you don’t know that you can leverage all that, you’re going to go in and start writing checks and spending money. You’re never going to think about something as simple as, “Who are your client? Which one of your clients can you introduce me to that can help me in my business and fulfill our dream?” Keep that in mind. We’re going to get back to this video here.
“I remember in my first year of business when I was facing financial struggles, I looked around the house and I needed $500 in order to keep on living. I sold my cuffs, my rug, and everything in my house. I got that money. Here I am to testify to you. I shared with you five tips that you need in order to grow your business and help it succeed. If you have any more ideas, please leave them in the comment section below. Subscribe to my channel and hit that notification button so I can keep on helping you grow your business, fix your mindset, and do the best you can in your life. See you next time.”
Everything’s important. Every decision you make in business is extremely important. When you’re talking to investors, whether it’s a green investor, a seasoned investor, private equity, VCs, or hedge funds, all of this is extremely important. Please, you must go prepare. You must have a plan. You can’t go half-stepping, you can’t go perpetrating or faking the funk. To have a plan means one simple thing, it’s been well thought out and you have used other private consultants to assist you, who have more experience in it than you do. They must have more experience than you do. Don’t go to your brother who has a friend or a cousin that can help you do this unless they are the best at what they do and have been known for doing it within their industry.
The other thing you want to always keep in mind is this. If you’re asking someone for money, be prepared to know exactly what it is that you are prepared to give them in return. The money is worth what the money is worth. Your dream and your vision may or may not be worth anything. They’re betting on you. If you’re going to be betting on yourself and you want the money, you must be prepared and understand what it is that you have to give up. The money is saying, “I believe that you can execute. I believe that you can bring this to fruition,” but they want something in return.
All that being said, I want to thank you for reading. It’s been a hoot going through all of this and I hope I’ve shared some valuable information for you. I know in my life, it has been extremely important. I wish someone would have shared this information with me. I wish there were podcasts and things of that nature you could go to. I wish there was a Solomon RC Ali Corporation. By the way, go to SolomonRCAli.info.
Most of you already reading Minority Business Access, MBA, please share it with a friend. If you know someone that’s about to go start a business, doing business, running a business, might be having problems, share this with them. They may come across the content that they need to help them out of a spot. I want to thank you. Keep in mind, I got a book coming out in late 2021. It’s going to be a game-changer for those who are looking to avoid the minefield. I’ve already made a path. I know where the mines are, I know how to avoid them. You can follow me right through the mines, and we can get you out there and get you winning.