How to Raise Capital on Your Own Terms

Entrepreneur and author Jenny Kassan explains why venture capital may not be the best path for everyone.
February 14, 2018

Jenny Kassan is an entrepreneur, attorney and coach, and the founder of Jenny Kassan Consulting in Fremont, California. She has spent much of her 22-year career working with women and mission-driven entrepreneurs to raise capital and grow healthy businesses. Her new book, Raise Capital on Your Own Terms: How to Fund Your Business Without Selling Your Soul, draws on this experience to demystify the fundraising process and provide a step-by-step guide. Here, Kassan speaks about the vast range of options that are available to entrepreneurs—including what she calls "the most overlooked and abundant source of capital."

What led you to write this book?

I've been helping mission-driven entrepreneurs raise money for a little over ten years, and it's been surprising to me how many entrepreneurs don't know what the options are for raising money. And it's not just entrepreneurs, but also lawyers and advisors. So they tend to steer their clients down the same cookie cutter path, which is not always the best idea.

And that path is ... ?

A lot of entrepreneurs read about the Silicon Valley venture capital model and think that's their only option. That model often involves giving up control and being pushed to grow as fast as possible. It puts the growth imperative above all else, include profitability. And that can kill a company.

Don't be in such a rush to talk to investors. Take the time to create your strategy first.

—Jenny Kassan, author, Raise Capital on Your Own Terms: How to Fund Your Business Without Selling Your Soul

Instead of assuming that entrepreneurs must accept the standard Silicon Valley terms, I turn things on their head by saying, no, figure out what you want for your life and your business—what pace do you want to grow at? What are your values? Then design an offering that fits your goals, and go out and find investors that will invest on those terms. You can be creative about your terms; for example, how investors are paid back or whether they have voting rights.

There are so many ways to raise money.

Good news for many entrepreneurs! What are some of those ways?

Professional investors, including venture capitalists, angel investors and private family offices, account for just a tiny percentage of the population of the total pool of investors. I encourage my clients to go after the investor population who are not professional investors. It's the most abundant but overlooked source of business funding! They're not all wealthy, but they have the ability to invest some amount in your business. They may be your customers or just people who believe in what you're doing. If you are super passionate about what you're doing and trying to change the world for the better, people will see that and want to be a part of it.

So how does that work?

Raising money is a regulated activity; you have to comply with securities laws that are designed to protect investors. The general rule is that before you make an investment offering, you must register with both the federal government—the Securities & Exchange Commission—as well as every state where you will be offering the security. That's costly for many entrepreneurs.

There have always been exemptions from those rules, even if they weren't well known. But recent legal changes make offering securities to the public a lot easier. In particular, the JOBS Act of 2012 added some new exemptions that make it easier for entrepreneurs to offer investment opportunities more widely, including via investment crowdfunding.

Are there particular challenges that women face?

I do find that women entrepreneurs have extra challenges when it comes to raising money. There are so many issues! There's kind of this image that people—unfortunately both men and women—have when they think of an entrepreneur, and that image more often than not is a man. That leads to a lot of bias. I hear stories about women getting grilled more than their male peers, and research has demonstrated this occurs. Investors need a little more convincing that this woman can do it, where with a man, there's this automatic belief that he can. The fact is, women are actually better at running ventures and returning money to their investors!

So there's bias, but also our own limiting beliefs and fears. I hear the same things over and over from women: What if I lose my investors' money? Or, how can I ask someone to take a risk on my business? My theory is that women feel a lot more of an obligation to steward people's money. They don't want to lose it. But what many male entrepreneurs realize is that investors know they are taking a risk. And Silicon Valley even celebrates failure.

Limiting beliefs are simply thoughts and you can choose not to listen to them.

Can you give an example of an entrepreneur who raised capital on her own terms?

One of my clients has a very interesting business called Recompose—it's a natural way to return people to the earth after they die. But it will take some lobbying to make it legal. Her projections don't show her becoming profitable for at least five years, and she has no intention of selling the business. But it has the ability to grow and be profitable, and people are drawn to the potential social and environmental impact of her company. So she's looking for very patient investors. And she's telling them, we're not looking to sell the company, but when we're profitable we'll pay a dividend and provide a way that we can buy back your stock if you want to sell. Investors also have no voting rights. She's raised several hundred thousand dollars so far, because she's so passionate about what she's doing.

Any advice for entrepreneurs who are starting the capital raising process?

Don't be in such a rush to talk to investors. Take the time to create your strategy first. I've seen people waste a year or more talking to investors that were not the right fit. When I work with my clients we take about six weeks to put together a really good plan. Then you won't do the 'spray and pray' strategy.

Also, don't be intimidated by the process or focus on the jargon. Raising money is mostly common sense. If things don't make sense to you, don't second guess yourself—maybe it just doesn't make sense!

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