Ep 33. Raising Money as a First Time Entrepreneur – Leonard Lanzi

The most common reason startups fail is due to a lack of funding.  Today we dive into raising money as a new entrepreneur. 

Leonard Lanzi is the Executive Director at the Los Angeles Venture Association.  He specializes in helping new entrepreneurs raise the necessary capital to get their businesses up and running.

Today we discuss the right ways to get access to capital, and how networking and forming relationships is the key to your success raising money.  Learn how you can form relationships with the right people for your company!

Key Takeaways from Our Conversation

Where Your Initial Capital Comes From

  • Have some skin in the game
  • Go out to friends and family and raise some equity
  • Today investors have many choices, and they like to invest in companies where the founder is passionate and has some skin in the game

Non-Equity Crowd Funding

  • Gives you the ability to “pre-sell” your product and raise capital without giving up any equity
  • Kickstarter or Indiegogo
  • The goal is not necessarily raising the money, but preselling your product and providing a proof of concept
  • Don’t have to give up equity and report to a bunch of investors

Equity Crowd Funding

  • You are competing against thousands of other entrepreneurs
  • Investors bet on the jockey, not the horse.  As a first time entrepreneur you are at a disadvantage to the serial entrepreneurs who have existing relationships with the venture investors.
  • Need to be careful how you solicit money from people when you have no existing relationship.  This is regulated by the SEC (Reg D vs Reg A)

Other Ways to Raise Money

  • SBIR.gov  – Small Business Innovation Research
    • Government grants available to help certain business get started
    • Workshop for entrepreneurs to understand how to raise money
  • Outright Grants
    • There are research institutions that have grants that help with R&D
    • Another way to raise money without giving up equity
  • Over Seas Capital
    • Many wealthy people over seas have children, and they want them to get a chance to come to America.
    • EB5 visa program.  Its an immigration process that allows a person to invest in a company with the promise that 10 new jobs will be formed.  
    • You do have to pay this money back over time, but you don’t give away equity or have to pay interest.  It is essentially a free loan.
  • Family Office Funding
    • Wealthy families that hired investment managers to go and seek out high-risk investments for their family portfolios.
  • Angel Investors
    • High wealth individuals with expertise in the start up community and are investing in the new entrepreneurs
  • Venture Investors
    • Typically an institutional fund where they work as agents of the limited partners 
    • They bet on the jockey, not the horse 
    • If you’re a first time entrepreneur you are at a disadvantage compared to the serial entrepreneurs who have done this before, have existing relationships with the VC’s, and had successful exits

How Should a Founder Act With Investors?

  • Act like an adult.  You are playing with other people’s money, treat it with respect.
  • Realize that your investors have expertise and they are trying to help you.  Listen to
  • them.
  • Be accountable to your investors.  Be transparent about the good news and the bad

What Should You Look for in an Investor?

  • It’s like dating.  You want more than just their dollars
  • The interview should go both ways

Connect with Leonard Lanzi

LinkedIn

http://www.lava.org

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