“Roughly speaking, investments break down into two forms: debt and equity. You take on debt when you borrow money from a lender, and pay interest on that investment. You are compelled to repay the money with interest over time. Or, you can take on an equity investment — in which you sell a portion of the company to an investor in return for cash or something else of value. Each source carries advantages and disadvantages. Consider them well before making choices, for finance decisions are hard to undo. It’s not enough to find lenders and investors; you have to pick the right ones. Try to find investors who bring more than cash to the table. Look for supporters who can help you with financial advice, technical assistance, or who can connect you with key customers. Seek patient capital from a sage who can listen to your problems over breakfast and set you straight by the time you reach the offices. ‘Capital raising should be an extending circle,’ says Scott Shaw, founder of the Austin Grill, a successful Tex-Mex restaurant in Washington, DC. He explains that you start small with an immediate group of investors who can help you directly. Then you gradually build on that platform, seeking larger amounts from people you come to meet and with whom you will probably have a more formal relationship. Shaw also counsels that you “listen to the capital markets.” They may be trying to tell you something about your venture. If you’re having trouble raising money, there may be a very good reason why. If you are going out to seek capital — and the associated advice — from people who may have more experience, it’s a good idea to listen to them! They may know something you don’t.”
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