I advise my clients to be open to having a larger number of smaller investors rather than one or two big ones. Why? There are two reasons: (1) it’s easier to reach your fundraising goal when you allow lower minimums per investor and (2) when each investor puts in a relatively small amount, it is very unlikely that any of them will try to micromanage or bug you with constant requests for information. Because they have put in an amount that is not ‘make or break’ for their financial situation, they are far too busy to worry about your day-to-day decisions.
I have raised money four times from hundreds of investors, and I have never had a single one become demanding or irritating. On the contrary, all of my investors have been patient, supportive, and tolerant when things haven’t gone quite as planned.
What do you need to have in place to take care of your investors and meet your financial obligations to them?
- A professionally managed accounting system that allows you to track your investors
- A process to ensure that you have up to date contact information for your investors including W-9s so you can report to the IRS the payments you make to them
- A system for providing regular updates—a quarterly email newsletter works great
- A process for making payments to your investors in accordance with your agreement with them—this often involves sending an annual dividend or loan repayment to each investor, via check, ACH, or wire.
Of course, the more investors you have, the more time and effort may be involved in maintaining these systems and processes. I recently sent out about 140 checks to investors and am now trying to track down those who haven’t cashed their checks yet.
Don’t let the thought of these obligations deter you from raising money! Depending on how you design your offering, most of the effort happens just once a year or even less frequently. And the benefit of having supportive investors—who have no interest in telling you how to run your business—far outweighs the relatively small effort needed to treat them well and pay them for the use of their money.
If you would like to get my eyes on your particular situation, please apply for a strategy session, and we’ll reach out if it’s a fit.
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