Don Sharp understands what it takes to raise capital. The CEO of Coolfire Solutions earned his fundraising stripes at an early-stage company, but his lessons learned can be applied to more established companies as well.
For example, Sharp says a company’s relationships to its investors is a lot like a company’s relationship to its customers — you want them to stick around.
“It’s always easier generate more revenue from existing customers than to try to find a new one,” Sharp says. “The same things true in raising capital. Ideally you want investors to stay with you and continue to invest. And they typically will if things are continuing to progress and go well.”
While it might seem natural for companies to chase capital, especially in a market in which lots of money is waiting on the sidelines to be invested, there are things business owners don’t fully understand about what it means to take on capital.
Smart Business Dealmakers talked with Sharp about raising capital, nurturing investor relationships and what should be understood when faced with the decision of whether, or whether not, to take on outside capital.
Nurturing the relationship
Just like with any customer, you need to spend time working on your relationship with your investors, continuing to nurture that relationship, be responsive to their questions. Companies in an investor relationship should try to understand what are their objectives, what are they trying to achieve with the investment, to make sure that the goals of the company and the goals of the investor are still aligned along the way. Where they’re not, be sure to address those.
“And also, for us, it includes really spending time with our board, helping the board build relationships amongst themselves because you want a board that works well together, works well with each other,” Sharp says. “It’s important to have a well-functioning board, a responsive board, one where they play an active role and feel like their voice matters. So for us we make sure we do things to build relationships among the board members to make sure all those things happen.”
Capital raising, Sharp notes, tends to beget more capital raising. Where progress is shown, there tends to be a need to increase capital funding. That could mean being on the lookout for new investors, whether it’s strategic investors, venture capital firms, growth equity firms, whatever it might be.
To keep the capital pipeline full, Sharp keeps in touch with lots of growth equity firms on a regular basis, at least a couple of times a year, trying to build relationships with them, give them updates on what's going on, make sure they understand his company, what the business is all about, and all the excitement that he sees in his business.
“You have to continue to engage with potential future investors and try to figure out, how do I get that next round? Who do I get to lead it? It's really an ongoing process. You can't stop,” he says. “I do see people do that sometimes and it's not a good thing because it’s hard to get things restarted once you stop.”
Fear and missed opportunities
One aspect of raising capital that he sees people not fully grasp is control. Companies that accept capital lose control. The founder/operator is no longer the only one in charge of the business. There’s likely going to be a board that will want to provide guidance and in some cases tell the CEO what to do. That can be an unexpected change for some.
“The minute you take any outside money, the world changes,” Sharp says.
But there’s another aspect that can go unconsidered: the consequences of not taking capital.
“I also see multiple cases where people had a great idea and a great business, but they were so paranoid about giving up control that they didn't bring in outside money,” Sharp says. “In some cases the business — you either grow or die, is the old phrase — and they didn't grow, so they died. And these are businesses that I absolutely believe had they brought on some capital to help grow and accelerate the business, it could have been a really successful, great business.”