Ask an MBA: Raising Money for Your Business (Pt. 2)


What is it like to raise money for your business?

- Stephen A.

Read Pt. 1 here (or else it's like walking into the movie theatre 40 minutes late).

A magazine cover and a fist slam on an expensive table were not going to get us the $2 million. We had to earn that the old-fashioned way; with hustle.

We locked ourselves in a room for a week to write our plan and practice our pitch. And then we flew out to Chicago. And Cleveland. And San Fran. And Los Angeles. And Seattle. Each stop found us in front of a new group of private investors.

To raise the money, we also needed a lawyer to draft something called a PPM -- a Private Placement Memorandum – which is the contract we’d have with the investors. However, there was a time limit to fund the investment (required by law). So if we didn’t raise a minimum of $1.8 M by December 31st, it was over and all money being held to date would have to be returned.

By the fourth or fifth investor meeting, we had an unstoppable flow, like watching a top-tier Euro football club passing the ball with precision. We found people were willing to kick in $20k here and $10k there, but we were still a long way from $2 million.

What we needed (we were told) was an anchor investor, someone who would take down $1M or more. Then it would be a slam dunk to fill out the rest.

We were introduced to a “fund run out of the Cayman Islands”, managed by two guys straight out of the Sopranos crew. Hey, you have a cool mil for us? We’ll overlook the track suits.

Although I had been under pressure from the seed investors and my partners for a while, I finally quit my job when we received the $1M commitment letter.

Big mistake. Lesson: don’t quit your job until you ACTUALLY get the money.

The million dollar check was scheduled to arrive on my desk the first day I started at our new office. And as of eight weeks after that day (and a load of increasingly bizarre excuses), it still hadn’t arrived. It’s enough to make you want to knock over a pork store.

We budgeted the $125,000 seed infusion to last us six months, and D-Day was approaching rapidly. Eventually, we received official word that the money from our Bada-Bing contingent wasn’t coming. The final excuse: a banking scandal forced the British Exchequer to freeze any money flowing out of the Cayman Islands.

Yet for some unknown reason, it actually surprised me that Tony and Pauly hadn’t come through. If you can’t trust men in crushed velour, it’s a sad, sad world.

So with all of my savings wrapped in the business, no money coming in, and an apartment that had recently flooded, I felt more than a bit desperate. We had less than 12 weeks left to raise seven figures, something we couldn’t do in the seven months prior.

And that’s when the grit kicked in.

I’ve always felt that every problem could be solved with a little creativity. That might be naïve bullsh*t, but sometimes that’s all we have to get us through rough patches.

My partners and I had been attending a lot of conferences on the (new) subject of digital music.  One recurring theme: whichever company would be the first to break or chart a single via solely digital means had a golden ticket.

At the time, simply having a track available digitally was a novelty, let alone charting a single that way. But having a foot in the door of each of the “old “and “new” music businesses, I had an idea to pull it off.

The Billboard Dance Club Play chart is based on the number of DJ’s reporting that they are playing a particular song in a club. If you get enough of them to report your single, it will appear on that chart. So we purchased a master recording of a cool dance track, had it remixed by two prominent DJ’s and were on our way to being the first company to chart a digital-only  track in Billboard.

We borrowed money to pay for a PR firm to trumpet this accomplishment and received worldwide headlines (including our old favorite Rolling Stone). And we did this in the span of a few weeks.

[Yes, I am aware this charting was not based on sales or radio play, but sometimes a tense situation demands bending the rules a little].

One of our financial advisors -- the one who introduced us to the Cayman fund guys --  found us an Australian investor to take down the $1M anchor.  That investor, without question, came on board because he was impressed with our Billboard coup. The rest of the money came in pretty easily from there.

Once we passed the threshold to break escrow on the money, our lawyers wired it to our account (which by this time had less than $1,000). Talk about getting in under the wire; we were a couple of weeks away from folding the business.

And our roller coaster beginning was about to get a little crazier.


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John Lavallo57 Posts

John is Columbia Business School MBA with expertise in marketing, business leadership, and law. John is a successful entrepreneur who took his first company public. He currently resides in New York City.