Carol shares her insider’s scoop on the do’s and don’ts of raising capital in the first article of the series, “Small Business Guide to Raising Capital, Part 1: Don’t be Greedy,” on the Bank of America Small Business Community. Carol begins:

Raising capital for businesses is hard and often misunderstood.  As a “recovering” investment banker, I have helped my clients raise 10-figures in capital over the past 15 years, and have witnessed many individuals who failed to present a compelling, fundable story about their businesses (and themselves).

In my unscientific but thorough poll of entrepreneurs, 99% rank raising capital amongst their five least favorite business activities. Hopefully, I can help make sense of the capital-raising process to make it more tolerable – and valuable – for you.

To start this three-part series on raising capital, I’ll focus on the key mistakes you must avoid to save time, money and energy while increasing your chances of success when raising money for your business.

Mistake #1: Putting all Your Eggs in One Basket

The very first capital raising mistake relates to not raising outside capital at all.  Statistics show that the typical start-up business in the U.S. is self-funded from the entrepreneur’s own savings and supplemented with some personal credit card debt.  However, part of balancing risks and rewards is using diversification.

It is important for you as an entrepreneur to show your commitment to your business by investing some of your own capital.  This is a safeguard to ensure that you are incentivized to do everything you can to make the business successful.  However, if you are putting every last dime into your business, all of your eggs will be in that one darn basket.

How to avoid this mistake:

  • Don’t bet the farm on your business.
  • If you don’t have enough money to live on and invest in your business, then: (I) wait until you have more money saved, (II) see if you can revise your budget or (III) consider taking outside capital.

Mistake #2: Undercapitalizing Your Business

A large percentage of businesses close because they don’t have enough money to survive the rocky first couple of years of business.

I have found that early-stage and new business owners underestimate the cost of starting and running the business virtually every time (usually by a factor of 3).

You can read the rest of the post here.