When it comes to raising capital, I’ve always followed bank robber Willie Sutton’s sage advice. I go where the money is.
That’s why, when I met with one of my clients at his Brooklyn restaurant last week, I was thrilled to hear that, after months of trying, he had finally found an investor to back the restaurant that he’s opening up the street from his existing location.
And just who was this mysterious investor who seemingly popped up out of nowhere to write that big check? Well, it wasn’t a hedge fund manager, a private-equity tycoon or a dot.com millionaire. It was a local restaurateur who’d known my client for years and wanted to get in on the ground floor of his new concept. After a brief negotiation, my client told his new partner how much money he needed, and they shook hands on the deal.
Funny, isn’t it? Just a few weeks before, my client had told me that he was going to walk away from the bargain-basement lease the landlord had offered him on his new space because he couldn’t find an investor to commit. Now, all of a sudden, he was flush with cash–and confidence.
Clearly, there are some lessons to be learned here. First and most important, don’t assume that, because big spenders have money, they’re going to invest it in your business–especially not these days. Second, pitch investors who know you and your business, and who share your vision of the marketplace. While a Wall Street guy might take a flyer on a new restaurant if he gets a big bonus, a successful restaurateur who knows the neighborhood and the cuisine is more likely to double down on an already successful bet.
The bottom line: Apart from friends and family, the investors most likely to say “yes” to backing your company are entrepreneurs who know your business and understand the risk. Like my client, you’ll never know until you ask.
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