How To Raise Capital For Your Business
The principles of raising capital apply regardless of the number of employees. Dan Peña learned most of them while having no employees. The first year in business Dan made $50,540,000 in revenue by himself – with NO employees!
Dan Peña made over 300 one on one financial presentations on five continents and has been turned down more times than anyone. There is always a financial institution somewhere that will finance a deal regardless of how “weird” the deal might be.
When a bank opens a new branch, that branch has no customers. Dan always got the money from the brand new branch because they have the money and they need customers. New banks are even better because by definition – they have no customers!
Most people are begging banks to give them a loan while the correct approach is to interview the banks. There has never been more money and fewer people with fewer deals – the banks are absolutely flushed with cash but most people are not aware of that fact because they never ask for any money!
“If you are not making at least two financial presentations per week, you are pissing into a hurricane.”
Dan Peña talks to three bankers per week just to practice even when he is not looking for money.
If you are asking for money that you need for a project today, you are wasting your time! You must interview banks for future financial representations rather than seeking for money when you need it more than you need blood in your veins. If you need money today, it may be too late.
The correct approach is to tell them that you are interviewing several banks in order to find the lowest interests and the best chemistry with a bank. In reality, we will pick the bank that gives us the money even if there is no chemistry.
Historically through conventional wisdom, we have been told that bankers and lawyers are a taboo – nobody wants to negotiate their interest rate on their mortgage or loans. Most people would rather jump off a bridge than to negotiate with financial institutions.
Do NOT EVER take the financial plan with you in the interviewing process! After you have narrowed down the selection to just a couple of banks, let them know that you are in the process of doing the second round of interview and that they made the cut. After that, send them “the package.”
The package consists of resumes of your dream team, their record of accomplishment (track record), and a mission statement on a single page (“Our goal is to dominate this industry in this location”). Raising capital without a dream team is a lot harder – GET A DREAM TEAM!
After the banks have been able to assimilate the package, have another meeting with them. You are going through a filtering process – at this point, only one or two banks might be interested in you.
At this point, you can ask the banks questions such as – “what kind of services can I expect for my employees, myself, and my directors?” They should offer season tickets for sporting events.
Some banks will not want to go through an interviewing process – do NOT talk to these banks.
Everybody gets turned down for financing – even Dan Peña and Donald Trump. If you have never been turned down, you are not asking for enough money! Do not be proud about working with the same bank for decades without being turned down – that is pathetic!
“The cost of education is nothing compared to the price of ignorance.”
Just think about all the deals, all the money, all the opportunities that you have let slip through your fingers. All the preconditioning in your life is wrong.
Champagne wishes and caviar dreams – if you want anything less, this is not for you.
Credit cards are not the same as the line of credit – even children can get credit cards. Unless you find a way to flip real estate without having any money, you will always need the skill of raising capital.
The correct approach is to use fishing nets instead of fishing lines. Some people are fishing with a line but without a hook, while others actually have a hook on the line. Not many people fish while having bait on the hooks or with fishing nets.
Dan Peña’s strategy is to have a fishing net across the entire river while not letting any fish escape. That is a completely different strategy than most people have. Most people are afraid to make fifty offers a week because they do not know what to do if the offers would be accepted.
People just keep buying and learning more products instead of just taking action. Instead of making a few offers, you should make hundreds of them every single week. Seminars, books, and podcasts will not help you if you do not take action.
If you do not do something within the next 21 hours, you will never do anything.
People who have never done anything even remotely close to what Dan Peña has done teach most of the seminars and programs. Mr. Peña raised billions of dollars even when you could not raise money. Dan raised it in the energy industry when a barrel of oil went from $45 to $8 and energy companies were going out of business. He went to other continents to raise capital – Australia, Chile, Japan, and China. He took the cheapest plane and even a boat to get there. Dan Peña was always willing to pay the price – if you are not willing to pay the price; you are wasting your time.
The banks have a lot of money and they are waiting for people with deals to ask them for it. It is no different from standing on the street and asking hundreds of women to come upstairs to your bedroom – there will always be women who will agree to your deal.
You do not have money for your projects because you do not ask for it! You do not ask for it because you do not believe in your projects enough. If you do not believe it enough, the banks know that you know that the banks know that, and that is what you do not ask. You know what their answer is going to be.
If you do not match Dan Peña’s enthusiasm, the chances of you getting capital out of financial institutions are zero!
The banking industry has changed – the money is there and interests are lower than they ever were! Do not worry about the money, worry about the deal. You must believe in your deal enough to ask at least two financial institutions every week until you get what you want.
The best-looking girl in school never had a date because everybody was too afraid to ask her.
One of Dan Peña’s friends wanted to own a part of the NBA team – Los Angeles Lakers. When he called the majority owner Jerry Buss, they got to spend an afternoon with him. Jerry told them that they were the first to call him in over twenty years!
Many people have Dan’s number but he very rarely gets a phone call. People are just too afraid to call and ask for something. He spends a lot of time at the airport and driving from the airports back to his home or hotels, which is a great opportunity to talk to him about business. Nobody calls him or offers to pick him up.
When you borrow money, borrow a lot of it. If you need $10,000, borrow $50,000. When you have problems and you have borrowed a lot of money, you also have partners. Always leave some margin on the deal for errors because there will normally be errors – man plans, God laughs. If a few percents kill your deal, throw it away.
It is better to turn the key on the deal while it is in concept than trying to make a bad deal better. Dan can also be a financial angel but if he puts up all the money, he wants 85-95% of the deal and gives the founder a year to prove that the deal is worth keeping alive.
Most people cannot manage and Dan realized a long time ago that he should not manage day to day because he is a big picture/concept man. You probably will not find financial angels because you do not ask because you either do not believe in the deal enough or do not want it badly enough.
When two banks merge, they adapt their lending philosophy to one of the banks. That is another great opportunity to get funding. If a new bank comes to town, you should sleep in a tent the night before the opening to be their first customer!
If Dan Peña still calls the banks when he sees an opportunity like that, what should you be doing? Dan practices everything that he does. He practiced asking out girls and he practiced making financial presentations by answering every possible tough question that a banker might ask. Be well prepared!
Practice just like athletes and musicians practice their skills. Again, if Dan Peña practices talking to bankers and giving seminar speeches, what should you be doing? You can always get better.
When a banker declines Dan’s offer, he responds: “This is a travesty, Mr. Jones. You have shareholders and a board of directors that you have to report to – you cannot allow a loan of this caliber to slip through your fingers.”
If a financial institution wants a part of the action/equity, you know that your deal is good!
You are only guessing how much money you need – you never know for sure. You must always borrow more money than you think you need. If you think you need $50,000, you probably need $250,000. If you think you need a million, you probably need three million.
Financial estimates are a wild guess.
The United States of America is not the only financial playground in the world. If nobody in the US wants to loan you the money, go somewhere else.
During the interviewing process, you are going to develop a relationship. Some banks do pool lending and it is very important that you are talking to the person that can actually make a decision.
Some of the very important questions are:
- What is the lending limit of the financial institution? Asking that question will separate you from 99.99% of the people that the banker has ever talked to. Most bankers never heard that question in their entire career.
- What is the secured and unsecured limit of your bank?
- What is your lending limit? (lending limit of the banker that you are talking to) How much can you sign off without asking your superior?
If the banker has a $50,000 limit, you are asking for $48,000. If his limit is $25,000, you are asking for $24,950. If the banker cannot make the decision on his own, do not talk to him. ALWAYS TALK TO THE DECISION MAKER.
Your deal is probably not good enough to compete, which is why you need to have the decision to be made on a local basis. Banking is about personal relationships. If you have chemistry with the banker, you will get the money easier and will be given some room for error because they trust you.
Dan Peña has never written a business plan. Come empty-handed to the first bank meeting – no business plan.
Dress for success – a white shirt, no jewelry, and a business suit. It is a lot easier for the banker to give you money if you look just like him – mirror him.
Banks lend money to people with a chain of successful transactions. You get a record of successful transactions instantly by collaborating with somebody – get a partner.
Get partners by offering equity in your deal. Once you complete your first deal, you can use the track record in the next deals.
Your dream/vision must be extremely clear. If it is not clear, the person on the other side of the table can instantly see that. They know. They feel comfortable if they know that you are the person who will do whatever it takes to pay back their money. If you do not believe with all your heart that this is your vision and that you are willing to die for it, then the lender thinks that you will quit. The banker must know that you will always go the extra mile for your deal to happen!
If you lack the passion for doing so, turn the key and walk away. Look for something that you passionately believe in. Everybody can find something like that.
By auditing financials, you double the opportunity to get the money. If you have audited financials from the big six, you add another 25% to that. In small towns, one banker must know that you are seeing another banker.
The Secured Lender is the financial bible for financial institutions. Subscribe to it. IRA – individual retirement accounts are also a great source of lending.
If you are not willing to put your personal guarantee on the deal, do not bother going to the banks. Everybody will have to put everything they own on the line for collateral – the vast majority of the deals cannot stand on their own.
If you do not believe in your deal enough to put your neck on the line, the banks will not either. Dan Peña has been financially dead five times and put all of his assets on the line more than ten times.
If there is no outside interest in the deal other than your family (brother, mother), that is a red flag because you might only convince your family members to trust you, which is not a good strength indication of the deal. People like to see more than one last name on the page.
Even though nobody needs a business plan, everybody will probably create it. You can do that with a computer in ten minutes with certain programs/software.
Dan Peña recommends that you ask a banker for a copy of a proposal that has passed the criteria and successfully got the funds. That way you do not have to write a business plan. Most bankers will proudly give a template like that away and probably even brag that they got the deal to work even if it should not work. Sometimes they will tell you the name of the dealmaker that got the funding.
In that case, you can just call that person and ask him all the questions about how he got the funding.
Role-playing is very important when practicing to speak with bankers. When you call the bank, ask them to speak to the senior lending officer. Practicing for four hours before having the interviews will make you much better.
“This is Dan Peña. Is your bank in the lending mode?” – Dan asks them right away! He does not waste time by having meetings that might not lead to anything.
“I am looking for a new banking relationship. I am new in town and I am interviewing banks.”
Banks will come to visit you. Preferably, they will visit you at your accountant or your lawyer’s office. Act professionally as if you did it thousands of times before.
Raising money is perceived as one of the hardest things to do. The opposite is true. This is one of the easiest parts of being a high-performance individual. However, raising capital is one of the most important skills because virtually everybody needs money to get the deals done.
“Conventional wisdom is almost always wrong.” – Dan Peña
Dan does not look for the things that are currently for sale. He just looks at the things he would like to buy. You can make people sell things they do not want to sell.
Using the full financial orchestra will make your growth geometrical rather than arithmetical. You just have to go where the money is – most deals can be funded on a local level with small city banks. You just need to sell them your passion and enthusiasm for the project.
Unfortunately, most projects have not been well thought out. The bank wants to hear that the money will be paid back no matter what. Dan Peña always returned the principal. He might not return it when he said he would or he would not pay the interest but he always paid the principal back.
Dan Peña reads Fortune, Forbes, Wall Street Journal, LA Times, Financial Times in London, and The Economist.
The banks will treat you better if they think you are more sophisticated. You become more sophisticated to financial institutions by talking to a lot of them.
Most people would beg all day for the money, however, the meeting should only be about 30-45 minutes long. Let the bankers come to your office, your accountant’s office or your law firm’s office. You can stack the meetings one after the other, so the next banker sees the previous banker leaving your office.
“Absence of evidence is not evidence of absence.” – Just because you have never seen anything like that, it does not mean it is not possible. The problem is that every single person intellectually understands what Dan Peña says and what they should do but they cannot write a huge emotional check and do what Dan tells them to do.
Your first bank visit should be to a bank that is least likely to give you money. Let them tell you how you could make your presentation better (get some feedback from them). Learn from your mistakes that you did in the first few meetings with banks that would never lend you any money.
Dan Peña can certainly do all of those things faster but none of those things are difficult. You just have to expand your emotional bank account and act as if there are no limits to your abilities.
Dan is one of the best sellers that you will ever see – he sold insurance, real estate, stocks, bonds, companies, banks, and big concepts.
People with bad credit must collaborate with somebody who has good credit. Credit does not apply to other countries – if you are willing to pay the price, you can fly to South Africa and get a loan there because the credit score does not matter there.
Your presentation must be based on questions that they will say “yes” to – “you are in a lending mode, aren’t you? You have granted loans like this before, right? You have the authority, correct?”
That is why you must ask them for a template of a loan that they approved in the past and that they said “yes” to already.