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# Plan for collecting capital
- URL: https://www.smdp.com/plan-for-collecting-capital-2/
- Published: 2005-07-14T15:00:00.000Z
- Updated: 2026-10-25T00:21:39.000Z
- Author: David Pisarra
- Tags: Opinion, Santa Monica, #archive-import

One topic that I frequently am asked about in my business development practice is “How do I get working capital?”

So to answer that question I am going to write about my own company, and what we are going through to raise additional working capital.

There are two main phases in a company’s life cycle, and depending on which one your company is in, that will generally dictate the amount of money, the type of investor and what you have to give up, in order to raise additional working capital.

For the company that is still someone’s dream, that has not left the drawing board, there are several immediate ways to develop working capital. Usually there is the friends and family round of investing. They are generally not very sophisticated business people, and mostly are giving an unproven business money, because they love you.

On the other side of the coin are the venture capitalists and angel financiers. These are people who are professional gamblers — they just don’t go to Vegas as much as they take flyers on people they are willing to believe in.

The company that has not gotten off the ground is a hard sale. Anyone who has ever dealt with a pie-eyed wanna-be entrepreneur knows the look of enthusiasm and glee at the prospect of opening their own business. They have dreams of millions of dollars flowing into their till.

Sadly, this is not a good prospect for someone to invest in. They have an unrealistic view of their business and the prospects for success because they think that it’s a way to work less. In general, most entrepreneurs find that they are working more than when they had a regular job. The second phase of a company’s life cycle is when actual operations have begun, revenues have been generated, and a client base has been developed. This is an easier sale to friends and family, and to venture capitalists.

The reason why is that, like my sleep apnea testing company, the product has been proven, the market is there, the internal problems have been worked out. Once a company has a year’s worth of revenues and operations on the books, it becomes much easier to make realistic projections.

Part of the problem with getting investors in a business venture has to do with the “show me” factor. People like to be shown something that’s real. If they can touch it, feel it, smell it, see it, they can then put themselves in the picture.

When you are trying to get someone to give you money to build your business, it is much easier if you have something tangible to put in their hands.

Take my sleep apnea testing company. We are raising funds from individuals based on what is called a “private placement.” We are soliciting funds from people who are either accredited investors, or people with whom we have a pre-existing relationship. This allows us to raise funds without the costs that we would incur, if we were to float an initial public offering.

Additionally, it allows us to take on investors at a much faster rate, and because we are a smaller company, we can be more flexible with our investors. We have a smaller buy-in than most IPOs. I have one investor who is interested in taking on an administrative position with the company, in addition to making an investment. This would be one way that he can feel more secure about his investment, and it allows us to have a stronger administrative team.

Part of the process of preparing for a private placement is drafting a business plan and creating projections. Projections are really nothing more than educated guesses. For the most part, when a company is doing projections and they do not have actual operational experience, it is a shot in the dark. No experienced business person or academic, ever accepts the projections as real. There are always contingent costs that are higher than expected.

However, when you are doing projections based on a going concern, your credibility factor goes way up. With my sleep apnea testing lab, my revenue projections are based on actual experience of what an insurance company will pay for a test, and what the technicians make on an hourly basis. The projections come with a reliability factor that’s generally higher.

People prefer to see the real thing in action, which is why having actual checks that you can hold and show, makes it so much easier for someone so see the opportunity that they are being presented.

The next step is the difference between individuals and investor groups. Groups like an institutional investment fund have a process for evaluating opportunities and you must go through their hoops to get to their money. (David Pisarra (310) 664-9969 or at)

*Originally published in the Santa Monica Daily Press print edition on July 14, 2005.* [Read the original PDF.](https://s3.us-east-1.amazonaws.com/smdp%5Fbackissues/071405.pdf?ref=smdp.com)