David from Pittsburgh asks, “We see that online investment platforms such as YieldStreet, RealtyShares, PeerStreet, to name a few, are gaining momentum. For example, despite giving somewhat modest return on investment, YieldStreet has successfully raised over 500M since the company was founded in 2015 (per their newsletter in Oct, 2018). Technology such as Uber and Airbnb can have the amazing ability to create trust between strangers in transactions, mostly with the irresistible lure of convenience. Do you think these online investment platforms, by offering the convenience of investing with a few mouse clicks, will minimize the need of some elements of capital raising mentioned in your book Magnetic Capital, such as pre-existing relationship?”
David, That is a great question. In my book Magnetic Capital, I talk about 5 elements that need to met in order to successfully raise money. They are
1) Relationship
2) Trust
3) Results
4) Compelling Opportunity
5) Alignment
If you start to peel back some of these elements, notably relationship and track record, they’re really sub-elements of trust. The psychological contract of trust is a complex one with a lot of layers.
If you need $1M for your project, do you want one investor with a million dollars, or do you want a million investors each with $1? Mathematically, both will get you to the same result. But the approach needed for those two capital raises are dramatically different.
You need to establish a lot more trust to attract $1M than just $1, even if you are raising $1 one million times.
