So you're considering raising capital. However, you're concerned because you're not a three-time CEO with exits, you don't have an Ivy League MBA, or your product is new to a market. I understand. I've been there, and many other very successful business ventures have begun this journey the same way. While raising capital is complex, there are some truisms to consider as you start down this path.
Find Them, Mine Them
Raising the first round of capital is always the hardest because you don't have preexisting contacts.
So the first step is to find and meet at least one potential venture capitalist (VC) a week. If you stay true to this, you'll pick up 52 connections annually, building out a solid list of potential investors.
Do your research about which VCs are interested in your market and target them. You might want to befriend leaders of other companies that are further along than yours. Check their Crunchbase profiles to see which VCs are supporting them and ask for an introduction.
Don't worry about geography. Historically, some cities have been easier to raise capital in. However, given the new remote world, it's now more likely that you could be in a locale that's not a tech hub and still connect. This is great news.
Work your networks and build your own pipeline.
Describe the $1 Billion Opportunity
Learn how to craft a pitch. There are countless articles on the internet on how to do so. Still, as a first-timer, if you're raising capital for a seed or a pre-seed round, it's unlikely that you'll have enough evidence today to show you can build a $1 billion business.
And that's the kind of the lens VCs really look through.
VCs conduct independent market research to predict which way the business and technology winds will blow. They know you don't have the same resources, but they spend a lot of time on market sizes. They'll be interested in yours, how you came up with your conclusions, where you expect to land today and in the future, and how you'll get there.
What's more, they'll want to know about your competitors, and that you're aware of them, too. If your space is crowded, spell out your differentiators, and share what you know today. When we entered the contract management market, it was 20 years old and saturated with vendors focused on the pre-signature. We shifted our focus to post-signature and analytics, and that was an open opportunity. The VCs liked our approach, and the space took off.
When you're a first-timer with little to lean on, it's important to pick the right traction metric. It doesn't have to be revenue. It could be usage, daily active users, or anything that provides evidence that your idea is working and that with more money, you can do more. When you reach out to a VC and follow up a year later with double the customers, there's a story to tell--and someone will want to hear it.
This Is a Marathon, Not a Sprint
You only need one true VC believer to do a round--and for seed rounds, you can expect to do upwards of 100 pitches. Every round thereafter, you'll probably cut this by half. And then, the check sizes will get bigger and the valuations higher.
But in those early days, you want to try to take as many at-bats as you can. These pitches will help prepare you for things like real-time objection handling, fielding competitive questions, and showing you have a command of the metrics, the financials, the industry, and the buyer.
Over the past six years, I have done thousands of pitches. This has enabled me to craft a story that's compelling and always relevant. Every founder's story is different, and VCs know that it could be the first chapter in a whole new book of business. The VCs that led our first round looked at 1,400 companies that year and only wrote 10 checks. Those are the odds, and it's your job to figure out how you're going to be one of the 10.
Persevere. You might be a first-timer, but with the right research, dedication, and story, the tide can turn in your favor.