It's never been easy to raise venture capital. Conventional wisdom is, it's getting harder. The number of new venture capital deals getting done just slunk down even further for the third consecutive quarter. If your startup is raising millions, there are a few things you can do set yourself up for success. It's not necessarily harder if you're working smarter.
1. Know which venture capital funds just closed.
Out of the 800 venture funds in the United States, 235 new funds opened for business last year. This quarter of the market represents $28 billion in freshly minted money destined for startups like yours. Even better news: 93 of these are first-time-ever funds, according to the National Venture Capital Association. Naturally, you've never heard of them--but this is the most active and aggressive 10% of the industry. Arm yourself with the knowledge about who the new funds are in your space. They have a fresh mandate to get capital to work that will work for you.
2. Be visible.
There are more startup competitions, more accelerators, and more incubators than ever. Each one of these is an eyeballs-on-you opportunity. The easiest index of these opportunities today is F6S, which has one million founders registered and is used by Techstars and other top accelerators. I recently spoke with co-founder Matt Phillippe on Skype. Despite the grayed sunset outside his London suburban flat, he was lit up on the inside with how much of a difference the F6S community makes. "Our name is all about founders," he shares. "The F and S are the first and last letters in Founders, and the 6 is for the letters in between."
It aggregates up-to-date information and perks, like free flights on American Airlines, travel discounts at Avis, priority access to startup events like the Mobile World Congress, and discounts at Rackspace and Sendgrid. Sean Kane, also an F6S co-founder, says, "Last year, we delivered $1 billion in free resources to founders. Our goal is to give $2 billion in services across the startup ecosystem in 2016."
One of the best parts of their platform is that once you create your free startup profile, you can post feeds from your software to show the world your growth. With a few clicks, you can also apply to many of the world's top incubators, contests, and accelerators. Request the F6S Alpha package to get free top-tier perks and access opportunities.
3. Bank your fire.
It's not like you thought raising money would be easy. But just in case it's going to take longer than you thought, keep centered. Make conscious choices to free options in your own economic future by doing this one magical thing: finding customers.
Think about that money you want to raise, and divide it by how many customers you need in order bank that same capital. For example, if you want $1 million, and your average customer is projected to spend $5,000 a year, you only need 200 of them. You've got more social followers on one hand! Sure, you're probably nitpicking with me that those customers cost you money to acquire, cost you money to serve, and so on.
But the VC doesn't? Of course they do. Just closing your venture deal is going to take a few (tens of) thousands of dollars, and it's going to come from your side of the table in most cases. All I'm saying is, do the math. If you see any smart paths to customers that are more effective for you than hunting your investor, take them.
Look for all the ways you can reduce your monthly burn, too. Do you need a $189 hotel room or is a $39 shared room on AirBnB workable? Do you need to extend your development team locally, or could you leverage a sharp team in an area where your dollar goes further? Silicon Valley startup 6sense went from "skeptical to satisfied" after adding African developers from Andela. Just read the open post from CTO Viral Bijaria on the 6sense blog. How are you using your global smarts to get creative on cash flow?
Financial reference points can help you stay smart about the time you devote to your raise. Don't get lost in the ego trip of using venture capital to validate your company. Customers are the only validation a company needs.
4. Be remarkable.
My Atlanta venture capital firm is hosting a local pitch event next Tuesday. We had almost 50 startups apply--which means our judges had to turn away about 40 young companies. One of them, Mixtroz, upon learning they had not been selected, surprised me by saying, "Great! We would rather show that whole room what we can do. Can we set up a live demo of our system?"
You know, the answer was yes--and now Mixtroz has the opportunity to get into the hands of a dozen local, early stage investors and a couple hundred startup fans. They turned a no into a yes by being focused on creating customer experiences.
While it's true that fewer venture capital deals are getting done, you only need one. The billions of fresh money in the system guarantee that investors are motivated to find you--make sure you're smart about looking for them, too. (Related: How to go from talk to term sheets.) If you've got more ways than I've been able to cover here to keep it real while hunting your next big deal, let me know what's working for you.