What is some good advice for first-time entrepreneurs when it comes to raising capital? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
First and foremost, do not raise money until you need it. It has never been less expensive to have an idea, build an mvp (minimum viable product), and test it to see if it has traction. Often people want to raise money because they think it's cool to be a venture backed startup. It's not. You're selling a portion of your company. Fundraising is a means to an end and you shouldn't do it unless you absolutely need additional capital to bring your vision to a reality.
Okay, I've preached enough. Let's break it down.
Fundraising is an incredibly important part of building a successful company. It's also much easier than building a successful one.
Luckily, it is literally an investor's job to find you. It is their job to invest in the next great company.
But it's also on you to make sure they do. When building a startup, you'll have to run through various walls, get into rooms you have no business being in, and do things other didn't think were possible... constantly. So if you can't get someone to have coffee with you whose job it is to find you, it's not a great sign to the investor that you're going to be able to overcome any obstacle thrown in your way. An investor will never sympathize with "If only I knew investors..."
If you don't know anyone, accelerators (e.g., YC) are great places to start. Do not get discouraged if you don't get in -- we were accepted on our 4th try. I also believe the majority of accepted companies are repeat applicants.
Warm introductions are always better than cold so do your research and try to find a connection (or a connection of a connection). If you can't find one, a "cold" but personal email can go a long way. Keep it brief (no one will read a lengthy one) but do your best to grab their attention with something unique, personal, and most of all, specific. No one wants you to "pick their brain" over coffee for 30 minutes.
Define a Process
The most important part of any successful fundraise is the process. Keep everyone at the same pace. VCs love optionality and won't make an offer unless they have to.
Paul Graham has a fantastic essay on this part of fundraising (). Read it. Read it again. PG breaks it down like no one else.
Don't get Defensive, Embrace Questions
One thing that worked incredibly well for us was to make sure that we didn't get defensive; we embraced criticism. To get a bit tactical, when presenting our pitch deck, every single time an investor had a question that we didn't have a slide for, we wrote it down. After the meeting, we made a slide for it and put it in the appendix.
I remember one of my last meetings, I found myself saying, "I have a slide for that" so many times that it became a running joke between me and the investor. There is a significant difference between articulating a strong answer to a question and having a well thought out slide for the same question.
One says -- "I've thought about this and I know what I'm talking about." The other says, "I've thought about this, I know what I'm talking about, and I knew you were going to ask this question. I can see what's next and I'm prepared for it. I can see around the corner." Which person would you want to build a business?
Think of your fundraising materials like a product.
Every piece of communication sends a message. If you're building a direct to consumer brand, your deck better be beautiful.
The quality of your materials show how well you know your business and is an indication of your ability to execute on your grand vision. Make it count!
- Intro deck: high level story with one important number (i.e., show traction)
- Presentation deck: longer story, with appendix, less text
- Follow up deck: same longer story (with more text), no appendix
- Data Room: summary of business data (5 pager explaining business and how we calculate certain numbers), high-level summary numbers, acquisition & retention, member breakdown, unit economics, financial model, testimonials, financials
Side note: people share materials. It sucks but they do. Their analyst's best friend is the cousin of your competitor.
I recommend sharing things through Docsend. Create a unique link for each VC. If they share it, you'll know it. There is still a chance that a VC has a chrome extension that downloads the deck and turns it into a pdf or shares their email/password with someone. The other way to do it is via "View Only" Google Drive.
In the end, it will get out. No matter what. But at least you might know who did it and have the choice not to work with them.
Some founders disagree with me here. Some advise you to say -- "X is definitely in the round." I disagree. If you remember one thing, remember this -- honesty scales.
Don't be above Principals
My best friend was at BoxGroup for 3 years and is now the Principal at Benchmark. He probably sourced close to 30 deals while at BG. Not all principals are created equal but remember, VC's pay principles a lot of money to help find and evaluate companies. That Principal is also highly motivated to push their deals through.
If you're having trouble getting meetings, don't be above Principals just because you read "Partners Only" in a medium post.
Traction rules all
Fundraising tips are definitely helpful. I've learned some the hard way and others I've been fortunate to learn by watching from a distance. But, the key here is that these are all optimizations. They might get you a higher valuation or lead to a smoother process but they won't build a successful company.
There will always be exceptions to the rule or people who "out-fundraise" their company or product but a great business will win in the end. So, when in doubt, spend time building that.
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