Raising capital is an emotional roller coaster. I've gone through the process a number of times--most recently as my company, Affectiva, raised $26 million this past year--and each time, it's a journey.
Here are the emotional stages of startup funding and the lessons I've learned on the ride.
At the beginning of the process, you're anxious to get out there and pitch. But you won't be successful unless you lay the groundwork: You need to build your pitch deck, get your financials in order, and prepare for reviews of your technology and other due diligence. All the while, you're researching and refining your target list of financial and strategic investors.
It's extremely time-consuming to get all of this done. The challenge is you're also completely swamped running your company, and it's easy to deprioritize investment prep, because there are business urgencies to deal with. Bad idea. You need to focus on it and prioritize it or it will not happen.
In our latest round, we worked with an investment banker, GCA Global Advisors. The firm was instrumental in helping us with all aspects of the raise, while keeping us on track and holding us accountable. I definitely recommend working with an investment banker to be your guide and dot-connector.
After all of the prep work, you start to identify investors you want to engage with and begin outreach. That's when the exhilaration sets in.
As a leadership team, we decided early on that face-to-face meetings would be best, even though that meant lots of travel, expenses, and disruption to our schedules. We figured that in in-person meetings we could really convey our knowledge and passion, while also having the opportunity to demo our technology and walk prospective investors through it.
Those meetings can be nerve-racking and exciting. Sometimes, the exhilaration is so powerful that you'll leave a meeting thinking the investor is definitely in, or even that they'll take that entire round. But then ...
Next thing you know, the same investor who was so excited emails you. They had a partner meeting -- they love your company and your team, but they've decided not to invest.
When I think about getting those emails, I can still feel the pit in my stomach. It sucks. But I've learned not to take it personally. What entrepreneurs don't always realize is that funds have different criteria for investing, and sometimes your company just doesn't fit their investment thesis, no matter how hard you try.
Even if my ego is bruised, I always ask for a call so I can learn from the investors who passed. It's also important to foster these relationships -- just because they said no now doesn't mean there isn't an opportunity a few years down the road. And don't forget that if they like you and your company, they will be inclined to help you in other ways. We have had investors who passed make very valuable business introductions for us.
Even as some investors walk away, all it takes is one to say yes to the due diligence stage. Finally, there's hope.
Every company handles this a bit differently, as they open up their books, financials, legal materials, and technology to investors. Our approach was to be as open and transparent as we could. We invited our investors into our office to meet with all the different members of our team and get a feel for who we are as a company. This really helped foster a relationship.
As you start to negotiate and iterate on the term sheet, it can be tempting to immediately start executing plans for how you want to spend the money. But it's so important to sit tight until the deal is final. You can prepare for growth -- for example, writing new job descriptions or reaching out to recruiting agencies -- but don't pull the trigger until it's a done deal.
Once the round has closed, there's a wave of excitement and optimism. But the capital raise is only the beginning -- so it's really important that your investors share your excitement for the future.
To that point, I've learned that it's not just about the dollars. You have to make sure there's an alignment between the investors and your company's values; and if not, it's OK to walk away. For example, a number of years ago, Affectiva received a preliminary investment offer from a government agency that wanted to use our technology for surveillance. We were concerned about making payroll and really needed the money. But we felt this use of our technology would be in violation of our founding values, and we walked away from the investment.
In our most recent round, we've found amazing alignment with our lead investor, Aptiv, who shares our vision for our technology. Our other investors in this round, Trend Forward Capital, Motley Fool Ventures, and CAC also share our core values around diversity and inclusion as well as a commitment to privacy and ethics.
That shared vision and optimism for the future is what this raise -- as emotional as it was -- was all about.