What a 1990 Chevy Pickup Truck Purchase Taught Me About Raising Capital
Grow Your Business, Not Your Inbox
I learned one of the most valuable startup leadership lessons right after finishing my undergrad education at Virginia Tech -- 20 years before I realized just how valuable it was.
In 1991, I was getting ready to start my first job and went to get my pickup truck tuned up. I brought it to the dealer and had plenty of time to kill in the dealer’s lot. I roamed around the lot while my truck was getting serviced and spotted a brand-new, full-size Chevy pickup backed up to the lot’s fence. “LAST ‘90, SAVE BIG $$” was written in soap on the truck’s dusty windshield. I took a peek in the window to what was a definite work-truck interior -- vinyl seats, stick shift, crank windows and no air conditioning. Its going price was $14,500. I was in no way looking to buy that day -- my truck was in fine shape -- but I started wondering how desperate the dealer was to sell off his last 1990 model.
Sure enough, the salesman saw me checking out the truck. I told him what I was willing to pay, which got a good laugh out of him. But after some back and forth, we finally settled on my original offer of $7,500.
Before I even finished my victory dance -- it got better. It turned out that Chevy was offering a $1,000 rebate for new college grads, and I walked out the door that day paying $6,500 for the last 1990 model and did indeed SAVE BIG $$ just like the soap sign promised. So, how do you get a brand new truck for less than half the asking price? I was -- pun intended -- in the driver’s seat of my negotiation.
How did this experience help me while trying to secure funding for a startup company a couple years ago? It taught me to look for opportunities before I thought it was the right time, and more importantly, before we really needed it. It’s paradoxical: You’re more likely to get what you want when it isn’t something you imminently need.
Here are my top five things that I think are helpful to know, based on my experience, when raising capital.
1. The best time to raise funding is when you don’t need it.
When your back is against the wall, and you’re just trying to pay your employees, you are less likely to have leverage in a negotiation, because you and the investor both know that you’ll run out of cash if you don’t take the offer.
For subsequent funding rounds, paint a good picture of your long-term growth to investors. You’ll have a better idea of when you’ll need funding and can start preparing long before you really need it. Be conservative with your cash / burn estimates to give your company room to grow in between rounds of funding without needing to seek an emergency round.
2. Do your homework.
Look through potential venture capital (VC) firms’ portfolios to make sure they specialize in or at least work with companies similar to your own. You don’t want to go to a business-to-business (B2B) technology software firm and pitch a consumer product. Warm introductions can also make all the difference. If you’re able to get connected to VCs or friends of VCs, you have a better shot of getting your foot in the door.
Keep investors close when you’re not seeking funding by sharing company milestones and news. Maintaining and growing investor relationships will make it that much easier to connect when a funding round is in the near future.
3. Pick a VC that will complement your startup’s weaknesses.
Each VC firm has its own strengths and specializations. As a startup CEO, it’s important that you look closely at your company’s strengths and weaknesses so you can find a firm that complements those. If you need help building out a senior team, make sure that a VC can help introduce you to talent. If you need help scaling a sales and marketing team, some firms help with this better than others. Seeking a VC firm that can turn your weakness into a strength will create a more beneficial partnership for both parties.
4. If you have a strong logo slide, don’t wait to share it.
Pitching to a room of venture capitalists is intimidating enough on its own, but pitching to a room of inattentive and distracted VCs is an even greater challenge. I was presenting to one firm where most of the attendees were checking their phones, looking out the window and genuinely uninterested in my presentation -- until I shared our growth slide.
When these VCs saw how our revenue was growing with the addition of some blue-chip companies as customers, their interest was captured. Don’t hold onto this trump card if you have it -- kick off your presentation with strong logos and growth information so you have VCs’ attention from the get-go.
5. You can never start selling too early.
This is especially true for companies past their first investment, but if you have a product that’s ready to go to market, getting customers behind that product can mean all the difference. You can have the best idea in the world, but without customers-- it doesn’t mean all too much. Don’t worry about having a seasoned team of salespeople before selling. If your product is ready, it will essentially sell itself.
There are no guaranteed ways to run a company, secure funding or ensure success. Most times, you’ll feel like you’re on a never-ending rollercoaster. But if you’re able to be the buyer more often than the seller, create a partnership with your investors, and keep your focus on long-term growth. Your ride will be much tamer and more fruitful in the end.