It’s tough running a startup on little capital. One of the biggest reasons why companies fail is that they run out of money. As an entrepreneur, raising capital is a skill that you must have. If you are unable to successfully raise capital, your company will have little to no chance succeeding to the heights that you want it to go. I chatted with Kobie Fuller from Upfront Ventures and David Siemer from Wavemaker VC to find out their top advice for raising money.
1. Do research on who you’re talking to.
When I asked Fuller and Siemer what most entrepreneurs get wrong, both of them told me the exact same thing -- a lot of entrepreneurs do not do research on the firm or investors that they are meeting with. This is an indicator to investors that lets them know how prepared an entrepreneur is. If you don’t know your investors’ history or specialties, it’s a red flag. You probably won’t get funded if you pitch your photo sharing app to a firm that specializes in making enterprise software investments. Make sure you do heavy research on the investors that you are meeting, as well as the firm that they are a part of. If you go into meetings well prepared, you will leave a much better impression on the investors.
2. Get warm intros, and if you don’t know how to get one, figure out a way.
Most venture capital firms won’t even take a meeting with you unless you have a warm introduction, but how do you get one if you don’t know anybody? According to Siemer, there’s a shortcut if you have some capital -- pay up and get a lawyer. Most lawyers know all the venture capital firms in town, so they could immediately introduce you. Other ways can include contacting angels, who can then refer you to a firm, and if you still have no luck, it’s up to you as an entrepreneur to figure out a way and get it done. If you can’t even figure out how to get a warm intro, you are probably not fit to be an entrepreneur.
3. Don’t “pitch” -- be human and connect.
Too many entrepreneurs get caught in the trap of trying to “pitch” too hard and shove their companies down investors’ throats. At the end of the day, investors are human, and they have to sit through long meetings with many different entrepreneurs that just view them as dollar signs. It’s important that you understand this so that you can be a breath of fresh air to them. Usually it takes many meetings to get to know investors well enough to partner with them. Fuller says, “It’s like dating, you don’t want to go on your first date then ask them to get married.” Be patient and foster long-term relationships with people. It will pay off.
4. Articulate your vision and have a competitive edge.
Even if you have the greatest product in the world and the most talented team, nobody will know unless you articulate it. It is your responsibility as the founder to effectively communicate why your team will succeed in its field. Work on your ability to articulate your vision so that others can buy into it.
Fuller and Siemer both also suggest that the most attractive companies to invest in have some sort of competitive advantage in their industry, whether it be having a proprietary technology, having more connections and better relationships with supply chains, or simply being the first to market. If you don’t have some sort of competitive advantage, your business is probably easily replicable and susceptible to threats. Develop an edge and hone it.
5. Tell a compelling story.
One of the most important points of being able to raise funding is to build a narrative around why you are creating the product. The investors have to understand on a deep level why you are building what you are building, and what motivates and drives you. If you think about great companies such as Airbnb, Facebook or Twitter, there is always a compelling story behind the product. Without a story, it is difficult for investors to really understand and connect with you on a deeper level. You want the investors to be cheering for you so much that they want to join you and be part of the story.