Fundraising in the Early Stages

This post was written by Chris Dover.

To be fair, I started writing an article about “validating your product/market on $20 per day.” Then I realized that this was merely a sub category of a larger problem every startup has to deal with. Funding! This is obvious, at every meet up, every blog post, every panel in our startup world has something to do with fundraising. Fundraising itself comes in various forms, sales, investors, mom and dad, your own savings account or maxing out credit cards. So let’s focus on how to get funding…in another article we’ll return back to “validating your product/market on $20 per day”!

Fundraising in the early stages of your startup (pre-product/market fit + scale) is hard. Sure it seems like every other startup just magically says “we are raising” and the cash rolls in. TechCrunch runs a story on some startup that raised a $4m seed round, or you see random founder a month after chatting at an event, building out their new Venice Beach office/loft because they’ve got “runway” and they need to keep their Swift developers happy. You think to yourself, “oh the luxury of spending money on cool stuff to keep your people happy”, as you take another look at your bank balance.Hashtag poor!

Fundraising is a full time job. It is sales, nothing more and nothing less. As the founder/CEO this is your life — sales. You sell your company to customers, to investors and to your team everyday. It’s convenient and cute to talk about how much you hate fundraising, how you should be working on the product and not jumping through hoops for investors, but unless you have already built the single best product EVER, you gotta do it. It’s new, uncomfortable and hard.

Here are some of the basic trends in early stage fundraising.

  • It usually takes about 4 months to fill your round (if you are doing it correctly).
  • Only about 10% of the investors you talk with will actually invest.
  • You will meet with up to 100 Investors to fill your round.
  • You will meet 3 to 5 times with investors before they finally invest.

By The Numbers

100 Investors x 4 meetings each = 400 Meetings

10% will invest

40 of those meetings are important, but you won’t know which ones are important until after the money is in the corporate account. Get ready to hear a lot of “I want to see X first, come back to me when you have that.” “You’re still a little too early for us.” “Let’s keep in touch on this.” This is code for “you haven’t blown me away yet.” YET!

Keep that ‘yet’ in mind, for professional investors specifically. (Friends and family mostly don’t apply here). The job of a professional investor is to invest other people’s money and return more than when they started (simplified). If an investor manages $40 Million Dollars and is a Angel/Seed round investor, they have a lot of money to put to work in a bunch of different deals. They do in fact REALLY NEED TO INVEST! It is your job to help them see that investing in your company is the smart investment. Also note that the similar conversion rates apply to investors. They meet hundred’s of companies, have numerous meetings before making a decision.

But I’m Not Ready Yet?

As the math above show’s you will need to have a lot of meetings. Make peace with the fact that if you want your company to be successful, you have to be good at sales. You don’t have to get investors, you certainly can just bootstrap, build product and let sales fund the company. Ask yourself, what if your competitor did the same thing, but also had $1 million of cash to grow the business? You’d *probably* be at a disadvantage, with total control.

Ask yourself, what if your competitor did the same thing, but also had $1 million of cash to grow the business?

Let’s say that you know you need to raise outside capital to grow your business, but where do we start. This is where the rubber meets the road, where the going gets tough and the tough get going and all other motivational phrases!

Get Educated

First things first, learn! You have a huge task ahead of you, luckily there is a wealth of AMAZING content written about early stage fundraising by guess who? The actual investors themselves. They literally (yes literally) tell you what they are looking for, how to present it to them, how to get meetings and what the whole process looks like. It is too easy these days to figure out how to do it. I will save you the time and give you a list of the top blogs and books to read to help get started. From here you should follow plenty of the links in the articles they’ve written and you should know a lot more and be well armed to start chatting with investors.

http://www.bothsidesofthetable.com/

http://www.feld.com/

http://lowercasecapital.com/prospecting/

http://www.goodreads.com/book/show/11865558-venture-deals

http://thisweekinstartups.com/

http://www.startupschool.org/

http://blog.ycombinator.com/

Please note that this is by no means an intensive list, this will simply get you started. If you do nothing more than read one article from any of these links per day, you will be so much further ahead than most other founders.