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"This is my first experience of approaching investors via a website yet, within 48 hours of posting my proposal, I had 7 respondents. I am now in the final stages of negotiation with the strongest contender so thank you AIN for everything you've done to get us this far. "
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Graeme Jones - Solar Connexions |
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6 Pieces Of Generic Fundraising Advice I Did Not Follow
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Since we closed our seed round a few weeks ago, I’ve had a few people email me with interest in a “lessons learned” type post for BostInno about our round. In the spirit of innovation, I figured I would try a bit of a different angle, focusing on the generic bits of advice that a lot of first time fundraisers receive that I found to be untrue or not helpful.
1) Ask for advice, not for money
When I first set out to raise cash for our company, a bunch of people told me to “ask for money, you’ll get advice, but ask for advice and you’ll get money.” Maybe this is the tact a “serial” entrepreneur should take, but I wasted a good amount of time asking people for advice when I really should have been asking for their money. I certainly got plenty of great advice from a number of angels and VCs, but I also was written off a few times as “not ready for funding” because I did not come with a concrete ask.
Raising money will take much longer than expected, but if your intention is to raise capital (and let’s not beat around the bush, it is your intention if you’re meeting with VCs even though you’re not saying so much) you should always state this to potential investors. Rather than asking for broad or general advice, I would ask the following questions up front with any potential investor:
• Always the first question before you start pitching, “Is [enter the space you are in] something where you see opportunity?” Don’t waste time with people that just don’t like the space you’re in.
• Second question for those that like the space, “What are some companies in the space that you think are interesting?” This gives you a sense of companies they are familiar with that you can benchmark yourself against, because trust me, you won’t be getting a check after the first meeting.
• Third question, “Generally, what metric or set of metrics do you think is the biggest indicator of success in this space?” This question is incredibly important for a few reasons. First, it gives you some insight into whether the investor actually has any knowledge of your space or not. As the founder/CEO, you damn well should know what core metrics are key to driving your success without having an investor tell you. Secondly, if they are accurate or at least close enough about the key metrics, it will be a good way to frame future conversations. Finally, you should specifically frame the question around which metrics vs. how much of said metric because of the ultimate “traction” issue. Everyone will tell you that as a first time entrepreneur, traction will be key to raising money, and this is true. But what I found was that you want to control the conversation when it comes to “what is good traction” rather than letting investors continue to move the bulls eye on you. It is very important to keep your definition of traction reasonable as your fundraising process will extend over time, and you will constantly be needing to provide updated metrics showing your strong growth.
2) Solve one simple, significant problem
Ever since Guy Kawasaki came out with his “These are the ten slides you should have in your deck and nothing else” blog post several years ago, VCs have been too hung up on the first “problem slide” of decks.
While I agree it is incredibly important that a founder/CEO can succinctly and clearly explain their business, the idea that venture capital money needs to be put into solving a “burning problem” is silly. Venture money needs to be put into business that will provide good returns. I still don’t believe Facebook started off by solving a real “burning problem” – college students would have continued to enjoy sex, drugs and rock roll even if Facebook didn’t come along.
My opening problem slide, though it varied a bit, was typically something along the lines of “Traditional newspapers are effed, and young people still needs news and information about the cities they live in.” Sometimes I would put a picture of AC/DC and just roll with “The News industry is THUNDERSTUCK” and play the song in the background. Surprisingly, this is a real hit or miss tactic.
Generally, I think successful startups come down to capitalizing on a big enough opportunity to do things differently than the incumbents in a space. And I say differently rather than necessarily better – my father still likes Outlook better than Gmail.
3) Always get introductions through trusted connections
This is generally good advice, but sometimes you just need to get to people by hook or by crook. For example, I needed to talk to people at The Huffington Post and after getting iced by several email introductions, I just waited outside their office for a week or so last summer until someone finally talked to me. Just a heads up, this tactic can certainly be off-putting if not handled correctly. If you do go with this move, I would advise smiling, opening up with saying something about a shared connection, and the line “Don’t worry I’m not dangerous or anything.”
4) Be reasonable when asked about exits and long term vision
Most investors are looking for reasons to say no, so when a young, inexperienced founder says something along the lines of “Yea I think we can sell for a bill, maybe two bill in a few years,” it makes it very easy for them to realize you’re unreasonable and don’t know what you’re talking about.
When asked what our team was working on, or when I opened up pitches, I would generally go with “We’re building a media empire.” I still kind of laugh at this and so did pretty much every investor, but it would give them an immediate sense of the whether we were trying to build something big or something to flip without getting too specific. I would then bring it all back down to the real world by framing the conversation on relatively moderate year one or two projections on our key metrics.
5) Have a very specific plan and time frame for your raise
This is great advice if you have demand for your deal, but as a first timer, you are typically working your ass off to create some sort of demand for your deal. Therefore, you really don’t have the luxury of saying you are going to close within a month or two or whatever. You need to get the first dog to eat the food – meaning you need your lead investor – and it is almost impossible to know how long it will take to find that lead. Now, one can argue that you shouldn’t be wasting your time raising without the right traction, interest, etc. Hopefully, your other co-founders/employees are driving the growth of your core metrics so you can focus on fundraising if you need capital to really grow. If this isn’t the case, you’re going to have a hard time progressing enough over the time it take to raise money to actually close the deal.
Once you do have some interest, it is important to try to move things along quickly and essentially “set the shot clock.” Deals that linger too long often times develop a stench that can be off-putting to investors. Try to find as many interested investors that would be good fits as possible and move quickly to close things out.
6) Don’t run a consumer web co. or raise for one in Boston
Our team has been listening to this bullshit for about five years and there is still a group of people that love to chase their tails talking about “what we could be doing better as an ecosystem.” I even heard this from some notable early stage consumer web investors in Boston who have gone out of their way to brand themselves as the guys who get consumer in Boston and will be a changing force for the space in the area.
We heard all sorts of iterations of this over the years “Boston doesn’t get consumer, specifically advertising businesses.” Or, “Digital media, you need to be in New York.”As my good friend and colleague @Sliggity says, the internet is everywhere. Every company is different and you need to decide what is best for your individual company rather than listening to others. For us, the more we heard we couldn’t do it in Boston, the more hellbent we became on staying located in Boston.
Now that I have rambled on about generic funding advice I disagree with, let me say that the most important thing to keep in mind when reading this post is that you should make up your own mind about this stuff. The hardest but most important part of being an entrepreneur in my opinion is figuring out what advice to listen to and what advice to ignore. Hopefully there is something in here that will be helpful to those trying to raise their first capital.
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