How much should I raise?
How should I value my company?
Who should I go to for funding?
When should I raise money?
How should I pitch my company?
The list goes on and on.
The good news is, there is no shortage of information and insight online, at seminars and in books.
The not-so-good news is that it can all be very confusing and overwhelming to get through.
Having gone through the capital raising process close to 20 times with varying success, here is what I have found. There are 3 pillars that must be in place for the best possible outcome.
1. Timing: 30 seconds after the “idea” comes to you is not the time to write a business plan and look for funding. The sweet spot for Series A funding is when you have proof of concept (site live, product prototype, service developed) and market traction (measurable customer demand, initial orders, explosive traffic with good conversion).
2. Pedigree: I have seen some of the best companies/products go unfunded because the founder(s) didn’t understand how mission critical the pedigree of the founding management team was. Financiers don’t just buy into great ideas, they buy into great entrepreneurs. I can assure you that a management team with a proven track record of having started up, built and sold ventures is exponentially more likely to get funded than one that is a first time market entry.
If you take a candid look at your pedigree (your education, your startup track record, your business reputation) and find yourself (and/or your management team) lacking, don’t waste a lot of time and money trying to raise money with Angel and VC investors. Stick with friends and family, get your venture to the next level of success and then pursue the more sophisticated investors.
3. Audience: Every entrepreneur lays awake at night dreaming of that big VC investor who carves a seven or eight figure check to fund their company. But reality says, that is not the rule – that is the exception. Most businesses are not good candidates for Angel or VC funding (and neither are most entrepreneurs). Take the time to really understand your venture and who its target funding source really is.
Who is the person and situation for which your company is the ideal investment?
A small fraction of all startups are ideal investments for sophisticated Angels and VCs.
About 30% of startups qualify to be financed by banks and other lenders (secured by the tangible assets of the founder and business).
A significant majority of startups are qualified to be funded by the company founders, their friends and family.
That is just how it is.
If you have the right entrepreneurial DNA, pedigree and business timing, you are virtually a shoe-in for a big funding round with the big boys.
However, if you find that one or two of the pillars mentioned above are missing or weak, don’t fret – and certainly don’t waste time beating your head against a door that will not open.
Regroup, refocus, prove your business for another few quarters – and maybe, just maybe you’ll have all the pieces of the puzzle in place for that bigger capital infusion.
Stay focused, committed and driven to make your company work with or without the big funding. Craft a plan that allows you to go to market without a million bucks in the bank. If you can’t, you don’t really have a business. You just have a great idea.
Prove to yourself and your potential investor that your company is not just a great idea, but a great company run by outstanding managers and a fanatical customer base. Accomplish that, and you’ll see the 18-wheelers backing up in your driveway full of cash from investors.
Hope this helps!