Raising Capital Sucks
That’s right. Raising capital is perhaps the most difficult part of building any angel/venture backed business. I stipulate angel or venture backed because there is a misnomer that has grown over the years that every startup needs outside funding. Not so. But for the sake of this topic, we are going to assume the startup does require outside backing.
So why does the fundraising process always come up as the single most despised part of the entrepreneurial journey when we speak to our startup founders? I submit there are several reasons:
1. Most people will not perform this function more than once or twice in an entrepreneurial career, so there aren’t enough “reps” to get really good at it.
2. Raising early stage capital usually means raising from individual investors versus professional (aka “Institutional”) investors. The two sources of capital couldn’t be more different and the approach is almost entirely different. Individuals are generally investing out of personal connection and/or emotion. Institutional investors are rarely investing their own money and the fact that it’s their job makes it more transactional and calculating. Raising from individuals feels emotionally similar to begging or “selling”. No one likes the former, and most people don’t really love the latter.
3. When most elements of the business operations fail, there are ways to recover. When raising capital fails, it impacts everything else including the ability to pay employees, pay for benefits and cover operating costs. In other words, everything is relying on this critical function and that creates sizable pressure on those responsible.
If you are an entrepreneur, you may be nodding your head in agreement with some or all of these three items; and you likely have more to add. But we aren’t here to play a game of Captain Obvious. We are here to find hacks, or ways to improve our odds of success. Or at least not have a breakdown in the process. If you are an investor, one question you may ask yourself is how you can help your portfolio companies climbing this mountain. It’s a contact sport and the more hands from the team helping, the better the odds of success.
We have posted a great deal on fundraising over the years. You can search the AngelMD blog for articles, but here is a recent one with helpful tips. Let me offer a few thoughts, hacks and recaps to get us all on the same page.
Seed Round (or earlier) – Don’t over-think this round. Raise the money from your own network and their network. There are exceptions, but this is generally not a round where you should waste your time pursuing venture capital firms, strategics and family offices. It’s not to say some of these groups don’t play this early. Some do. But they are few and far between and if you don’t already have a relationship, the odds of securing capital are low and the time-suck factor is high. The very best way to extend your personal network is to engage your existing advisors and investors. They want to help and will introduce you to their friends and colleagues if you ask. If they won’t, they are in the wrong space.
Digital: Get your digital storytelling materials dialed in and think digital. We’ll lay out a detailed plan on this later, but here are some high level points:
Social: Social media accounts need to be in place and you have to have a plan on how to use them.
CRM: You should have a CRM. Google Sheets can suffice in the very near term, but something like HubSpot is important sooner versus later.
Deal Room: A virtual deal room with your investment materials is good to have at the ready even if you aren’t ready to raise capital. You can use the room/folder to maintain the current version of various materials and just update here to keep things simple and organized. Moreover, send links, not attachments. You can update the underlying documents in the folder when you can’t do that if you previously sent attachments.
Network: Always be networking. The precursor to this is to Dig Your Well Before You Are Thirsty. If you are going to be an entrepreneur, you are going to be a networker. No exceptions. Get comfortable asking everyone at every event if they have suggestions on people you should talk to about investing, advising etc. Every introduction needs to turn into 2 or 3 more. By the way, virtual is not going to cut it. Get your butt to local events as much as possible and national events here and there. That said, don’t become a conference gad-fly chasing startup pitch awards. One or two is great. More is less.
While we want to use digital tools and processes to build a “funnel”, the phone and in-person meetings are critical to move to action. Investments will not happen over email. You have to text and call. Call and text. Then call and text again. See a pattern here? Yes, you may feel like a nuisance, but those you are connecting with are probably not thinking of you and your venture amongst their top 5 priorities today. They usually appreciate the pursuit and reminders. Not always, but let them tell you that.
These points are more about the process. In a companion post this coming week, I’ll cover “the ask.”. Even if you are reasonably good at the process of creating a pipeline, the ask trips a lot of people up. It trips entrepreneurs up because of embedded fear.
For now, think about the process your startup, or startup you advise/are invest in, has in place to build an investor pipeline. This should be a core project as a team; and everyone has a hand in its success. The process always needs refinement, so build the iteration into your work-flow. Good process and materials will put your team in the top tier from the start.
So why does the fundraising process always come up as the single most despised part of the entrepreneurial journey when we speak to our startup founders? I submit there are several reasons:
1. Most people will not perform this function more than once or twice in an entrepreneurial career, so there aren’t enough “reps” to get really good at it.
2. Raising early stage capital usually means raising from individual investors versus professional (aka “Institutional”) investors. The two sources of capital couldn’t be more different and the approach is almost entirely different. Individuals are generally investing out of personal connection and/or emotion. Institutional investors are rarely investing their own money and the fact that it’s their job makes it more transactional and calculating. Raising from individuals feels emotionally similar to begging or “selling”. No one likes the former, and most people don’t really love the latter.
3. When most elements of the business operations fail, there are ways to recover. When raising capital fails, it impacts everything else including the ability to pay employees, pay for benefits and cover operating costs. In other words, everything is relying on this critical function and that creates sizable pressure on those responsible.
If you are an entrepreneur, you may be nodding your head in agreement with some or all of these three items; and you likely have more to add. But we aren’t here to play a game of Captain Obvious. We are here to find hacks, or ways to improve our odds of success. Or at least not have a breakdown in the process. If you are an investor, one question you may ask yourself is how you can help your portfolio companies climbing this mountain. It’s a contact sport and the more hands from the team helping, the better the odds of success.
We have posted a great deal on fundraising over the years. You can search the AngelMD blog for articles, but here is a recent one with helpful tips. Let me offer a few thoughts, hacks and recaps to get us all on the same page.
Seed Round (or earlier) – Don’t over-think this round. Raise the money from your own network and their network. There are exceptions, but this is generally not a round where you should waste your time pursuing venture capital firms, strategics and family offices. It’s not to say some of these groups don’t play this early. Some do. But they are few and far between and if you don’t already have a relationship, the odds of securing capital are low and the time-suck factor is high. The very best way to extend your personal network is to engage your existing advisors and investors. They want to help and will introduce you to their friends and colleagues if you ask. If they won’t, they are in the wrong space.
Digital: Get your digital storytelling materials dialed in and think digital. We’ll lay out a detailed plan on this later, but here are some high level points:
Social: Social media accounts need to be in place and you have to have a plan on how to use them.
CRM: You should have a CRM. Google Sheets can suffice in the very near term, but something like HubSpot is important sooner versus later.
Deal Room: A virtual deal room with your investment materials is good to have at the ready even if you aren’t ready to raise capital. You can use the room/folder to maintain the current version of various materials and just update here to keep things simple and organized. Moreover, send links, not attachments. You can update the underlying documents in the folder when you can’t do that if you previously sent attachments.
Network: Always be networking. The precursor to this is to Dig Your Well Before You Are Thirsty. If you are going to be an entrepreneur, you are going to be a networker. No exceptions. Get comfortable asking everyone at every event if they have suggestions on people you should talk to about investing, advising etc. Every introduction needs to turn into 2 or 3 more. By the way, virtual is not going to cut it. Get your butt to local events as much as possible and national events here and there. That said, don’t become a conference gad-fly chasing startup pitch awards. One or two is great. More is less.
While we want to use digital tools and processes to build a “funnel”, the phone and in-person meetings are critical to move to action. Investments will not happen over email. You have to text and call. Call and text. Then call and text again. See a pattern here? Yes, you may feel like a nuisance, but those you are connecting with are probably not thinking of you and your venture amongst their top 5 priorities today. They usually appreciate the pursuit and reminders. Not always, but let them tell you that.
These points are more about the process. In a companion post this coming week, I’ll cover “the ask.”. Even if you are reasonably good at the process of creating a pipeline, the ask trips a lot of people up. It trips entrepreneurs up because of embedded fear.
For now, think about the process your startup, or startup you advise/are invest in, has in place to build an investor pipeline. This should be a core project as a team; and everyone has a hand in its success. The process always needs refinement, so build the iteration into your work-flow. Good process and materials will put your team in the top tier from the start.
