I’ve raised money, and I’ve built from nothing, and both methods are perfectly valid. That being said, if you want to raise money for your startup idea, there’s some shit that you must consider.
It’s possible to raise the money you need to grow. People have done it before you, they’ll do it after you. You need to take it seriously though. It’s not a game. It’s a major project, on which you have to focus.
Build First, Raise Later
“Whenever I hear somebody say, “I need the money to hire the people to build the app,” I run in the other direction as fast as I can.
Most early-stage companies DON’T have the money to build the app, so they build it themselves. Because they have the programming, product and design experience. You need that on your founding team to have any real shot at success.
I’m guessing that if you’re asking this question, you don’t have a track record. In general, investors only give money to founders pre-product when those founders have a track record of successful companies, exits or venerable work history.
You may want to learn to code or find a co-founder who believes in you. If you can’t do that, you’re fucked anyway.”
– Ben Parr, Octane AI
This is one of the truest things you’ll ever read about startups. It’s not about coming up with some idea and then being handed a bunch of money to make it happen. No VC is going to do that, and if they did, they’d be shit anyway. What you need to do is prove that your idea has merit. Build as much as you can, sell as much as you can, before you try to raise.
When people ask me how to get funding for their idea, this is always the first thing I tell them. Make your idea happen without the funding, then get it.
Start Before You Start
“Start meetings with VCs 6 to 8 months before you actually raise. This allows you to set the stage for a later meeting when you are actually raising. This way, you’ll be in a front position to get the meeting, as opposed to trying to secure this meeting when you are actively fundraising.“
– Kevin Ryan, DoubleClick CEO, Investor
The right time to be talking to investors is always before you need the money. When you’re under the pump and you’re trying to raise, you’ll wish you’d started building those relationships earlier. After all, a relationship with an investor is the same as any other relationship you’ll ever have in your professional and in your personal life. It only grows over time.
You can’t rush a relationship, and you cant wish one into being just because you want to have one. You literally have to spend time fostering, nurturing and growing it.
Get The Right Advisors
“Get counsel and be very careful about who it is. Not to confuse the fact that someone who can run a billion dollar corporation does not necessarily mean they’re a good adviser for your startup. So really find people who have experience and wisdom in the trenches of the kind of thing you’re trying to do. The CEO of some Fortune 500 company is not a great person to be an adviser. They might be a great person to leverage for money — but they’re probably not going to have a lot to tell you about the realities of building your high-tech business on a shoestring.”
– Paul Jones, Michael Best & Friedrich
Advice matters. Counsel matters. The fact is, raising money is a difficult, contentious, life altering process. Speedlancer raised $500,000 and that was an incredibly serious thing. It wasn’t something to play games about. It wasn’t something to rush into blindly. And the only way to guarantee that you’re operating with the best possible information is always to seek advice from people who have the right insight.
Don’t Be Unrealistic AKA, Don’t Make The Shark Tank Mistake
“Startups frequently both overvalue and undervalue themselves. While you should always strive to get the most out of your startup, a valuation that is too high can be viewed as contentious when you come to a VC later with numbers that aren’t based on fundamentals. In addition, avoid striving to maximize your valuation at your earliest of stages as it may significantly inhibit your ability to raise larger rounds down the road. Look at comparables, financial forecasts, and get an outside valuation at the beginning.”
– Brian Hopcraft, LAC Ventures
I see this a lot. People have no real idea how to value their company. It’s the classic Shark Tank error. Before you waltz into a meeting and get laughed out of it because you don’t understand valuations, make sure you do your research and operate on steady, stable ground.
Read these, to start with…
How does an early-stage investor value a startup? by Carlos Eduardo Espinal (@cee) One of the most frequently asked…seedcamp.com
Business valuation of any kind is never cut and dry. For startups with little or no revenue and an uncertain future…medium.com
Network. Don’t Go In Cold
“It turns out that the skill required to network into a VC is the same as the skill required to network into a customer, into a supplier, into a distribution partner, into the press, into an executive search firm.
And so if a founder can’t navigate a network into a VC firm, it is unlikely that founder has the skills to navigate the other networks required to succeed in building a company.
Although this may sound harsh, it isn’t intended to be. The best startup advice of all time comes from Steve Martin: “Be so good they can’t ignore you.” In this case, that means, be so good at networking that they can’t ignore you. The skills you develop learning how to navigate to VCs will pay off 1,000x in building your startup more generally”
– Marc Andreessen, A16Z
This advice is the last, because it’s the most vital. Honestly, it is. And it’s vital for more than just fund raising, it’s probably the best thing anyone can tell you about personal success. Never go in cold. Cold is meaningless. Cold is pointless. Cold is almost certainly going to be harmful for your company and your personal brand. If you can’t reach out warm, don’t reach out at all.
The whole world is playing a relationship game. That’s what we do, in every industry, in every creative field, but most especially in startups. Relationships are the real assets, everything else is just cash. If you can’t build a warm relationship, you might as well give up. Is that harsh?