Fundraising is for go getters, don’t waste your time and get ready!
First things first, how did I get involved with fundraising?
I was finishing a one year and a half mission in the Silicon Valley developing a French hardware company. Back then, I created my consulting company called my MVP and me to support early stage startups. I help B2B companies triple sales on new markets in one year with an optimal use of their resources.
I was looking for a new mission in the Valley so that I could stay there. Turns out I didn’t manage to deal with immigration issues. What I found instead, was a promising French startup addressing the water crisis with innovative technologies… Interesting!
We talked B2B strategy to address the US market together. One thing leading to another one, they asked me to support them with their fundraise…
Well, I delved deep into the topic with my strongest asset being my grit.
I moved back to Paris and started working on the fundraise.
Well well well… How did I proceed then?
The before starting checklist
Know what you want
Where do you want to see your company in the next 5 years? Do you want to build a long lasting multinational? Do you want to be bought out by a large player? Do you want to disrupt an industry? Is what you’re building destined to be a muse?
There’s a lot of unknown. Granted.
Having a well defined goal helps you make the right choices.
This is the building brick for your funding strategy.
Why are you raising funds?
First thing to do is check whether you should raise funds with VCs or not. Because of the media, we always think of a successful startup as one that raises millions with VC firms. Is this actual success? I don’t think so.
Success comes from creating beautiful companies and products with noble purposes.
We live in a competitive world where time-to-market is key for many industries. So it’s tempting to go for VC funding to get fame, money and fancy numbers to talk about.
But wait. Who said VC funding was the absolute shortcut for your company’s success and your own fortune?
Watch that video for insight about where US entrepreneurs get their money:
Let’s recap. You should start with:
– Savings, if you’re lucky enough to have some
– Credit, although it’s a very cultural thing to do…
– Love money from your biggest supporters: your friends and family
– If there’s any way, start with money coming from early customers (cf: the Lean startup method*). Or you can sell product/services with upfront payment through product crowdfunding for example (Kickstarter, Indiegogo,…)
Then only if:
– you’ve done that already or
– your company shows significant signs of traction and/or
– you have a product market fit and you need to speed up because other competitors are in the race too…
VC funds and other angels investors are a good way to deploy extra forces.
*Eric Ries, author of the Lean Startup, believes that there are 4 stages to a startup growth:
- – customer segment discovery,
- – validation of that customer segment,
- – customer acquisition
- – Only then: company creation.
In short, get customers before creating the company.
Find mentors and people who believe in good karma
There are two types of people. Those who like to help others and those who don’t. It’s okay. It’s just a matter of believes and perceptions.
If you are passionated about helping people and believe in good karma, surround yourself with people that share the same beliefs.
It creates a positive dynamic. They are out there. Find these people. Sometimes it’s scary, because you are asking advice, introductions and time from A players. You’ll probably think you have nothing to give them back. Don’t worry. There are always ways to help people. And if you don’t have any for them now, you sure will in the future.
Besides the good advices and contacts these people will bring you, you will get energized. I promise. It’s one of the most beautiful part of being an entrepreneur: the human relationships.
This leads us to the next point…
Be real and genuine
Trust me, chances are that the fundraise is going to be hard.
You need to believe in what you do and show it. Enthusiasm and honesty are contagious and convincing.
Additionally, fund raising is exhausting. You will be tired and you won’t have enough energy to disguise your startup or yourself. Be true. Humans make mistakes. Companies are not perfect either. People around you will see through. Trying to convince investors with lies will make everyone waste their time. Be honest and reliable, embrace your strength and weaknesses and give everything. The rest is only details.
Master your pitch and facts
Of course. Do you know your industry well? Have you benchmarked competitors? Do you know the market size you’re going to address with your MVP? What are you cost structures? When can you expect to break even? How long can you hold on without external funding? Is your cost structure viable? How did you validate your product market fit? Is your go-to-market strategy realistic?
People will invest in you if you are passionated about your topic. Implicitly, that means you digged the topic and worked it like if it there were nothing else you’d better do. Yes, that’s what hustlers do.
Practical lessons I learned
This is how I started.
I listed all the people I knew who were more or less related to my ecosystem. I completed the list with relevant contacts I could find on Linkedin. I prioritized them according to their relevance and to our degree of connection. I categorized them: friends, advisors, investors.
I made research about companies in my space and competitors. Who raised funds with who? How much? When? Did thy exit?
Then, I went out and met first with my friends within the ecosystem. I asked people feedback on the business, the pitch, their fundraising experience. When they like the project or want to help me, they help with introductions. And so on and so forth. Until I got the right person in front of me.
It’s a little bit like job seeking, 80% of the opportunities are found offline.
The deep research
I mapped out my ecosystem and looked for the best content online about fundraising. I was lucky to come across videos from The Family. There’s a video (in French, sorry) for each stage of the fundraise. It saved me some time. Thanks Jean de La Rochebrochard!
The investment scene, whether it’s in USA, France or Asia, has its own codes and culture. A “tourist” is rapidly spotted.
Before the launch, I read books about venture capital and blogs. I particularly came across the book “The business of Venture Capital” from Mahendra Ramsinghani. It talks about how some VC funds raise funds themselves. I was impressed by how much more stressful their own fundraise could be.
It made me understand investors to better address their goals and concerns.
The due diligence
My position was a little specific as I wasn’t the one who founded the company. Hence, I had to know everything about the startup. Who does what. The good and the bad sides. See the company “naked” and go deep through the financials. Some investors tend to insist a lot on the financial projections before investing. Since it was for a hardware + Saas company, I also had to know as much as possible about the technical challenges.
Talk to specialists, competitors and other startups in your ecosystem.
Network is key
Talk to people around. Network and reputation are definitely key. Like any activity involving high stakeholders and a lot of money, it’s all about the people. That’s the reason some startups work with fundraisers. They have the network and the reputation. Note that it’s only worth working on large fundraises for them, since you never know for sure how long it will take.
Make sure your ducks are in a row
Build a Q&A list as questions go and prepare a clean dataroom. Know which assumptions are made for your financial model. Be square and methodical. It’s easy to get overwhelmed by the tons of questions and remarks and always be looking for the best answer. So every time I got a question, I put it in a Q&A document and spent time crafting the best answers. It takes away some stress for important talks.
Prepare your calls and meetings
List the questions you are going to ask. Be specific. I spent time trying to know people I was about to discuss with. I tried to anticipate their questions based on their background and personality.
It will take time and it’s harder than you think
So be over prepared. Unless you are a startup superstar, you definitely never know how long it’s going to take. People around will challenge you. You will doubt. About the company, about yourself. Keep on believing and be well surrounded.
Work on your strategy and adapt to change
I designed a fundraise strategy and aimed for a “momentum week”. My goal was to synchronise talks to better leverage negotiations. Unfortunately, at some point it didn’t go my way. It’s okay. But building a roadmap was important. Some meetings were pushed away so it brought critical discussions after long holidays. Getting the atmosphere to cool down when I needed it to be the hottest. Not what I wanted but once it’s done, I could just go with the flow and bounce back.
What you read online is not half of what’s happening
Don’t expect to sit behind the computer and make calls. You need to meet people too. Some information is only accessible face-to-face. Most of the time, we’re talking about the most critical pieces of information.
Specifically, you need to understand the dynamics between people within your ecosystem.
Don’t forget about the hidden forces behind people’s decision making process. (This works for sales and business development too).
Follow ups and connections
Follow up closely and show resilience. You’d better be the “enter through the window if the door is closed” type. Sending good news regularly, finding excuses to get in touch again. Investors are solicited a lot. If you wait for too long before the next discussion, talking to them can feel awkward after a while. You don’t want to feel like a complete stranger while you’re asking them for their money!
Know who you’re talking to
Here’s how I categorized early stage investors (an investor can belong to several categories):
- Nice VCs: Some VCs are specialized by sector and have the relevant network that will make you grow. The ideal nice VC is one that understands what’s going on beyond the numbers. It may imply they have experienced entrepreneurship themselves.
- Money VCs: Some funds are built solely for tax incentive purposes. It means that for many guys, you’re nothing more than an IRR ratio. Keep that in mind.
- Strategic VCs/Corporate VCs: Some corporates launch their own funds for strategical purposes. It means your startup can bring them more than financial return only. They will aim at creating synergies.
- Another type of Corporate VC: Those ones have seed/series A funds because it’s hype and good for PR. Problem is that sometimes they don’t understand how startups work.
- Angels Investors: for example investors that are high net worth individuals and successful entrepreneurs. They can be passionated about startups, bored to death or have tax incentives to invest (can be all at the same time).
- Angel groups: They are groups of angel investors. They allow individual investors to access bigger deals with smaller tickets.
- Junk funds and what not: I remember seeing that event on Meetup “Investment fund looking for startups”. Found it odd back then but after engaging discussions, I now understand. This “fund” listens to your idea, takes equity and supposedly provides technical resources. Fund is a fancy word so beware and don’t waste your time.
Now go for it!
Every company has different needs at every stage. Your personality will also play a role in your funding strategy. There’s always a cultural fit factor. Also, you may have the skills to manage difficult yet strategic investors. Or you may think you won’t have time for that and that their money is not worth bothering. Building a startup is known to be hard but pleasant and exciting. If you don’t find the right type of investor for you, why bother with expensive and annoying dead weight?
Make sure you know where you’re going. Ask the right questions. Be strong and determined. Raising funds is definitely a marathon for go getters.
Anyhow, raising funds is a great exercise to look at startups and entrepreneurship differently. You get input from various types of people. You get challenged on alternative business models and make interesting new friends.
As of today, the startup I’ve been working with closed the first part of its Series A!
It going to be hard but this is all worth it. Just go for it :)!
Now what are you going to do? Let me know about your funding strategy and give me claps if you enjoyed the article, thank you!