After Blank Label raised outside funding through a seed round of $1.1 million, I started getting emails asking me how we did it. The email senders would write that they didn’t attend Harvard Business School or University of Pennsylvania’s Wharton, and that they didn’t have a big network with deep pockets.
For context, my co-founder dropped out of college, and I’m from inner-city New York. Having a large network isn’t the most important part of raising money, and neither is your idea. The most important thing is traction (how far you’ve come on your own), whether it’s six weeks, six months or six years. As successful entrepreneur and angel investor Gabriel Weinberg states, “Traction trumps everything.”
When my company first started thinking about raising money in 2013, we had traction – probably enough to successfully raise money – but we didn’t know how to do it. These are the steps we wish we knew then, and what we have learned as we raised our first $1 million and continue to grow.
Make Sure You Have Time for It
Before you start, realize it’s a sales process. Like landing your first customers or your first hires, or even interviewing for a job, it’s about building a wide funnel at the top and then converting your leads over time. At first, we thought that we could email a few investors to see if they were interested in coffee, and they’d happily give us money over a latte. Make sure the business can still be a going concern as you spend up to 50 percent of your time working on presentations, paperwork, traveling to meet investors, following up with investors, etc.
Talk to People Who’ve Done It Recently
Raising capital for the first time is intimidating. That’s why you should go to AngelList, FashInvest or Campfire Capital and try to find companies in your industry that were recently funded. Before we talked to any single investor, we connected with over 30 other entrepreneurs who had raised early-stage financing in the past 12 months. Thankfully entrepreneurs are generally very receptive to helping other entrepreneurs, and got back to us from a simple email outreach or Twitter follow-up. We were able to find out things like market valuation and reasons investors passed. Many even shared their investor presentations and proactively suggested investors of theirs who might be interested in taking a look at our company.
Have Your Materials Ready
If an investor is interested, they’re going to ask for some basic documents. Don’t wait a week to send them over because you have to create them; have them prepared already. The basic documents you’ll need are an investor presentation, historical financials, financial projections and a legal term sheet. Some might ask for an executive summary, so this might also be a useful document to create, although we were able to raise money without one. It’s mostly covered in our investor presentation.
The presentation is around 10 to 15 slides and covers the market you’re going after, the go-to-market strategy, your team and use of funds. If you don’t have a math or economics background, I’d recommend investing a bit more energy with other entrepreneurs going over your financials. Head of Y Combinator Sam Altman says, “One particularly bad [mistake] is misunderstanding or misusing basic financial terms.”
Start With Crowdfunding
We met with nearly a dozen venture capitalists in Boston, New York and San Francisco, and the feedback was pretty consistent: They invest in technology companies, not in apparel businesses. And there is a long list of apparel companies doing millions in sales without having raised venture capital: Toms, Herschel, and Life is Good, just to name a few.
Today, you can raise $9 million with a platform like Kickstarter without giving up any ownership in your company. The first few people we reached out to were our top customers. They were already believers with their wallets, and it was our opportunity to turn them into fanatical evangelists. There’s no greater feeling than when an investor copies you on an email to 50 friends telling them how great your company is and that she’s a proud investor. Over half of our money raised originated from our customers.
Carry the Momentum to Your Existing Network
As an entrepreneur, a lesson you have to learn early is not to be too shy to ask for help. Gaining traction during fundraising with customers should help validate to you and your network. Search LinkedIn for “angel investor” and email all your first-degree connections asking for an introduction to targeted second-degree connections. While you don’t have to have a large network to raise money, you have to be willing to expand it. You’re only going to succeed if you believe you’re going to make a meaningful return on your investors’ money. And if you believe that, you would be doing a disservice to the people you know by not presenting them the opportunity to invest.
Leverage the Platform
There are a lot of new equity funding platforms popping up, including AngelList and Gust. But the one most suitable to apparel companies is CircleUp, as it focuses exclusively on physical goods companies. All of these platforms will be looking to make sure that you already have fundraising momentum, which we were able to gain from our customers and our networks. These platforms are great at finding companies that have reached at least 70 to 80 percent of their fundraising target. Once they do, the platforms can then alert all of the investors in their network who can fill the balance.