There are few things in life more exhilarating than having a great startup idea. I know the feeling well — I’ve built and sold numerous businesses, including one company I sold to eBay, and raised tens of millions of dollars for other startups. The rush of a startup idea is like nothing else (often even better than the exit), but an idea is just that. It requires capital, and while bootstrapping is almost always the right way prior to raising capital from outside sources, the process can oftentimes be futile and complex.
The good news is that raising startup capital is a process that can be learned by all entrepreneurs and in most cases, there are more options than entrepreneurs realize. But before we explore my top tips to ensure a successful raise, remember that VCs and investors have a different mindset than entrepreneurs. Startup entrepreneurs want to scale a company, control it, and profit, while the VCs and angels want to maximize return on investment with as little risk as possible. The latter sometimes puts them in a position of wanting more control. The goal of all of this is to find that perfect balance between both sides’ needs and aligning everyone’s interests for a successful outcome.
One additional consideration before you embark on a fundraise is how you intend to eventually return capital to your shareholders (including yourself). This question often trips entrepreneurs the first time they raise capital, because it’s very challenging and even counterintuitive to consider an end point when the process is just beginning. However, having raised tens of millions for my startups over the years, I’ve found that making it clear that I understand that investors invest to make money is an important part of the fundraising process. This will serve you well as you consider raising capital for your business.
Make Sure Your Business Plans and Marketing Are Solid
This is vital. Have a clear and concise business and marketing plan. Make sure your plan shows the exact nature of your business, what it’s trying to achieve, and how it is unique from the others in the simplest of terms. Give concrete plans about your leadership team and how quickly you can scale it. Remember to underscore how much money you think is initially needed.
Also, show you have a great marketing plan in place to truly garner traction in the shortest amount of time. When talking with some companies I’ve invested in, marketing plans have sometimes superseded the actual business idea.
Know Everything About Your Industry
Investors won’t waste time on a startup with little knowledge of its industry. The more you know, the better. Know the history and all the latest news of your industry, who is leading and who is failing, and, more importantly, why. Show the investors that you know more than your rivals and are willing to create a valuable and sustainable vision for the future of your business.
Perfect the Pitch
My advice for perfecting the pitch is to think like a journalist during an interview. Make sure your pitch effectively — and within 20 minutes or so — covers the who, what, when, where, why and how of your startup. Be to the point, be honest, and engage whenever a question is asked. Again, be sure to know everything about your industry: Questions will surely be brought up about certain competitors, so be prepared.
When I’m talking with potential startups I want to invest in, I always ask about their competitors. If you’re using a slideshow, keep it to under 10 slides and only use it for material that backs up what you’re saying. Don’t use it as the focal point; make that focal point you.
Make Financials Available, and Show Stream of Revenue
Investors want to invest in businesses that are extremely organized with their financials, and may ask for them at any time. Make sure you track every expense and have it ready to show investors. If you can’t deliver a report of pre-investment expenses, how well will you be able to show a post-investment expense?
Also, if you have a stream of revenue coming in, exploit this as much as possible. Nothing carries bigger clout for an investor than traction from paying customers. If possible, try to land some paying customers before pitching to investors. This can make all the difference.
Talk With Others Who Have Successfully Raised, and Network, Network, Network
I’ve learned — and continually learn — from others. This is another vital factor for success: Find others who have successfully raised, and learn from them, regardless if they’re in your industry or not. Become close and garner any tips and bits of information possible.
While talking with other successes, be passionate. Networking can lead to meeting others who can help you make additional progress. Investors thrive in smart and passionate people, and it can have a huge impact on raising capital and creating your own success story.
Once you have exhausted all personal resources through bootstrapping, your business will likely need to raise capital. But it’s not as easy as approaching a VC or angel investor. You must be well prepared and show serious value. And who knows — your pitch may be coming to me one day.