Fundraising Mindset
How to think like an investor.
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send us an email with one idea for how we can make them better.
When to Fundraise
Raising money doesn't make you successful. Becoming profitable makes you successful.
Taking on funding is giving up ownership and control of your company. Remember that. There are two good reasons to fundraise. If neither one applies to your startup, suck it up and bootstrap (long term, you'll be glad you did).
1. For Early R&D
If there is no way to get to market without a heavy up-front investment in R&D, then it makes sense to take funding. Startups in the medical or aerospace industry commonly need this type of early funding.
2. To Reach Escape Velocity
If you have a startup that's running and running well, but when you look over your shoulder you see competitors close behind, and you realize that you have a limited amount of time to gain market share or be pushed out, then you should take funding. Startups dealing with emerging technology or newly opened markets often need to do this (e.g. Amazon & e-commerce, or legalized cannabis).
If neither of these applies to you, funding is likely to be a greater curse than blessing, long term.
Fundraising Mindset
Take a moment to put yourself in the shoes of an investor. A sparky young entrepreneur comes to you and says "I have a great idea. It will make a lot of money. I need seed funding. Will you invest?" Naturally you'd want to first ask them a few questions. Let's say you like the general idea, and you then ask:
"How much money do you need?"
"A million"
"What are you going to spend it on?"
"Stuff."
"What will be the return on my investment?"
"Very high, for sure."
"What is your growth plan?"
"IDK."
If you open up your check book after that conversation you must be the village idiot. And yet, this is the level most startups that approach us for funding are at. So here is our first challenge to you as a fonder - be smarter than the village idiot.
Pitch Prep Checklist
1. Branding
2. Market Research
3. Financials
4. Growth Plan
5. Pitch Deck
1. Branding
Your brand is the identity of your company. If you don't know who you are how can you ask investors to believe in you? If you haven't yet, go explore the Branding Toolkit.
2. Market Research
What is the competitive field you're playing on? What trends are shaping your market, in the past present and future? What is the potential of your company? These are the types of questions to answer in your market research. What questions matter most will depend on your unique situation, but be sure to highlight your competition, the current trends, and your potential.
3. Financials
Every CEO must know their fixed costs, variable costs, and margin. This is no different from a doctor knowing the vitals of a patient. If your sister was in the hospital and you asked the doctor "How is she doing?" and the doctor responded "Well she seems to be breathing so that's good." would you trust that doctor?
Sometimes financials are intimidating to founders from non-finance backgrounds. Don't worry, this isn't rocket science, just a Profit Loss table. Here is a guide to building financials for early stage startups:
4. Growth Plan
Essentially, your growth plan is how you're going to get from where you are today to where you want to be in the future. It should include your launch timeline, projected funding rounds, and major milestones.
5. Pitch Deck
Take items 1-4 and synthesize them in a pitch deck. Here is a template to get you started:
Ready to pitch? Send us your deck for feedback:
Pitching
Pitching is fundamentally about relationship development. Start reaching out to investors at least six months before you intend to pitch them. Share what you're doing. Ask for feedback. Learn what their investing goals and interests are.
Follow up every month or so and share your progress. This builds a track record and shows that you follow through, do what you say you will do, problem solve, and can be a leader.
Don't try to hide challenges and problems from potential investors. They know this stage of a company is rough, so being honest and actively problem solving builds trust.
When you're ready to pitch ask politely. If they say "no" take it with grace and ask for feedback, then use that feedback when you go talk to the next one.
“People don’t buy what you do,
they buy why you do it.”
- Simon Sinek
What Not to Do
One of the worst pitches we've ever had to sit through was one for a pizza vending machine. This was bad for several reasons. However, the primary reason was that they had brought a pitch for a novelty machine that improves access to really poor quality food to an accelerator focussed on building companies that will have global positive social impact. Like we said before, please be smarter than the village idiot. To help you out with that, here is a list of things not to do:
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Don't tell people they're wrong and argue when they give you constructive feedback. Be gracious.
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Don't ask for to pitch an investor until you've first asked what their investing goals are. Do your homework.
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Don't pitch a castle in the sky unless you have plans drawn up and financials for how it will be profitable.
For the most common reasons we say "No" to pitches, read our blog post.
If this section sounds a bit harsh, it is. But remember, when you get out there in front of investors they will be far harsher.
“People don’t buy what you do,
they buy why you do it.”
- Simon Sinek