Do You Need Capital?
Most entrepreneurs come to me and say their #1 goal is to Raise Money. After talking to them for 5-10 minutes, I can see they only have this goal to overcome some hurdle; a hurdle which, if they checked their blind spots, they could get over without additional capital.
- The game developer that can’t code. She thinks her next step is to raise money to pay for developers when she could be spending time developing an audience to ensure she knows her early adopters and evangelists.
- The education startup that is applying to YC. After looking at his application for ten minutes it’s obvious they have not settled on their official target market nor do they have a clear product plan.
- Or, the team that spent $250K on development, got some feedback and thought they had to throw out their entire platform. To pay for the new version, they hoped to secure investors.
Let me start with this: Investors are not gamblers. They are human. They are social creatures. They are also not fairy god-fathers or mothers that will whisk all of your problems away.
Where Should You Look for Capital?
When going into early-stage fundraising, it’s important for founders to know two things:
- First, the overwhelming majority of angel investment, something like 95%, comes from individuals not involved in a formal angel group.
- Second, your first investor is likely 4 or fewer connections away.
As I perform due diligence reviews, I see many startups with funding from friends, family, past co-workers, mentors, bosses and private investors looking to “dabble” in high-tech companies.
The most unusual private investor was a man who owned an established scrap metal business. He made small $50K investments each year in new business and this startup came through family friends.
How Can You Succeed?
In entrepreneurship, we sometimes overlook the value of relationships in helping open up opportunities for ourselves. Yet, investors source the majority of their deals through their networks and look for founders who have strong Rolodexes in their industry.
Personally, I earned my role to perform due diligence for investors because I focused on how I could help them first. I also secured my position as the first female strategist at Temple’s Innovation & Entrepreneurship Institute via a 6-year relationship with the amazing Ellen Weber.
Successful entrepreneurs know that investors are people, not gamblers, and a founder’s primary goal is to build a solid relationship first before asking for money.
What are the hardest parts?
Of course, one hard part is hearing “no” but I see the most challenging part being “time.”
Entrepreneurs might hear that fundraising will take up 70% of their time but they do not believe it until they start. You will be taken away from the day-to-day operations of your business so your forward progress will slow down.
When you decide to actively fundraise, there are serious tradeoffs. Founders run out of money looking for investment when they could be looking for customers.
Any Other Advice?
Fundraising takes time away from your business which is why I advocate for founders to go through their personal networks and ask for warm introductions.
When they sit down for coffee or take a phone call to catch up with an old college classmate, they can mention a few areas where they need assistance. This maximizes their outcomes. Someone may not know an investor, but they know a potential partner, customer or employee.