Techcrunch makes fundraising look like a breeze. You just mosey on over to Silicon Valley, and there are dollar bills lining the road!
Unfortunately, this is NOT reality.
While fundraising for my company LaunchBit, I was a wreck. The actual process of going to meetings to talk about your company was not difficult, but the self-inflicted pressure to convert investors started to take a toll. Compounding this with a lack of sleep made the process even more difficult. It started getting harder when I started hearing “no” and still had to go into every meeting just as energetic as the last.
About 10 weeks into my fundraising process for LaunchBit, I had a nervous breakdown. Literally a nervous breakdown. My body felt like it was being pricked with pins all over all the time. Obviously, no one was actually jabbing pins into me, but it was annoying, and I was unable to sleep at night (not to mention, it simply felt weird).
I went to see several physicians, including some of the best specialists in the country, and no one could figure out what was wrong. Because this nervous issue started around the time I started fundraising, I decided that it was probably related. So, I paused fundraising. And, of course, the problem went away. Fundraising is an incredibly stressful and lonely process that is like a rite of passage for startup CEOs.
Eventually, we raised over $1M in that round (TC reported $960k here). It sounded like a walk in the park to get name investors into the round, but in reality, it was super hard and took a long time to raise.
These days, I hear a lot of entrepreneurs saying, “Oh, my raise will be hard because 2016 is going to be tough for entrepreneurs.” Honestly, no matter what the economy is or what space you’re in, fundraising is ALMOST ALWAYS F***ING TOUGH as a first-time entrepreneur.
So why is it so hard, and why does it take so long?
Here are some common issues:
1. Your story is not yet compelling
Maybe your story is OK, but if there’s no wow-factor to get people really excited, then it’s not going to be good enough to get investment dollars. You’ll need
- a wow product
- wow results
- a wow team
- a strong and/or unusual differentiator
- interesting insight
At least one of these has to be above and beyond amazing to make your story awesome.
2. There are discrepancies in your story
I’m not talking about lying — though it goes without saying that you should not lie about your business! Sometimes you are so close to your business, you do not even realize what looks off.
For example, if you have a marquee list of enterprise companies as your customers but are only generating $10k/month in revenue, you need a good explanation for why this is the case when these customers could be paying you so much more.
It could be as simple as stating that your customers are right now just piloting or beta testing your product, but your whole story needs to be consistent.
3. You cannot yet answer questions well
Before you start fundraising, you should be able to answer all common fundraising questions well.
In addition to this list, you’ll also be asked about your vision, where you see the business going, and how you see the future. This is often difficult for a lot of first-time entrepreneurs because you are so heads down in the weeds just trying to fight fires. And who the f*** knows what will happen in 10 years? You don’t need to be right, but you do need to have a vision for the world as the CEO.
You will also be asked about your next hires and what you’ll do with the money. Of course, you will also be asked a hodgepodge of questions you cannot anticipate a priori.
4. You do not seem confident in your pitch
Fundraising is an odd beast for first-time entrepreneurs. On one hand, it feels like a sales game because you are trying to sell an investor on your business. On the other hand, it is a lot like a power struggle. You must assert yourself and show that you know how to run a company.
Unfortunately, there are a ton of great entrepreneurs who are not naturally high energy or confident-seeming even if they are actually confident, great leaders in quieter ways. You’ll need to exude high energy and high volume to give an investor confidence that you can run this business.
This may mean experimenting with how you speak, your body language, what you wear, and your mannerisms.
5. Investors have information concerning your business that you’re not privy to
Even if you can solve for the points above, there’s a lot of information that investors know that entrepreneurs don’t.
- See way too many pitches in your space and/or think the market is crowded (e.g. on-demand food delivery)
- Have had a bad experience with a company in a similar space or business 7 years ago and don’t want to touch that space again (e.g. travel)
- Know just how big competitor X is and how much funding they have secretly raised and are concerned that you are too closely related
In your first 20 meetings, your job is to tease out all of these concerns. You need to figure out what is wrong quickly so that you can fix these issues at subsequent fundraising meetings.
However, it’s important to avoid have pitch-whiplash and change your pitch based on every little comment. But if three investors mention the same concern, then you should be self-aware enough to change your pitch and investor conversations OR change the types of investors you pitch to. Test new ways to address concerns in subsequent meetings.
Fundraising takes a long time because you need to meet with a lot of investors in order to refine your pitch, how you pitch, and find investor-business fit. Unfortunately, there are just no shortcuts.