Over the years I have helped many entrepreneurs raise money, from small angel rounds to larger series rounds. Whether it was with Microsoft Ventures, the Bing Fund, or through my own investments it’s always an experience and there is no real cookie cutter template. The most common questions are related to timing, how to handle friends and family, finding angel investors and VCs, and of course valuation.
Because of the nature of this topic I’m going to focus on a few key areas that I picked up over the years based on my experiences. If you follow them you’ll likely have no problem finding the right money at the right time.
The Entrepreneur Mindset
First thing is first, are you mentally ready for this?
I can’t tell you how many times I talk to people who are currently employed looking to “jump out” to be an entrepreneur. The first red flag is when their primary focus is raising money so they can continue to pay themselves an income. This is totally the wrong mindset going in. Let’s be clear, if you want a job then stay employed. If you want to be an founder, then be prepared to pay yourself next to nothing in order to build something worthy of an investment.
There is a difference between maintaining a lifestyle and going for growth. This is a life choice we all make, corporate job or entrepreneur, either way is perfectly fine. As any seasoned entrepreneur will tell you you won’t get significant growth unless you’re willing to take the risk.
So if you want to be an entrepreneur prepare yourself for that risk/reward mindset. Don’t raise money for the sake of your own personal comfort, and find co-founders who are aligned with you on this.
One of the first things you’ll need to do is find some willing partners to be co-founders. You have to look at your strengths and balance your team with heavy business/marketing, engineering, and design expertise. If your idea is damn good then you should be able to find willing partners who are ready to cut their income to match yours and gain equity in a ground floor opportunity that they too believe in.
Without partners you are almost investment proof, it’s extremely rare to get investment as a lone ranger. There is simply too much risk to invest in a single founder.
The best way to find willing partners is to network at Startup Weekends, participate in founder dating events, and embed yourself in the startup community. If you find it hard to find partners then you probably have the wrong idea or you aren’t working hard enough, keep trying, be relentless!
Finding a Strategic Angel
This is where it gets interesting … When you have your idea, partners, and you’re very clear about what problem you’re solving, you’ll need to demonstrate some market traction for your own sanity. In the process you’ll do some customer development and if you’re good you can get an MVP going before even thinking about investment.
One of the most crucial decisions you’ll make is finding a strategic angel investor. You’ll want to find someone who has deep ties to your industry and is well known. Everyone is approachable, so create a simple pitch and target a few people until you nail down one. A good way to find a strategic angel is work backwards. Find out which VCs invest in your space and seek out the partners in that firm.
Network with them and see if they'd be interested in personally investing since many firms don't participate at seed. This is the top down approach. Bottoms up would be to spend a great deal of time in your startup community.
You’ll want your strategic investor as an advisor and equity participant after which you will have no problem finding money. This is so important, because once you get the known people to invest you’re now creating an opportunity for others to invest, rather than trying to sell them on it.
Friends and Family
As I mentioned above, raising money should be an opportunity, not a sales pitch. Therefore friends and family will follow after you find a strategic angel investment. You should feel super comfortable taking money from your mom, brother, and best friends knowing that your idea is well backed by some serious money.
Remember this: Dumb money is not strategic! Dumb money is a term we use to describe those investors who add little or no value other than money, which in many cases is your friends and family. Your entire raise in the first two rounds should contain no more than 20% dumb money. You really need smart money to help you build your business or you may be setting yourself up to fail, which means all your friends and family will be let down bigtime! Don’t let them down, try and avoid the common mistakes that most entrepreneurs make.
In terms of valuation you should try to avoid pricing the round too early and stick with a convertible note with a reasonable cap, interest, and discount. Pricing the round too early could potentially put you and your partners at a disadvantage as you move forward. There are plenty of articles on convertible notes out there, study up! When you have a great concept and team you can place yourself in the drivers seat on the terms which is the best place to be.
Once you get the strategic angels and friends and family on board you’ll be able to find VC money through your network in preparation for your next round.
I also want to say that I realize some startup ecosystems are less sophisticated than others, it’s hard to raise money where there are few investors. Don’t let that be an excuse - the world is a small place thanks to Facebook, Twitter, LinkedIn, Angel List and others … stop looking for reasons why not! If you’re creating something meaningful you’ll find a way to get discovered.
While some of this might seem obvious, in reality it’s not. Start with: > Solid Plan > Get the Mindset > Find Partners > Get Traction > Convertible Note > Find Strategic Angel > Friend & Family > VC > Boom Unicorn (maybe)!
Words to remember: It's your reputation on the line, you are ultimately accountable to your customers, team, and investors. Best wishes in 2015 and stay hungry!
You can’t go past a news paper, radio show or television news story these days without being flooded by all things Bitcoin or Crypto Currency. Some say it’s the new world of money while others suggest its all just a passing fad. Whatever your position or preference of...
This week I announced a suite of measures for the Government to consider when it comes to small and medium sized business and what we can all be doing as we start to look at emerging from the COVID19 lockdown. The reality is that a good number of small business owners,...
As someone who has been working in suicide prevention for some years now i know that often having a simple conversation can make all of the difference when a loved one is doing it tough. COVID 19 and the lock down tends to amplify how we feel when we are isolation or a...
We know that mob out there are uncertain as to what the COVID-19 / Corona Virus means for them – this can cause us all to panic and some in community more so that others. Panic attacks can compound the situation so we gather some information about what you can do now t...
Don’t forget our elders can suffer in silence too: suicide prevention
Many people think that mental health and suicide are not topics that impact our elders but they could not be more wrong. The data tells us there continues to be an emerging trend when it comes to peop...