“Funding is harder to get out of than a marriage,” investors said in unison during a recent candid conversation about raising money at The Gathering Spot. We can’t say we disagree. Raising funds for your startup is stressful. Whether you’re at the beginning or at millions in revenue, once you sign the contract — you are on the hook for delivering on all of those promises. Unfortunately, it’s a necessary evil in the startup life. So, how do you know when you’re ready to raise funds and impress the next investor that comes your way?
Matt Stevens, angel investor, Blake Patton, managing partner of Tech Square Ventures, and Philip Lewis, principal of Fulcrum Partners talked without reservations about what makes them tick when it comes to funding startups — from etiquette, presentations, and other ways you can knock it out of the park. If you were looking for a little behind-the-scenes action, this is it.
Preparing to raise money
- Evaluate where you’re at. Do you really need to be raising more money right now? If so, why? Depending on your product, you may need to spend more time improving it, finding your audience or strengthening your goals.
- Nail down your company’s purpose. Pick a niche for your vision, instead of trying to save the world. Knowing what your purpose is can help you be more focused during meetings and be more successful at raising money.
- Types of investments. If you’re at the right time for investments, what length of investment are you looking for? Search for potential investors that can cater to those needs. Also, decide whether you need an angel investor, seed investor or maybe just a mentor.
- Research, then research some more. Before reaching out to a potential investor, find out about what kind of investments they do, what stage investor they are, do they have a reputation, and any other relevant information. There’s nothing worse than being unprepared.
- Ask for a quick phone call. If you’re preparing to start raising funds, it’s good to be contact with a few investors. Reach out and ask for tips on how to be successful at raising money. Be specific and avoid the old “pick your brain” email.
- Network. Talk to other fellow CEOs that have gone through their first round of funding. Ask what they did, what lessons they learned, and if they could connect you with any investors. Investors are more inclined to set up meetings with those that come from trusted sources.
During the pitch
- Dive into milestones. Concentrate on your startup’s accomplishments so far and how you expect to keep the momentum.
- Keep an open mind. Be receptive to feedback from the investors and show them that you’re willing to collaborate. Your level of coachability may matter depending on the investment being made.
- It’s not just about the money. While money can help your company move forward, it can’t do so without a plan. Have a plan for the money you have now, the money you want to get, and what your specific goals are. Deliver it to the investor with confidence.
- Be strategic and cordial. Sometimes the one obstacle between you and funding, it’s you. It’s all about how you approach the VC and carry yourself in conversation. If something feels off, it may prevent you from scoring your next round of funding.
- Do your market research. Look up what your prospective VC is interested in and what they invest in the most. You’ll know how to target your pitch plus have research on hand to present them with. This way, you don’t waste anyone’s time.
- Know how to to summarize your business. This may sound obvious, but practice how to pitch your business effectively. If you end up going in circles for the entirety of the meeting, it won’t help your company or the VC. Be specific about what you do, who your customer base is, your team, and your mission. Then ask for what you want.
- Paint a picture and reveal your thought process. Investors, whether they are seed or late-stage, weren’t there when you started the company. Validate your thought process behind your product by telling them what inspired you to be build it, how you build it, why did you use the tools you did, what’s the current status of the target market, and is it profitable.
- Share your value system. You’re entering into a relationship with your investor (yup, you’re going steady) and you need to make sure that partnership works both ways. How will you react when they have a different opinion than you? Are they a good listener? Are you? How you approach communication can make you or break you.
- Avoid saying “I” during the meeting. Investors get peeved at CEOs that only talk about themselves. “I did this” “I did that” doesn’t convey teamwork, good leadership or open collaboration. That will be reflected in the company’s structure as well. Your company isn’t just you, get used to saying “we” and your team will thank you.
- Don’t forget about background checks. If you had a small mishap in college that will show up on your record (think DUI, etc), own up to it. Investors run background checks if they take you under their wing. It’s better to be honest before they find out.
After the meeting
- Get a timeline. Your meeting went well! Now you wait, but how long? Ask the investors for a tentative timeline for the deal and what to expect. This is important for two reasons: (1) Their timeline may not be a fit for your company’s needs right now and you can move on if needed, and (2) In case you’re interested, you’re not dying of an anxiety attack while waiting. Follow up in a timely fashion.
- Ask other companies for their review. Just like buying a car or signing up for a co-working space, reviews matter. Reach out to other companies that were either funded by your prospective investor or interviewed with them. They will let you know about their experience and you’ll know whether or not it’s a good fit.
- Talk to even more investors. Whether you’re seeking investment or advice, talking to more investors will give you a better idea of what’s best for your company and its current business plan.
- Don’t get discouraged. If you get passed on by an investor, ask nicely why they decided to pass on your company. Don’t send “You’re wrong/I’m right” emails. Instead, ask for feedback that you can apply back to your pitch, business plan, or future funding plans.
- It’s not you, it’s them. Sometimes the investor loves your company and you are a good fit for their firm and they like you. You get the whole trifecta, but unfortunately, the timing isn’t right as they are trying to close other deals. It’s not a “no”, it’s just a “not right now.” Instead, continue the relationship and you may be able to reconnect down the line.
- Don’t make plans until… A deal is not a deal until the money is in your bank account. Investors can back up hours before transfers are supposed to be made. It happens. Don’t get ahead of yourself and start hiring.
- Most of all, be nice. The startup community is small, no matter what city you live in. You never know who knows who and who will be in charge of your company’s future later. Don’t badmouth anyone and stay professional during all communication.
Have you had a successful meeting with an investor? Tell us your tips on Twitter and tag it #HypeATL.
Featured image via Tech Square Ventures.