The early days of a startup are a virtual utopia - sitting in a nice, cozy place, bouncing back and forth ideas that will make the next successful billion dollar company. Money coming in looks like a formality, your team is working together perfectly. Before long, you’ll be enjoying a nice sunset and glass of wine on the amazing Whitehaven Beach in Australia.

Bzzzzbzzzbzbzzz!

Wake up!

It’s 7am!

Get your ass out of bed! You have work to do, bills to pay, maybe even a family to feed.

If you don’t dream, you won’t gleam.

Startups are the craziest combination of dreaming and real life. Lots of ups and downs, decisions to make (good or bad), tensions between people, working close to 24/7 etc.

You’ll need to think about things like:

  • Product idea
  • Value proposition
  • Brand
  • Market research
  • Prototyping
  • Audience
  • Product development
  • Validating your idea
  • Launching

During these early days focus and execution is everything, but once everything is progressing smoothly, you might want to think about your first fundraising round too.

Thinking about fundraising

What is fundraising?

While all of the above challenges need to be considered during the earliest stages of a startup, fundraising is one of the hardest decisions and processes to undertake during the early days and while growing the company.

Fundraising (or crowdfunding or other approaches generally meaning getting money into your company) is, at it’s core, the process of raising money in order to accelerate the speed at which you can turn your idea into reality and market it successfully.

Why fundraise?

It all comes down to MONEY! No money, no team, no prototype, no real product/service.

If you are not individually wealthy enough to get your product through, at least, the initial phase of your startup up to building a money generating user base, then you really need to think about fundraising. It might well be the key to your startup’s success.

Even if you have the money to get to a certain growth level of your business, you will get to a point where you need to draw the line between growing based on revenue generated by the actual product or start thinking about raising money from external sources.

When?

This really depends what is your current financial status when starting the startup journey.

If you have some money to start with, figure out how long it will be good enough for, and whether you need more people quickly deliver your idea. You can start the fundraising process anytime, but it is important to plan it very well so you’ll get the most out of it.

Generally, it takes anywhere from 3-6 months to get the funds and around 18 months of coverage until you need to do another fundraising round. So, you can plan based on that.

If you don’t have any money, just an idea and a documented plan of action, you’ll need to start the fundraising really early on. Another option is to postpone it for a while if you can find some free interns/volunteers/co-founder or yourself to build the prototype, initial marketing efforts and even an MVP without big costs. Any other situation will require funding.

Where/Who?

Embrace the power of networking!

Start small, but go world wide. Depending on your business idea (product/service), you can start as small as asking wealthy friends about funding, share the idea and so on.

To go global in your search for investors you can use websites like LinkedIn, Angel.co, participate in related meetups, events, conferences where you can make great connections and demo your idea, always looking for feedback.

How much?

This, again, depends on the business plan you have for your product or service and how much you have from your own money. You should target raising enough to create 18 months worth of roadmap, assuming you can hire the right people quickly enough.

The amount asked for is also related to the phase you want to apply for funding at.

If you start funding the idea (seed round) it’ll be a small a mount to get you through the validation phase and build a small users base. Generally, a startup can expect between a hundred thousand and a million dollars in their seed round.

With each round of funding, your give up a portion of the company (usually about 25%) to their investors. Occasionally startups skip the seed round and raise a few million dollars of series A funding right out of the gate. This tends to happen more for experienced, repeat entrepreneurs with great connections and a history of previous successes behind them.

PRE-SEED ROUND: Often provided by accelerators, friends, family, angel investors or small amount of personal savings, you can look at a pre-seed round any time, even before your company is officially registered.

SEED ROUND: This round will be used to work from prototype with some initial customers to an actual product on the market. Size: anywhere between $400,000 - 3 million dollars. Sometimes provided by a venture capital firm, sometimes a conglomerate of angel investors or a mix of both.

SERIES A: Now firmly in the range of venture capital firms, the series A funding will be larger than the seed round, startups typically use series A funding to grow sale and marketing functions in the organisation to scale quickly. Value: usually between 2 and 6 million dollars.

SERIES B: By this time, the product is on the market, ready for the expansion: product and market. For this, more significant increase of money is needed. Value: 7-50 million dollars are a good range)

SERIES C+: This is all about fast growth. In series C funding, companies might move the work they’ve been doing in series B toward international markets or focus on diversifying their product for multiple different platforms.

Do I need to?

Here's a secret most investors don't tend to highlight often: taking investment is not the only path to success, and their money is something you don't necessarily need.

An investor's job is to invest, so they are constantly looking for companies they can work with. They'll tell you what they want to see in your business to make it suitable for an investment from them.

While often their advice is just good business sense, it may not always match with what your company actually needs. Don't be afraid to say no, and don't waste a single second meeting and flirting with investors if you aren't serious about taking investment at the end of it all.

That said, research tends to indicate that companies that do take investment tend to be more successful in the long run. But sometimes, it's better to go with the devil you know rather than the one you don't.

Be pitch perfect!

If you do choose the investment path, pitching to investors needs to be thought about and planned ahead very well. Keep it short, informative and allow your dream and passion to shine through. Don’t focus too much on numbers and facts unless you are asked about those. Tell a story.

Must have pitch elements:

  • What your idea is
  • Why customers will love it
  • How big it can become
  • Who you are

Managing your emotions

Fundraising is hard work especially as you are trying to raise the money for “the love of your life”.

Your emotions are attached to this whole process. it's a roller coaster ride with what feels like your life in the balance. Use your positive emotions to present your business in a picture perfect light, and use the negative ones to channel your motivation to get better at what you do.

Stay humble, but promote your dream the best you can.

Expect a long journey for each fundraising round and a painful one. Plan to be involved 100% of your time. You’ll need to be in a lot of calls, events, meetings, follow ups.

Expect rejection. It will certainly come your way!

An offer will come out of 1%-2% out of all the investor meetings - and that's assuming your product is ready for investment. That's a lot of money spent on meetings and coffee before you sign the dotted line. Most companies don't get funded, even when they look for it.

If you do get an offer for funding, there will be many strings attached. You will likely lose control of large parts of your company. You will have bosses again, people you report to, even as CEO.

Know what these consequences are before you go down the funding route. If you aren't prepared to accept the terms that often come with these types of investments, there is no point starting the fundraising process.

Your mindset has to remain positive, despite constant rejection. This is your dream, no matter how many fail to understand the value in it.

Take feedback with open mindedness and learn it, but the next day, get up, update that presentation deck and hit the road again.

Every new investor meeting is a clean sheet and a new chance to win your investment.

Never take it personally! It might be “the love of your life”, but is not life itself.

Trusting investors

The most important thing to remember about raising funds is that it is like any other business deal - it has to be win-win.

Investors are professionals - they negotiate investment deals every day. You might raise funds a handful of times in your life. They will always have a large experience advantage against you when negotiating.

Being "Not interested" in their money is your most valuable weapon.

Startups can exist without investors. You don't need them. Investors can't exist without startups. So ultimately, you hold all the cards. Get the deal you want, and be happy to say no.

Ultimately, your investors will be your new family. If you don't trust them, don't work with them.

Closing a deal

Investors have a dirty habit.

They keep asking for more, without committing to invest. As long as you are doing well, there is no pressure on them. The longer they wait, the more they get to see of your business.

The only time they need to commit is when a round is closing - i.e. when they might miss out. Then the fear strikes them. Who wants to miss out on being part of the next big thing?

You have to force them to make the commitment. It happens in three steps:

  1. Pitch - Goal: get a first meeting (coffee for Angels, presentations for institutional investors etc)
  2. First meeting: Explain your proposition in detail and see if they are interested in investing in your idea. Goal: Get a closing meeting.
  3. Closing meeting: Answer any follow up questions and see if they are interested in making a commitment.

Get answers to the three closing questions:

  • Are you interested in investing in my company? Yes/No.
  • What conditions would you invest under? Conditions are laid out.
  • Are there any other conditions not discussed here? Yes/No.

And finally:

Great. I'm finishing my meetings with the investors we are considering working with. I'll let you know based on the terms you have just set out.

Summary

Investment plan:
  • 100 investors
  • 300 meetings
  • 4-6 concrete offers
  • 1 investment round

And one major comedown once all that caffeine finally leaves your system.

Key takeaways:
  • Plan your business for growth and show it.
  • Believe in your idea. If you don’t, nobody else will.
  • Start fundraising based on your business plan and financial situation
  • Startup fundraising takes 100% of your time
  • Set the right expectations and expect rejection
  • Stay positive and start each meeting like it's your first
  • Be humble and learn after each investor discussion
  • Love your business well enough so when you meet with investors you’ll have great milestones to show

Just do it!