how to raise money for your startup

Raise funds for your Startup  

It might surprise people that the founder plays a huge role in raising money, and can be just as important as the sector or the actual concept behind the company.  In Silicon Valley, we see the same investors behind some of the most successful ventures, and it’s because they are able to recognize the particular mix of passion and grit in a particular founder.  Investors want to give money to someone that they know will do everything in their power to make their project work, and won’t give up.  It is obvious that someone who cannot emotionally sustain the disappointment and rejection that often comes with building a company clearly isn’t the kind of person that you want to trust with millions of dollars.

It might also surprise people that potential investors are interested in the solution that you have for a problem, but are just as interested in how well you understand the problem.  It’s very easy for an innovative mind to come up with a great solution, but that solution may have to adapt when the problem does.  What if the problem takes another shape or form that you didn’t anticipate?  The founder should be the kind of person who understands the ins and outs of the problem that they are solving in a world-class manner.  Similarly, the sector should be something that could mean tremendous growth once the market establishes that this particular company IS the solution –  the same way that Facebook became THE social network to connect with friends on, and Google became THE search engine to use.  It was obvious that these companies and these founders chose sectors where they could build companies that could be worth billions of dollars in market capitalization, and now both of them are.  If the industry is too niche, that could prove very unattractive to investors, as there may not be enough money in the market for them to make a significant return.

Investors also want to dig into any kind of personal connection that the company may have, and whether it is part of their story or not.  It doesn’t matter whether the idea for the company came from an epiphany on a beach in a foreign country, or was born out of a personal tragedy – but these kind of stories help to create an image of the founder and company that could drive home the point even more, and let the world know what kind of company that they are dealing with.  The background of the team can also be telling – is this a team that has worked at other successful companies?  Do they have access to highly-connected people without investing?  Are they highly respected in their respective fields?  These kind of questions could help paint an idea of a company that simply needs money as rocket fuel to take off and make everyone money, or a company that might be desperate and burning out of money.

From a founder’s perspective, funding can be a dangerous dance.  You obviously want to entertain anyone interested in throwing money at your company, but you have to make sure that you are on the same page.  Does the investor, for example, seem passionate about funding the company or is this simply a classic investment for them?  Is this someone that you can see yourself conversing about the company with in ten years?  Is this an investor with extremely ridiculous milestones and time expectations that will cause you more stress than provide you with any resources?  That person may prove to be a very dangerous person to take money from.  It’s important to keep this in mind, when thinking about who is offering what money at what level.  It is obvious, but “not all money is good money”, and finding the perfect investor for you might take many conversations.  In fact, you may find out simply through a couple meetings, who is really patient and passionate about your company enough to really be worth speaking to.

It’s also important to remember that this is a two-way street.  Yes, investors may be interested in a startup and its founder, but that doesn’t mean that a founder shouldn’t be evaluating that investor, as well.  It isn’t hard to do everything one can to find out this particular investor’s past successes, or their interests.  If you don’t even know exactly what you want, how will the investor?  If you can’t really explain how your company is going to make money, why would your investor keep meeting with you?  There are startups that have a great concept, that walk into many of these meetings blindly – and that can be a fatal mistake.

The next important step is to know what kind of relationship this will be.  This investor might prefer to be hands-off, and call once a year from his villa in a foreign country.  This could be great for you, but if you are a company who actually wants his knowledge, this could not really be what you want at all.  Everybody knows that a cash injection can be great for a startup, but what if you had an investor that was interested enough in the company to identify flaws that he sees, and to help you solve them?  There are many founders that would easily prefer the latter.  Of course, there can be times when an investor is TOO involved.  There may be people who, once you take their money, want to know every single detail of your operation.  There is nothing wrong with transparency, but when someone is hovering over your shoulder, it can send the wrong message to you, your team, and your employees, and can lead to an uncomfortable situation.   This is why it is extremely important to attempt to set the tone first with your investor about how exactly the relationship will unfold.

Raise Funds for Your Startup Without Making an Investor Pitch

We all know that not every startup makes it to a funding stage Companies need to understand that they should have product fit and the right hires and the right team, before even considering taking the next step.  There is nothing wrong with asking friends and family for money, or offering them an opportunity on the ground-floor, but it is a very different ball game when we are talking about meeting with millionaire and billionaire tech investors, and explaining to them why your company will solve a particular problem.

The bottom line is that raising funds is never easy, or straightforward.  It certainly is a good problem to have, though, as it means that you have done everything perfectly up until the point where the main issue is deciding WHO to take money from.  This does mean that you have a viable company, that is ready to dominate the market.  However, remember that not every investor is a good investor, and be prepared to be very clear about how the relationship will continue.

Key Takeaways:

  • The founder is key to funding.  Many venture capitalist firms and investors tend to believe in the central figure in the company, and their particular story.
  • Your company should have the opportunity for insane growth, because if it doesn’t, that means that their investment will only grow so much.  If they can make more somewhere else, investors will.
  • What is the “story” behind the company?  Why was it created?  What kind of challenges has the founder faced?  The more examples that the company or founder can give of overcoming obstacles, the more that investors will be reassured that their money is in safe and secure hands.
  • Funding is a two-way street.  Investors know that startups can go elsewhere, so they should be able to elaborate on how and why exactly they want to invest.
  • Not every investor will be ideal.  It’s important for both parties to be extremely clear about the role that they will play.

We are all familiar with the saying, “money makes the world go ‘round”.  It is certainly true that funding is necessary for any startup to really translate an idea into execution.  Of course, when creating your company and building its foundation, one should know exactly what is attractive to investors, and what they look for when it comes to projects that they want to back.