By: Erica Duignan Minnihan
For the last 9 years, pretty much since I graduated Columbia Business School, I have been working with startups that are trying to raise capital to grow their businesses. And a lot of these have been VERY young startups, and even people who have the proverbial "idea scrawled on a napkin". As the leader of several prominent angel groups, and Managing Director for one of the leading investment platform 1000 Angels, I have had the rare privilege to see behind both sides of the curtain. To feel the entrepreneur's pain at the fundraising process, and also to drink from the firehose of deals that is being a seed stage investor looking for the next big thing.
So what does it take to get funded, or at least get on your way to getting funded? Let go through a few of the things you absolutely need:
1. Time and patience. It typically takes far longer to close a round then you ever imagine. I would say the typical length of time to expect is 6-12 months from first meetings and reaching out to closing, but I have heard several CEOs talk about taking years before they found the right investor. But take heart, like Edison, every rejection is perhaps bringing you one "no" closer to your "yes" investor. You typically need a pretty think skin for this one. Check your feelings at the door and learn to take "no's" with dignity and a grain of salt.
2. Traction. There have been companies that have successfully raised money outside of their friends and family with no traction, but the odds are, it wasn't you. Investors are loathe to invest in anything until the very moment they are convinced the train is about to leave the station. The better you are at convincing them that that moment is NOW... the sooner you will get your round closed. Make sure that you run analytics on marketing activities and come to investors armed with data that shows you are gaining traction in your efforts to increase users, revenues, or whatever measure you use to track your efforts.
3. A Business Model. One time, long ago, founders didn't think they needed a business model... they just needed to show rapid growth of users and figure it out later. This might apply to the FaceBooks and WhatsApps and Twitters of the world, but it probably does not apply to you. Please explain to me how you plan to make money. Please explain to my why your CAC (customer acquisition cost) is < your CLTV (customer lifetime value). If you can do this, you will stand out. If the gap is wide enough you are basically proving to investors you can spin gold out of straw. They like that.
4. A Financial Model. If you are not my best friend, my closest cousin, or my child, I'm going to need to see the "receipts". And by the receipts I mean a full fledged financial model that shows me your vision for the next 5 years. And hopefully that "vision" does not involve you burning through billions in investor's capital, or never reaching break-even, or not getting to more than $10 million in revenue during that time period. For me, and many Seed Investors, those things are major deal breakers, and they all are revealed by the model. Oh, and please don't show me a top-down model. I am not super-confident you can get "just .01%" of the market for all the tea sold in China.
These are just a few fun tips for those who are about to jump into the market for Seed Funding. If you like this, I would love for you to attend my workshop on Seed and Series A Fundraising next month, Raise Academy. Click here to register for this 3 hour workshop on October 13th and get and insider look at how the game is played and how you can play it better.