Fundraising is very rarely a clearly defined path. It’s more of a “figure it out as you go” sort of education.
When I started Medrio, a clinical research software company, I didn’t have much fundraising experience (as most first-time founders don’t).
One thing I was sure of right from the start, though, was which path we should take. For us, working with angel investors clearly made the most sense. We didn’t need millions of dollars from a large private equity firm or a venture capital fund. We just needed enough to get our feet off the ground—and then we’d be able to handle cash flow from there.
But fundraising is very rarely a clearly defined path. It’s more of a “figure it out as you go” sort of education. I’ve made plenty of mistakes, but those were also the moments where I learned the most.
If I could go back in time and clue myself in, there are a number of fundraising strategies I’d recommend to my former self. Here are a few:
1. Sell yourself, not your product.
Investors bank on people more than they buy into products.
Founders tend to focus on their product in their pitches. They act like whatever they’re creating is the best thing since sliced bread. But the truth is investors would rather learn about you—the founder.
The first thing they consider is whether or not they trust you, the individual leading the organization they’re about to invest in. This is especially true for early-stage startups, when your business plan is bound to change anyway. In this scenario, the founder is the only constant. There are many ways to game the system (WeWork provides some recent examples you should NOT follow), so will you? And even if you play it straight, are you all in? In other words, if the investors lose their money, what do you lose?
So, as a founder how can you gain an investor’s trust?
First, show them you have skin in the game by investing some of your own money in your startup, if possible. I invested $100,000 in Medrio, for example. But it’s the gesture that counts more than the amount of money.
Second, prove to investors you’re committed in any other way you can. Talk about how much time you will invest in your startup. Explain how your reputation is on the line and how badly want to succeed. Convey passion and confidence. Tell them you’re going to give it everything you’ve got—and mean it.
2. Pitch from the investor’s perspective.
Investors think differently than you: you think about the possibilities, while they focus on the risks. They ask themselves this question: “Assuming the opportunity is there, will it still work out financially?” So speak their language. “De-risk” the investment by showing that the team is committed (it won’t fail from lack of work), market big enough (if it works there are enough customers to make it meaningful), competition unaware (they won’t crush you before you are stable), success defensible (you can keep succeeding after you get to scale), etc. These are all about decreasing risk, rather than seizing opportunity. Of course, you need to do both, but founders almost always emphasize the opportunity too much relative to the risks.
Of the 100 or so pitches I’ve seen, all were overly complicated.
Remember: the average investor sees lots and lots of pitches. They are only human and therefore can only process a limited amount of information. Founders spend too much time and energy putting together 100-page business plans investors aren’t going to read, and presenting details investors won’t understand or care about, until later in the process.
Instead, keep your pitch deck short and sweet. Google for the top 10 things to include (team, market size, competition, etc.) but keep it simple and don’t forget the basics! For example, it amazes me how many presentations don’t include how much they are raising ($100k or $20m?). Whatever you choose will automatically knock out most investors since everyone has a limited range in the size check they will write.
And by the way, filtering out investors is a good thing, because it will stop you from wasting time with people who have a 0% chance of investing, but who may take the meeting because they will enjoy learning from you or establishing a relationship for a future investment. You cannot afford to spend time with these people.
Keeping it simple will also free you up to work the room. This is a sale, and like any other sale you should be focused on what the buyer wants, not what you have to sell (“The customer rarely buys what the company thinks it’s selling.” —Peter Drucker), and connecting with them rather than throwing data at them.
A funny personal experience:
I once walked into a pitch and, before even beginning my presentation, one of the partners noticed my laptop and said, “You don’t have a Mac?” To him, that alone suggested I was out of touch with modern tech. That’s a complete fail to connect with the audience. Conversation over. Lesson: focus on the buyer (the investor), and be ready to move on quickly when it isn’t working, to free up your time for when it is.
Put yourself in the investor’s shoes: keep it simple, de-risk it, focus your energy on what they care about.
3. Keep the conversation going.
Once you have an investor’s money, make sure to continuously update them on your progress. Along with your customers, your employees and your dear loving mother, they are your best advocates. But investors don’t have time for lots of detail. At Medrio, at first I sent long emails that wasted everyone’s time. Then we settled on quarterly emails with the following format:
- Things are great! (show your passion)
- 3 highs
- 3 lows
- By the numbers (bookings, revenue)
- How you can help (introduce customers, refer VP Sales, etc.)
- Contact me anytime
- Thank you
A tiny number of people are naturally great at fundraising—they can waltz into a pitch and walk out with $10 million. But I can’t do that and probably you can’t either. So keep it simple, pitch from the investor perspective, and focus on what they want to know.
And, above all, remember that successful fundraising is the starting point—not the finish line. Because once you have investor money, the pressure is on to deliver.