I’m no stranger to raising money.
As a founder, I have gone through all sorts of fundraising experiences. In 2011, I started a company called Talent Rover, which raised roughly $28 million over the course of seven years almost exclusively from angel investors. Then, shortly after Talent Rover got acquired in 2018, I started a new venture called Place Technology, which recently raised $3M from both angels and venture capital.
What I have learned through these experiences is that fundraising isn’t a straight path. It’s emotional. It’s frustrating. Some conversations, you think you’ve got an investor on board, only to decide not to invest at the last second. And other conversations, you may think you’ve found the perfect investor, only to bring them on board and realize they’re quite difficult to work with.
That’s not to say finding great investors is impossible. It just means you need to be strategic and thoughtful throughout the process—regardless of how frustrating it may be at times.
Because the reality is, fundraising for a venture is a big deal. People are betting on you and your idea. They’re investing because they expect to see a return. And so, before you get excited about taking other people’s cash, I strongly encourage you to ask yourself these six questions.
1. Angels, institutional, or both?
When we were raising money at Talent Rover, we had no institutional investors.
Instead, we raised a significant amount of money from angel investors who believed we were the right team to execute on the opportunity at hand. We were all coming out of the industry we were solving the pain point for, which meant we were deeply familiar with the challenges our target customers faced—and how we were prepared to solve them. And that gave investors confidence in being part of what we were building.
Conversely, when I went through the process of fundraising for my more recent venture, Place, I deliberately wanted a VC to be part of the initial funding round. The biggest being: venture capital firms can provide a different level of accountability and support than, say, two dozen angel investors.
We raised $3M, with a venture capital partner playing a big role, because we wanted to set ourselves up for long-term success.
2. Are you aware of whose money you’re taking, and why?
You’d be surprised how many founders focus more on the check, than who the check is being written by.
This first round for Place included both a VC partner and a number of highly strategic angel investors. This was done on purpose, because the insight I gained from working with so many brilliant angels at Talent Rover was phenomenal. If you bring the right angels on board, it’s a completely different type of experience for everyone involved. These are people who are investing from their own personal funds, and really believe in you, the product, and what you’re building—which means they’ll be there when you need them.
When you randomly pick angels, you might get the cash you need, but you don’t land yourself any long-lasting partners.
3. How much money do you actually need?
What is the dollar amount? And how did you get there?
You have to look at fundraising like a sales process. You are “selling” investors on your “product,” which is the company you are trying to raise money for.
So, what is the right amount of money you need? And how long will that cash actually last you?
18 months of runway is what you want to aim for. This means forecasting (best you can) the numbers and metrics that drive your business, and being able to explain everything from potential revenue growth to net income, expense burn, etc. How long will it be before you reach X millions of dollars in revenue? How much cash is it going to take for you to get there?
One of the buzz-metrics startups love presenting is their “conservative forecast.” This is their way of insinuating they are undoubtedly headed for the moon (when in reality, investors find it off-putting).
Instead, present the forecast that you think is realistic, and be able to explain why.
4. How do you (the company) make the money?
Explain how the revenue works.
The most basic questions are, for many founders, always the hardest—because they immediately reveal whether the idea is all “smoke and mirrors” or if there’s some meat on the bone.
Investors will want to know how you plan on getting more customers, the costs of acquiring those customers, how many customers you need in order to break even, how long it will be before you turn a profit, and most of all, is this funding round going to give you enough cash to get there?
5. What is the actual pain point you’re solving?
Investors don’t just want to look at the financials.
What they’re really going to look at is the problem you’re trying to solve. Who is going to buy this product? What kind of experience are they going to have? Is this something they could live without? Or is this something they’ll want and need to continue using well into the future?
The second barrage of questions will then be whether you’re the right person (or team) to build it. Can you really execute this? Do you understand everything about it, inside and out? And what makes you different from anyone else in your space? What credibility do you have?
6. Are you confident? Or are you arrogant.
Investors want a founder who is confident.
What they don’t want is a founder who is arrogant. In a very early round, most investors, even VCs, are going to invest in “you” more than anything else. There is a lot of trust that goes into the decision. These are relationships that, for better or worse, will last long into the future.
It’s important to be confident in what you’re building, but you also need to be honest. It’s alright if you don’t have all the answers just yet, but you need to know your business, your financials, and your product.