Category Archives: Raising Money

Raising money requires you to “connect the dots” for investors

You would be foolish to believe that the first time you meet an investor that they will fall in love with you, your team, and your idea.

This just doesn’t happen, unless of course you’re some type of rockstar entrepreneur that the investor knows through press.  We’re not talking about these rockstars in this short post on raising money.

We’re talking about “no name” entrepreneurs like most of us are.  Guys and gals taking their first swing at the bat.

When you first meet an investor you are creating a proverbial dot on a chart, as described by Mark Suster in his famous blog post titled Invest in Lines, not Dots.

This concept described by Suster is critical for first time entrepreneurs to understand.  Suster states:

The first time I meet you, you are a single data point.  A dot.  I have no reference point from which to judge whether you were higher on the y-axis 3 months ago or lower.  Because I have no observation points from the past, I have no sense for where you will be in the future.  Thus, it is very hard to make a commitment to fund you.

For this reason I tell entrepreneurs the following: Meet your potential investors early.  Tell them you’re not raising money yet but that you will be in the next 6 months or so.  Tell them you really like them so you want them to have an early view (which is what all investor’s want).

Suster goes on to describe how in every subsequent meeting you have with an investor that you can demonstrate how you’ve done what you said you would do creates another dot.

These dots eventually get connected to form lines that an investor can then invest in.

I love this concept.

Please go read Mark Suster’s full blog post on this strategy to raise money here and let me know what you think.

The only two good times to raise money for a startup

Raising money for a startup is something I really want to help demystify for first time entrepreneurs who have no idea where to get started.

I shared a few of the ingredients to the secret sauce of raising money throughout several blog post covering the topic over the last 3 months.

One ingredient I noticed that was missing was timming.

Timing is the one ingredient that you must nail if you want to succeed.

To help bring clarity to this critical fundraising topic, we need to look no further than a blog post written by the founder and CEO of Buffer, Joel Gascoigne.

Gascoigne states:

What I’ve learned from talking with some very experienced and highly respected successful serial entrepreneurs is that there are only really two good times to raise funding. The first is when you have just an idea, and you’ve not even started to build. The second is when you have a product with good traction you can show to investors.

Gascoigne goes on to point out that first time entrepreneurs have a 0% chance at success at the idea stage because investors are looking for serial entrepreneurs with multiple successful exits as the deciding factor for investing in an idea.

So for first time entrepreneurs, the only option you have is to raise money when your product has good revenue or user traction depending on your business model and market.

How much?  Read this post for specific numbers you must hit before you have a good chance to raise VC money.

Also, please go read Joel’s full blog post to learn more about raising money as a first time entrepreneur.

Understanding the Series A Board of Directors

Most entrepreneurs will never raise Series A venture capital and have to worry about the type of board of directors composed of investors.  However, if you are creating a business that will need outside capital to go big, then this post is for you.

Getting a grip on the fundamentals of formulating and managing a board of directors is critical.

There’s a fantastic post on the Venture Hacks website that gives you an inside baseball perspective in a post titled Create a board that reflects the ownership of the company.

The bottom line comes from this quote from the article:

The board you create will be your new boss. But trying to please everyone on your board dooms you to managing board members and ignoring customers and employees. Great companies are rarely built by committee and a bad board will waste your time trying to run the company their way.

This hack will show you how to create a board of directors that you can trust even when you don’t agree with its decisions.

Creating a good board is definitely a luxury problem for an entrepreneur that most of us creating startups with big visions want to have one day.

It’s better to read all you can now, and understand the ins and outs well before you have to put your name on that dotted line.

So make sure you read the full post from Venture Hack here.

What’s Better: Pretending to know or honestly not knowing?

As an entrepreneur launching a new venture, how important is it that you know all the answers to the most common questions you’ll get from potential investors?

What’s your customer acquisition cost?

What’s going to be your pricing model?

What’s the lifetime value of a customer?

What’s your churn rate?

What are your risk?

These are all tough questions anyone thinking about investing in your business will ask. You better have all the answers right?

Wrong?

Josh Kopelman, VC at First Round Capital makes a great point about not knowing all the answers in a post titled “I don’t Know” he wrote on his Red Eye blog.

If you have been reading this blog for awhile, you know by now I like to go back in the history of the blogosphere to find the best entrepreneurial advice. This post from Kopelman is no different as it comes from back in 2008.

Kopelman’s insight is simple. He states:

No one expects a pre-launch company to have all the answers. (In fact, we get scared if you think you have them).

This is absolutely a great post to read as Kopelman also gives two scenarios of two different entrepreneurs responding to his questions in an investment meeting. One he finds credible, the other he does not.

Read the full post on his blog right here.

When you should look for angel investors

I talk to entrepreneurs almost everyday.  Most live in Atlanta, some live in other places outside the Valley.

As an entrepreneur living outside the Valley, it’s important that you have the right mindset if you want to get angel investors in your venture.

First, you have to be real with yourself on whether or not should you should be looking for angel investors in the first place.

I found a great post written by David Cohen from back in 2006 that covers this topic.  The bottom line from the horse’s mouth is that:

If you’re going to go and ask any kind of professional (non-emotional) investor (angel or VC) to open up his checkbook, you had better be talking about building at least a $20M business. Fact.

Remember, that number is from 2006.  So in today’s terms you might want to up it a bit, (for the sake of argument) to a $50M business.

If your business is not going to hit that number in let’s say 2 to 5 years after you get your angel investment, then you are a great candidate for the bootstrappers club.

There are some other rants and nuances that provide more context on David’s blog.  Please go check it out here.

Solved: Step 1 to raise money from VCs

Earlier this week, Ash Fontana published a post on TechCrunch that is going viral through the entrepreneur community.  The post covered how much traction a startup needs to have in order to raise money from VCs.  I think the reason it is being shared and re-shared over and over again is because it simply demystifies something that every entrepreneur wants to know.

Bottom line, for the startup I’m working on I would need to grow to 50k a month in revenue.  David Cummings followed this coverage of Ash’s TechCrunch article with this informative post suggesting that the milestones Ash suggest would need to be hit within about two years after launching to have a chance to level up with VC money.

According to Ash, the VC milestones are as follows:

If you’re a social company, you’d do well to have at least 100,000 downloads and/or signups before going after your million-dollar round. If you’re running a marketplace or e-commerce company, you should be aiming for around $50K in revenue each month. If you’re going after the enterprise, you’ll want at least 1,000 paid seats at $10 per seat per month (or the equivalent for your pricing model); if you’re focused on big enterprise, you should lock down at least two huge (pilot) contracts.

Read the full TechCrunch article here.