We help entrepreneurs raise money all the time—and one of the keys to success is understanding how investors think. So…
Both Sides of the Table
Sari Azout teaches our investment class, and she’s both a successful startup founder and an investor in 15 companies including Canary and Uber (she got into both deals when they were early-stage). She recently did a free 10xU webinar on “10 Startup Fundraising Tips from the Front Lines.”
I’ll take you through her first five tips to help you raise your next round. She points out that fundraising is a lot harder than most founders expect it to be, and will take up a lot more time than you would like. In addition, funding is distracting so you need to be prepared and disciplined in order to maximize your chances of success.
Tip #1: VCs Invest in People, not Pitch Decks
The first tip is that VCs invest in people, not pitch decks. While the pitch deck might land you that first meeting, the reality is that VCs—particularly in the earlier stages of launching a start-up—care more about the things that you cannot quantify. VCs ask themselves questions such as:
- “Do these founders like to work with each other?”
- “How strong is their emotional resonance to this idea?”
- “Is there founder market fit — why are they the right people to build this company?”
Having conviction about the team beyond quantifiable growth or user metrics is really the major driver for how VCs decide to invest in companies.
Tip #2: Always be Meeting with Investors
The second tip is that you should always be meeting with investors. VCs invest in people—and the reality is that you get to know people over time, not just in a single meeting.
It’s smart to start meeting with potential investors before you actually need the money. People invest in patterns, not just one meeting. The best way to get to know them is to ask them for advice. Walk them through what you’re doing and ask what they would focus on. You can also ask them what they’d need to see in order to invest. Then keep them in the loop with regular updates.
This makes it easier to ask them for a check later on when you’ve reached enough traction because they’ve been participating in your journey and they’ve already seen you execute.
Tip #3: Do Not Launch a Funding Round with Just an Idea
The third tip is to avoid launching a funding round with just an idea. The reality is that investors get pitched hundreds — if not thousands — of ideas every year. Most of them don’t get excited by ideas anymore. Startup funding is hard enough as it is, and if you only have an idea then it’ll be even harder.
The general rule when it comes to fundraising is, “show don’t tell.”
Investors want to see roadmaps. They want to see how you hire. They want to see what kind of talent you can retain. They want to see customers. They want to see evidence that you can actually execute on your idea, not just talk about it.
It may be possible for you to raise money from friends and family on just an idea—but even then you want to have some evidence that you’ll be able to build a successful business.
We’ll cover more of Sari’s fundraising tips in a future article.