In our last article we set the stage for successfully raising money for your startup (you can find fundraising tips #1 through #3 here). Today we’ll keep walking through great suggestions from Sari Azout, one of our entrepreneurs-in-residence at 10xU. The goal is help you attract the right investors.
Tip #4: Don’t Come up with an Arbitrary Number of How Much Money to Raise
Tip number 4 is don’t come up with an arbitrary number of how much money you need to raise. Instead, figure out what it will take to reach your next milestone. Here are some examples:
- If you have a social media platform then you may want to get to 100 thousand users.
- If you have a SaaS business you might want to get to 10 paying customers.
- If you have a subscription business you might want to get to 1000 subscribers.
Ffigure out what those core KPIs are, and what that important milestone is that you need to get to in order to raise the subsequent round of funding.
Not sure how to figure this out? It’s actually a great opportunity for you to connect with potential investors. It’s perfectly smart and reasonable for you to talk to an investor and ask them, “What would it take for you to invest in my business? What kind of traction would you want to see?”
Now you can figure out how much money you need to raise to get there. Be prepared to outline how the numbers will work and how the costs and the metrics will line up.
Tip #5: Fundraising is a Numbers Game
Tip number 5 is that fundraising is a numbers game. You can’t expect to just meet with a few investors and raise money. You actually have to hear “no” until you hear “yes.” A lot of people have a sort of irrational optimism when it comes to fundraising, partly because investors rarely just say no. Instead they’ll just keep you lingering—in case you start doing well. But this is a numbers game. You need to have a strong pipeline.
I usually recommend reaching out to 50 people that invest in your specific type and stage of company. Maybe 25 percent will give you a first meeting, and maybe half of those will give you a second meeting. And so from those 50 you can potentially land one or two lead investors.
I promised you five tips, but we’re on a roll so here’s an extra one:
Tip #6: Disorganized, Prolonged Fundraising is Exhausting and Harmful for Your Company
Tip number 6 is that disorganized prolonged fundraising is exhausting and harmful for your company. Have the confidence to put yourself out there and say, “All right, I’m doing this! We’re raising a million dollars at a five million dollar pre-money valuation. We’re closing the round on X date.”
Fundraising is a full-time job and you want to get back to building your business as quick as possible. Part of this is managing the psychology of investors and figuring out how to generate FOMO without lying. The truth is that investors are largely driven by a herd mentality, which means the first check is the hardest to land.
Once you do get that first investor on board the rest of your round usually gets easier to fill.
Hopefully these six tips have given you a framework you can use to raise money for your startup. Please leave a comment with any questions.
And good luck!