Blogs Archives - Page 7 of 21

Fundraising don’ts.

Aside from actually building your business, asking others to invest in your company is the hardest thing a founder will do.

You can find all sorts of tips across the web on how to find investors, how to structure your term sheets and almost every other detail you’ll need to know. It’s what not to do that isn’t shared often.

$250,000 is the minimum to raise. Anything less will send the wrong signals to professional angels and VCs.
Never be an investor’s first deal. It’s hard enough to get professional investors to commit to your deal, why make things harder on yourself by dealing with someone that may not be prepared for the risks associated with early stage investing?
The smaller the check, the bigger the headache. The minimum check size you should take directly into your company is $25K. Anything smaller needs to get routed into an AngelList Syndicate (here’s mine) or rolled up into some other SPV (ask your local angel group about this).
Raise 18 months of capital or nothing at all. Once you step on the venture treadmill, the expectation is that you’ll raise more money at a higher valuation roughly every 12-18 months. If you raise too little capital, you’re unlikely to hit the milestones needed to get that next round. Don’t set yourself up to fail.
Investors check references on founders. Founders need to check references on investors. Check AngelList. Ask other founders in their portfolio. Read what others might have said about them anywhere else online. The truth of the matter is that it’s easier to divorce your spouse than to “undo” an investment. Trust me on this.
Use AngelList to fill your round, not start it. The same is true for any other online fundraising service you choose to use. Getting the first person to commit is a function of handshakes and time — actual meetings.

Behind the scenes across the Midwest.

I’ll write a full recap of the 2016 tour but, since it’s my first week back in DC after spending the last few months almost entirely in transit, I’m trying to keep my head down as I dig out of the backlog of emails, deals and naps.

Instead, I want to share the time we spent on the ground in Wichita, KS last week. It was our 41st stop of the year and, as we’ve seen everywhere else, there’s a thriving entrepreneurial community present and a number of smart hustlers leading the charge.

Add that to the list of challenges for Midwestern startups: they’re all doing great things locally but the only way to find out about it is to go there.

We’re going to experiment with video quite a bit more through 2017 and I hope you’ll join me on the ground in at least a few of the cities.

WICHITA HIGHLIGHTS

DAY 1

DAY 2

DAY 3

You can’t afford to look dumb, lazy or worse.

It kills me to see smart people make easy mistakes but it happens almost every day along the tech tour.

Sometimes entrepreneurs will use the wrong terminology, talk too much about the product or make spelling mistakes in their pitch decks. It’s the same mistakes in every city.

These all probably sound like small things but, when the stakes are high, they compound quickly. At worst, they kill the entrepreneur’s credibility entirely.

Don’t be that entrepreneur. You’re better than that.

Read what others are reading. Subscribe to every one of these right now:

Don’t make common mistakes during your pitches. Study the videos and pitch decks of 1,000+ other funded startups.

Tap into Silicon Valley’s brainpower from your desk. Watch livestreams of Startup School or 500’s startup events.

This isn’t the most comprehensive list of ideas but it’s a start. 99% of everything you need to know to start, run and grow your business is online already.

You’re either first or fastest.

For the vast majority of you reading this, I have bad news: you’re not the first one that’s pitched your idea before today. Someone else is probably sitting in a coffee shop halfway around the world from you right now.

“But Paul,” you might say, “no one else is doing this — we have to do it!”

Um, no.

If no one else is doing whatever it is that you want to do, there are two likely reasons:

You haven’t actually looked for competitors. This is one of the best ways to lose all credibility, if that’s your goal.
Your competitors have already shut down. Sometimes, the timing is all wrong. A company starts up and the market just wasn’t ready.

If you do happen to stumble across a relatively empty competitive landscape, the best thing you can do is dig deep to figure out how quickly the surviving companies might be growing and why others have failed. And then talk about it with your investors and advisors. You’ll look smart and you’ll make better decisions.

For the rest of you: just focus on speed, it’s your weapon.

If you’re making 2 sales calls a day, dial it up to 20. If you’re cranking out one piece of content a day, dial it up to 10.

Whether you choose to raise other people’s money or bootstrap with your own, this is the only strategy you need (and the best way to introduce yourself to potential investors and advisors): Understand your funnel, start filling the top of it and keep dialing it up every single month.

Skip the local investors (first).

If you want to do anything big, you need to leave your home town. Even if only for a few short days, weeks or years. That’s because no one’s ever a big deal in their hometown, especially entrepreneurs.

If you want to do anything big, you need to leave your home town. Click To Tweet

Once you’ve decided that it’s time to raise money, aim for angels, groups and venture firms within a 1,000 mile radius and focus on getting meetings with them first. Let me say that another way: you’re better off not talking to your local investor community first. The problem isn’t the local investors, it’s you.

Before you even think about raising money, you need to know your market inside and out. Look at every deal that’s happening and know every player in the space. (If you don’t know how to do that, click the link at the beginning of this paragraph.) Once you know the players — both entrepreneurs and investors — focus on the ones that are outside Silicon Valley and outside your home town.

Give them value, if you can. Cold email them if you must. But never ask them to spend any time or social capital before building a relationship with them first.

This all probably sounds like a lot of work — and it is. If you want to build a company, you need to raise the bar on yourself and your company. The alternative is that you can stay local, complain about everything and wonder why no one wants to back you.

If you want to build a company, you need to raise the bar on yourself and your company. Click To Tweet

Once you get someone outside your home town to believe in you, don’t be surprised when the local tech community starts to do the same.

Stop chasing money, it just makes you look desperate.

There’s a saying in the investor community: if you’re not chasing a deal, it’s probably not a good one.

if you're not chasing a deal, it's probably not a good one. Click To Tweet

Think about that for a minute.

Investors understand that the best deals are quick to oversubscribe — and they’ve got to fight for an allocation on the cap table.

Having met thousands of entrepreneurs over the past few years, I’ve heard a few phrases that instantly set off alarm bells.

Founder: “We’re raising our seed round and expecting to close it in the next 90 days.”

Um, what? I’ve seen deals close in a week. Sometimes three weeks. Nothing takes 90 days. You sound like you’re not trying hard enough. Or, worse, you’re not good enough to close anything.

Founder: “Happy to meet you any time you’re available.”

Wait, so you have nothing else better to do? Don’t you have customers to keep you busy or are you really doing nothing else at all?

Founder: “We’re looking to raise something between $X and $Y.”

Huh? You don’t know exactly how much money it’ll take to hit your next real business milestone?

Founder: “WE DID ALL OF THIS JUST THROUGH WORD OF MOUTH!”

Shit. Being lucky isn’t the same as building a business. Please, please, please tell me you’ve at least started trying other tactics to grow the business.

Look, here’s the thing: the best founders know how to humblebrag.

You should be leading every conversation with an investor (and perhaps customers too) with factual statements around your business. Preferably namedropping other notable people that are using your product or investing in your company.

If you focus on building a business, don’t be surprised when money starts flowing your way.

If you focus on building a business, don't be surprised when money starts flowing your way. Click To Tweet

***

If you’re looking for more actionable tips on raising money for your company, check out fundraising for startups.

Good pitches take 3 minutes. Bad pitches take 30 minutes.

A typical note in my inbox on a daily basis: “Can we hop on a quick call? It’ll be easier to discuss that way.”

My response: “You mean you couldn’t take the time to distill your idea down to 1-2 sentences so I could decide whether to spend my time on this? No.”

Look, I have the same 24 hours in the day that you do. You wouldn’t take that call if the situation was reversed, why should I? Or anyone else?

I get hundreds of pitches each week — sometimes they’re for startups, other times they’re for people trying to sell me something. In all cases, they only suck because the sender didn’t take the time to distill the idea down to the core. And that just screams “we’re going to shoot the shit on the phone for an hour with nothing actionable at the end” to me.

If you want someone’s time, respect it. Don’t ask for more than you need. And always lead with something that’s beneficial for them.

The four numbers you need to have handy if you ever want to raise money.

There’s rarely anything more frustrating than meeting a founder that doesn’t know the numbers around their own business.

At the very least, you need to memorize these four things and be ready to talk about them at any time with no notice:

Revenue (or Monthly Recurring Revenue if you have that)
Churn
CAC (cost of customer acquisition)
LTV (lifetime value)

Even if your business is still early, you should have reasonable assumptions around those numbers.

The more data (read: sales) you have to back those numbers, the more likely you are to actually raise money for your company.

It sounds simple… because it is. Investors want to invest in businesses, not startups.

Investors want to invest in businesses, not startups. Click To Tweet

Business growth and the 10% rule.

Whether you choose to bootstrap or raise money, aim for 10% month over month growth in revenue.

That’s really all you need because compounding growth is the most powerful thing you’ve never really understood.

For easy math, let’s pretend that you’re making $100/month through your business today and you grow that revenue at 10% each month. Here’s what that looks like:

Month 1: $100
Month 2: $110
Month 3: $121
Month 4: $133.10
Month 5: $146.41
Month 6: $161.05
Month 7: $177.16
Month 8: $194.87
Month 9: $214.36
Month 10: $235.79
Month 11: $259.37
Month 12: $285.31
Month 13: $313.84
Month 14: $345.23
Month 15: $379.74
Month 16: $417.72
Month 17: $459.50
Month 18: $505.45

You see what’s happening, don’t you? The business is doubling just about every 8 months… and it just gets faster and faster. (And just imagine how much bigger the numbers get when you’re at $1,000/month or more.)

Now, before you crucify me for not discussing churn or anything else — you’re missing the point.

In the early days, investing in a startup is an emotional decision for an investor. If you can show that you’re focused on building and growing a business, you’ve already set yourself up to look like a better investment than anything else that the investor has probably seen lately.

If, on top of that, you can show a 10% month over month growth rate, you’re basically killing it.

When someone asks you how much traction you’ve got, you should always have a line ready. Maybe it’s something like “we’re making money and we’re growing at X% month over month at this point.”

Stay focused on sales and growth — not the idea.

Midwestern community leaders need to think bigger.

It’s not just the founders that are thinking small, it’s the community leaders too — especially around the Midwest.

It’s the same everywhere we go:

The local entrepreneurs are just trying to build their businesses. The local elected officials are trying to figure out what tech companies actually do. The local community leaders are trying to figure out how to get things organized — and how to pay for it all.

Here’s the thing: no one’s ever a big deal in their hometown, especially community leaders.

If you really want to make a difference in your hometown, start thinking about how to build a network across the entire Midwestern startup scene. Let everyone else play the local game.

It doesn’t matter whether you run a non-profit for the tech community, own a coworking space or run an accelerator, focus on meeting your peers in other cities.

Get on stage, make introductions, add value wherever you can — especially outside your home town. Build a inter-city network across the Midwest because that’s what’s missing.

Not only will you build a bigger brand for yourself and help countless entrepreneurs along the way but you’ll likely end up making a bigger impact in your hometown in the process. Win-win-win.

Category: Blogs