As an early stage investor it is always an honor for me to be the other side of the table from startup founders giving their all. And obviously as an early stage investor I get to see founders when they fundraise with “strangers” (not friends and family connections but angel investors and early stage VCs like me) to power their vision.
Raising Money From Strangers: First Time Founder Tips From An Angel
With first time founders you see their pain when they realize that: a) fundraising is (very) time consuming b) “you” seem to be doing it all the time (because ... “you” are). In my experience the most “formidable” founders find ways to be efficient and effective when they raise. They rightly see this is vital to conserving bandwidth so they can keep their company’s show on the road, of course to get the raise done but also to maintain some hope of sanity!
Having seen, from my seat, how first time founders struggle with the challenges inherent in an angel round, and how they overcome them, it seemed worthwhile to lay out some tips on “raising money from strangers” based on that experience. What lessons have successful founders taught me about how they “get it done”?
There is a lot to say so I divided the topic into three parts. The advice is mine and I would preface it by saying that a golden rule for entrepreneurs should always be: "Take advice, but don't follow advice." i.e. whatever anyone says its just one input and no outsider knows a founder's business, their vision, their values and priorities better than them. In that context hopefully some of these tips will be worthwhile inputs for at least a few first time founders, but recalibrated by them into their own context and fully owned by them accordingly.
PART I - The Front End: Get Serious
1. Be preemptive and intentional with your information
2. Be preemptive and intentional with your process
3. Do your own due diligence early to gauge an investors “seriousness”
4. If you have a term sheet make sure that a deal breaker isn’t lurking in there
PART II - Herding The Cats (aka Investors)
1. VCs should be able to give you clarity on timing and process - so ask!
2. But with a VC be careful who you are talking to - decision maker or not?
3. Angels and Angel Groups can be more problematic - the cats need herding!
PART III - Assets To Protect And To Use, Plus A Few Landmines
1. Protect your customers time and only open them to the most serious investors
2. Use your Board/advisors - they can be big advocates
3. For the more advanced startups … use your existing investors - with their permission
4. Beware of competitor issues - know your own disclosure limits
5. Watch out for investors with potential conflicts of interest
6. Beware investors who ask to be an advisor for equity or a retainer to get you "ready" for investment