Real tips from a real investor
Real tips from a real investor
How to get your Startup funded
You might be doing the wrong things.
You’re frustrated. Your idea is brilliant, your pitch deck is tight, you’re getting the meetings but then nothing happens. Investors are polite. They tell you that they’ll give it some thought or they come up with some lame excuse. Nothing is sticking.
Then you hear of a startup that’s received several term sheets and is over-subscribed for a concept that seems boring – one that’s already been tried several times over. What’s the deal here? Why does it seem so arbitrary? Why not me? What do investors need to hear? What am I doing wrong? I feel your pain. It’s frustrating and confusing but, beyond what seems like randomness, there is a logic.
Sorry bro but here comes some tough love. The vast majority of funding has nothing to do with the quality of your idea, your pitch deck, or you. If you trace back the origins of successful seed rounds, almost ALL of them happen because of connections, or previous history. Did you use to run a team at Google? Did you have a previous startup that made money for investors? Are you related to someone famous. Are you somehow connected to is a rich investor? If so, congratulation! You’re all set. This article is not for you. For the rest of us poor souls, the odds are not in our favor. However, there ARE some things you can do to maximize your chances.
I’m going to use one of our recent investments as an example. The company is EasyLex – a platform that makes it easy, fast, and safe to do all of the legal documents you need to create your startup. When the co-founders first walked through my door they were facing difficult odds. They were just out of college, working attorneys, with no startup experience, and no connections. Here is how they overcame those odds and got funding.
Reduce the risk. I assume that you’re reading this in Mexico and, in Mexico, the startup world is just ramping up. There have been almost zero cases where startup investments here have returned serious money. Investors aren’t being stingy, they’re being logical. Rather than focus on your “change the world” strategy, your goal should be to make an investment look as safe as you possibly can. In the Silicon Valley, you’re encouraged to think big. In Mexico, think safe. Here’s how EasyLex did that.
Show that money is already being spent. The co-founders came in with market numbers. They were able to quantify how much money is being spent through existing channels – and it was plenty. So they weren’t going to need to convince folks to do something new (very hard to do) but simply shift what they already were doing to something cheaper and easier (less risky).
Stay focused on a specific need for a specific target customer. Obviously, a platform that can automate a complex legal process can go anywhere. They could have pitched this as a global, fix-all solutions for every legal problem under the sun. They were smart in that they narrowed their focus to the initial formation and investment docs that a startup needs. The market was perfect because 1) startups like to try new things 2) it’s a market that’s growing quickly 3) it’s inherently viral 4) it’s easy to target customers (through meetups, conferences, incubators, and other places that startups congregate). I could see that this had longer-term, big market potential, but by showing me a targeted and pragmatic solution to an obvious problem, they removed more of the risk.
Get your target customer to tell the story for you. Of course YOU believe in the opportunity – you’re selling it to me. A better way to tell the story is go out an talk to your potential customer. Explain what you’re doing and get them to go on record – confirming that what you’re building solves a real and imminent pain. Get quotes. Offer to connect your investor to them to discuss. Your investor needs to know that this is not merely your opinion but is a verified market reality.
Build your advisory team. So you aren’t connected to recognized industry experts – time to fix that. Contact them. Don’t be afraid to aim high – many of those key execs you might think of as untouchable are bored and would welcome a conversation with someone from the startup world. Ask if they’d be willing to participate as advisors – a few hours a month of their guidance in exchange for 1/2 percent of your startup (on a cancelable multi-year vesting schedule.) EasyLex was able to show some top-tier attorneys who were willing to act as advisors to their company. That made if feel a lot more “real” for me.
Focus on the momentum. You’ve done something. Maybe it’s not a product yet but maybe you’re building a mailing list. Or you’ve been blogging and you’re tracking your google rank. Whatever it is – show it. Build a dashboard with clearly defined metrics – visits, bounce rate, email opens, conversations, etc. You want to telegraph to your investor how you plan on running the business – by setting, measuring, and communicating clear and specific goals. EasyLex came in with a proposed income statement showing unit economics, unit projections, and costs that tracked out to 24 months. They knew, and I knew, and they knew that I knew that it was a guess. But it showed me how they were likely to run the business – that they knew what they were doing. They took that risk off the table.
And finally, PLEASE stop handing all your power over to the investor. When you talk about your company, explain it as something that’s HAPPENING, rather than something that could happen (if only they would invest). This is some subtle psychological jujitsu that most entrepreneurs fail at. You waiting for me to decide if your company has a future is terrifying to investors. Nobody wants to be the first person at a party. You are the expert on your company – you KNOW that there is opportunity and you are already working to capitalize on it. The train has left the station, dear investor, either get on or get out of the way, but we are already on our way.