2 Tricks to Raising Capital: How Some of the Best Founders I’ve Seen Raise Money
If you’ve ever raised money for a startup, I commend you. Raising money is hard. Really freaking hard. And it always takes longer than founders think.
Raising money well is about manufacturing interest. It’s about getting investors emotionally invested in you and your company and building their interest level through a variety of techniques.
Those techniques usually come down to 2 things:
- Relationship Management
- Controlling the Clock
Before diving into that, it’s important to call attention to the fact that for most investors, the team is the #1 criteria. That’s absolutely true for us at Range Light. If the team isn’t made up of people we can see ourselves spending time with and doesn’t posses these six attributes – smart, strategic, communicative, collaborative, determined, and coachable – we won’t spend any more time looking at the opportunity.
So if the team box isn’t checked, you could be the best money-raiser in the world and have the most amazing product/company and we still wouldn’t invest. However, assuming the team looks like a potential fit, here’s how some of the best founders I’ve seen raise money.
Investors don’t typically meet a founder for the first time and write a check the next day (or week). It can happen for exceptional founders with truly disruptive businesses, but most investors want to get to know a founder before they invest.
That process can take weeks or months or sometimes years. Familiarity = comfort. Comfort = greater willingness to take a risk.
The best money raisers I know get this concept. They build investor relationships over periods of time. One tool they use is monthly email updates to prospective investors. These emails are relatively brief and they contain topics like recent wins, recent learnings, key initiatives/near-term roadmap, and a couple of asks (i.e. we’re looking to hire a VP of [___] with experience in [___], can you point me towards anyone who could be helpful?).
Monthly email updates are an under-utilized way to keep prospective investors abreast of your progress and to build their interest over time. If you are a Series A or earlier company and you aren’t yet doing these update emails, start now.
Another way the best money raisers I know engage with investors is they ask for advice. I was once told by a now friend, then professor of venture capital and partner at a top-tier VC firm, that if you want to raise money, ask investors for advice.
That advice could be asking them if you can bounce your channel strategy off of them, or asking them for feedback on your product roadmap. It’s a strategic topic that allows for a deeper conversation as time allows.
I was asked for advice by one particular founder every 3-4 months for a period of 2 years before we pursued an investment in her company. Her more recent requests were to give her feedback on her pitch deck which we went back and forth on a few times for 2-3 months. Then all of a sudden, she was in the middle of a capital raise and we wanted in. I was emotionally invested and had a great foundation of a relationship with her.
Asking for advice gets investors thinking about your business, allows them to see how you accept feedback, and creates a genuine relationship. It builds their interest over time. [Most] investors are like any other human – they want to feel like they are helping people, like they are contributing.
CONTROLLING THE CLOCK
In most sports, if you control the clock, you control the game. Same goes for money raising.
Map out your capital needs. Then overlay your fundraising calendar with your sales forecast, your customer meeting calendar, your PR calendar, your product roadmap, and your hiring calendar.
You want to sync up all of those calendars so you experience some major wins in a variety of areas as your fundraise progresses. This will generate excitement with investors. These wins are talking points to include in your monthly email updates and could consist of the following:
- Beating a monthly sales projection (and doing it again another month, and another)
- Having a record sales month
- Securing a notable new customer
- Launching a new product and securing notable distribution (and ideally repeat purchases)
- Landing a talented new team member
- Garnering some press
The better you are at manufacturing exciting wins during your fundraise, the more excitement you’ll generate from investors.
That may require you to shift your fundraising schedule to raise money sooner than you were planning on.
For example, we pursued a company that didn’t need money for another 9+ months, but they knew that their biggest sales months were well before that time. They also knew there was a good chance they’d beat their projections those months so they moved up their raise. This may have caused them to take slightly more dilution, but it made their raise SO much easier/faster which was a smart trade-off to make.
They did an amazing job of building genuine relationships with investors over the previous 12+ months, so all it took was a couple of phone calls and emails to say “hey investors, we just had another record month and are crushing our numbers and have decided to move up our money raise to ensure we have enough fuel for the fire.” That was compelling enough for us.
Raising money is all about manufacturing interest. It’s about building momentum and controlling the clock as you proceed through your raise. It’s centered on relationships you’ve built over time so investors are already warmed up when you call.
Good luck. Now go get ’em.