You started your own business because you like to build things, not because you like asking for money. So why does it seem like you’re spending all of your time on fundraising? And how can you keep your startup growing while you pursue investment capital?
To keep your momentum going while trying to raise money and run your business, you have to treat your time as the precious resource it is. Don’t try to meet with every investor who will answer your emails - focus your efforts on the best prospects. And set clear expectations for every meeting to avoid wasting time.
One of the most common mistakes new founders make is treating the search for investors as a numbers game. That’s great if your goal is to have lots of pitch meetings. But if your goal is to build a strong business, you need to go for quality over quantity.
When you’re considering reaching out to a VC, the first question you should be asking yourself is:
Does this person treat investing as a business or a lifestyle?
There are actually lots of lifestyle investors. They like to go to big events where they can shake hands and hear pitches from dozens of entrepreneurs. They like to talk a lot about how interesting and challenging it is to be an investor.
And they like to get coffee with people who have to listen to them.
What they don’t like is being pinned down to specifics. They don’t want to send over a term sheet or perform due diligence. They’d rather talk in vague terms about how excited they are by your idea, and suggest that you “chat again in a week or so”.
Lifestyle investors aren’t actually interested in growing businesses. So they won’t understand why you need to end the meeting on time, to get to your scheduled sales calls.
The other type of investor treats venture capitalism as a way to make money. They invest in several startups every year, and they’re eager to either close a deal or learn why this project isn’t right for them.
They’ll respect that you’re busy, because they’re busy too. Unlike the looky-loos, they’re not interested in having meetings for the fun of it.
Your goal should be to avoid the lifestyle investors, and spend as little time as possible in pitch meetings. That way you can concentrate on making your business a success.
So how can you make that happen?
If you’ve worked in sales before, you’ve probably encountered a sales funnel. Basically, it’s a way of tracking how the huge pool of prospects gets whittled down into a core of active, loyal customers.
The top of the funnel is the widest part. It encompasses everyone who might possibly someday buy your product.
The base of the funnel is where you want people to end up. That’s the narrowest part, because by that point you’ve eliminated everyone who already has what you’re selling, or can’t afford it, or isn’t looking to actively make a purchase right now.
You should be looking at your pool of potential investors the same way.
Research them ahead of time and find out:
How do you do this kind of due diligence? There are lots of sources for information:
If your company is an obviously bad fit for their firm, serious venture capitalists will generally tell you so. They don’t want to waste time kicking the tires on a company that they’d never consider funding.
When you’re setting up a meet or a call with a potential funder, create a well-defined agenda from the outset. Before you sit down, you should have agreed on:
A clearly defined outcome is crucial. Explain to the investor that you’re looking for a firm Yes or No.
That doesn’t mean you have to ask them to whip out the checkbook right there. A Yes can be a term sheet, or a scheduled meeting with the rest of their team, or a timeline to provide them with documentation for due diligence.
But whatever it is should move them at least a little further along the pipeline to an actual signed agreement.
Remember: a No is okay, too. A No boots them out of your sales funnel and lets you concentrate on the people who still might say Yes.
A Maybe, on the other hand, is just a waste of everyone’s time.
Lock down a specific start and end time. Don’t settle for “Let’s talk around 10, 10:30.”
Having a clearly defined window makes it much easier to start wrapping up when there are five or six minutes left on the clock.
That’s the point at which you should bring the conversation back to Yes or No. Tell the investor:
“It looks like we’ve only got a few minutes left. Is there anything you still need to know before we can take the next step?”
Then wait for them to tell you what you can do to turn the No into a Yes.
Unless you’re lucky enough to be born a billionaire, fundraising is an unavoidable part of your startup’s journey. But don’t let it suck all of your time and energy away from the work you actually love.
Focus your search on investors who are actively looking for companies like yours. Lay out well-defined times, agendas, and outcomes for every meeting.
Any investor worth talking to will respect you more if they see that you respect your time and theirs.