Saturday, February 4, 2017

The Tough Get Going

During my years of working at startups and trying to get funding, I have developed a pretty accurate guide on what it takes to raise money. The main reason why some startups are not successful with certain funding entities or organizations is because there is not a "rightness of fit." What that means is unless you have some incredibly compelling reason for someone to invest with you, that they will look for an excuse not to. I can appreciate that one of your founders may be a friend of one of the potential funding organization’s partners, but unless you are talking directly to the guy or gal who makes the decision to fund or not, you are just wasting time with a gatekeeper, and gatekeepers do not go outside their comfort zone.

In addition, too many companies shop their business plans around too much. Yes, maybe you will get lucky, but in between, you are going to get rejected by lots of VCs. The one major potential downside is that the word gets out that your company is desperate for money (and desperate people do not inspire confidence in others). If at all possible, try to get an introduction to the decision makers through a trusted source (attorney, accountant, venture partner, etc.), instead of cold calling. It never hurts to walk up to a potential investor you do not know, but plans that get "thrown over the transom" rarely get reviewed not matter what they say.

My suggestion to any company struggling to raise money is to first calm down, and secondly look at what you are doing right by answering yes to the following questions:

1) Are you in the right market space at the right time?
2) Is your company message resonating with potential customers?
3) Do you have a good business model (pathway to profits)?
4) Do you have a compelling fire in your belly that what you are doing is right?
5) Do you have an exceptional leader and good executive team?
6) Do you have enough money to maintain your team for another 12 months?
7) Is new market data bearing out your original business assumptions?
8) Do you think you will get an intro to well-connected investor, and soon?

If you can answer yes to 6 out of 8 of these questions, where does it leave you? First, make sure you are preserving capital as best as possible, and just keep the goal in mind that you are potentially creating a company that may one day change the world and perhaps make you very rich. Next, you may have to get creative in raising funds by going to potential customers or vendors who can benefit in your company’s product or services and perhaps ask for a pre-payment or an NRE to get a little cash in the door without having to give up equity.  Or as an alternative perhaps share some of your future revenues with an investor to take the "risk" out of the investment. Times are tough, and the tough get creative in order to survive.

If you cannot answer the affirmative to at least 5 of the questions above, you either need to take steps to do so, or consider putting your endeavor on the shelf until the storm clouds pass.

Remember, no matter what you do you need to just chill.

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