What's the Secret?

What’s the Secret? How to Raise Funds for Your Early-Stage Company

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By Lew Brown, Founding Partner

You’ve already been told by colleagues, friends, and family: starting a company is beyond difficult. Nine companies out of ten fail in their early stages. You already know this, but you still have that fire in your belly, and nothing will stop you. Right?

You may have already been told about what’s needed to make a venture successful, whether early-stage or not

  • A large market opportunity: what is the size of the serviceable, addressable market?
  • A clearly-differentiated product or service: what problem are you solving that no one else is — or how are you doing it better than the competition?
  • A defensible, unique idea: if your idea is unique now, can you keep it that way? How can you evolve as others chase after your unique idea?
  • A strong team with prior successes: great ideas are, well — great — but execution is the true differentiator. Can your team actually execute on the brilliant idea?

I am fond of saying it’s better to execute on a mediocre idea with excellence than it is to execute a brilliant idea with mediocrity. Great ideas fail due to poor execution, and “just okay” ideas sometimes do very well, if a stellar team remains focused on it, and executes on the fundamentals in an exceptional way. Successful start-ups often hire experienced mentors to guide them through areas that are not necessarily core competencies but are critical to solid execution.

Here are some considerations as you prepare to raise funds for your venture

  • Are you prepared to bootstrap? For how long? It’s difficult to raise money at the best of times, and harder still under today’s strained economic conditions. Even serially successful CEOs and founders with brilliant, patented ideas are challenged to raise money pre-product or service and pre-revenue. Be nice to your friends and family, because you’ll need them. A typical first stage is to either self-fund or fund with friends, colleagues, and family. They know you, trust you, and believe in you.
  • Are your teaser, pitch deck, and pro-forma financial statement solid, concise, and comprehensible to someone outside your field of expertise? Is the plan you have laid out believable? Can you articulate your approach to get your investors liquid?
  • Have you identified prospective investors whose stated portfolio criteria are a fit for your business? Do they invest in early-stage startups? Invest in business to consumer, business to business? Do they focus on hardware, platform as a service (PaaS), software as a service (SaaS), hard tech, enterprise, consumer, industrial, or some other niche? Know your audience; target your investors just as carefully as you target your customers. Be prepared to kiss a lot of frogs.

Raising money is time-consuming and difficult. You may be wondering how long fundraising will take. It may take twice as long as you think. Meanwhile, your team needs you to help them focus on the business at hand. You won’t be able to afford to spend all your time raising money; running your business must remain your top priority. Here is where outside expertise can save you trial and error and legwork, which take time away from building your business.

You may wonder how much money you should raise. You could need twice as much as you’re estimating. Consider that securing initial funding could take six-to-nine months — or longer. You’ll want to avoid the need to raise a second round when you’ve only just finished raising your first.

Often, new business leaders worry about dilution, and wind up raising insufficient capital. If you view your venture as a pie however, the narrowness of your slice matters less than the pie’s overall size. One hundred percent of nothing is still only nothing, whereas a small fraction from a several hundred-million-dollar exit would be a stunning success for any startup.

If you have it all: a large market opportunity, a brilliant, defensible, unique idea, a great team, solid projections, a strong go-to-market plan, a concise teaser and pitch deck – you’re all set and ready to go after some well-qualified investors. So, ready – set – go!