Startup Fundraising as a First-Time Founder
To fundraise, or not to fundraise?
I’ve asked this question many many times over the past two years: “To fundraise, or not to fundraise?” And being subscribed to PitchBook and CrunchBase newsletters doesn’t make this any easier. You are bombarded with “startup X raises $10 million and startup Y raises $100 million”. It’s very tempting to join the bandwagon. But we resisted it for two years until our product finally started showing early indications of product market fit.
Now, 8 weeks and 107 meetings later, we’ve successfully made it to the other side! Here’s my two-cents on how to raise many more cents as a first-time founder.
Let me start off by saying that hanging out with VCs has actually been fun. I came in with the image that this was going to be a daunting task full of blunt “no’s”. However, to my delight, all the investors I met were really great people. We even had hour-long conversations brainstorming the limitless possibilities that we could achieve together.
But everything is never so rosy. I got my fair share of “no’s” as well. However, they haven’t been as blunt as many start-up stories frame them to be. The “no’s” have been followed up with invaluable feedback on why our pitch doesn’t match what the investor is looking for. As entrepreneurs, we need to face the fact that some stars are just not meant to align. When two parties bring their perspectives to the table, they can clash even before the negotiation has begun. As a founder, you need to learn to read the signs quickly and move on to the next investor. Remember, “no’s” come in many forms, from complete silence after a series of promising meetings to being disguised as “let’s keep in touch”. At the end of the day, startups are a risky business.
There are two other things in my mind.
First, I never expected to hear an investor telling me to take more money than what I thought I needed. I’m a first time entrepreneur raising capital for the first time. The best advice I can give to others in my shoes is to come into the fundraising process knowing that you don’t know a LOT of things. Also, embrace the power of vulnerability; be humble and put on the table what you know and what you don’t know honestly. The best negotiations happen when the counterpart actually comes onto your side of the table and helps you make the deal come true.
You also need to be aware of the east coast vs west coast bias. We’re a (proud) Philadelphia company and what $2.3M would do for us here might require $3.1M in San Francisco. That’s an additional $0.8M of relative firepower for zero incremental dilution.
Final few tips:
- Have your list of investors ready before you start the fundraising process; Err on the side of having more meetings
- Set a time limit for your raise, 2 months for a seed round is good
- Read “Never Split the Difference: Negotiating As If Your Life Depended On It”
- Choose VC partners over VC brands
- Avoid avoid avoid educational meetings
- You don’t necessarily need a lead VC for series seed
- If you don’t have a good founding story, make one up
- Go through a public speaking class or Toastmasters. This was of immense help in articulating my ideas and also negotiating with confidence
- The more specific you are, the more believable you sound. “I think we will hit $1M in ARR.” vs “With a $2.3M capital raise, we will hire X, Y and Z and this will allow us to hit $1M in ARR in 12 months.”
And by the way, you can practice the above tips on an amazing speech coaching app called Orai 😁
Go over the first five lessons and you’ll increase your effectiveness and confidence by 43%. You can even let Orai run on the side while you’re pitching; Orai will attentively listen and provide a report on how confident you sounded and how you can improve next time.
Good luck!
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