How to raise money , and how to succeed?— Week 10
How to raise money?
What investors look for?
- Quality of founders: Grit, leadership, domain knowledge, be able to demonstrate fortitude.
- Bridge quality of founder to problem: Clarity in the problem the founders are solving.
- Size of problem: Foresight into showcasing the breadth of the problem.
What entrepreneurs should look for?
1. Firm’s network: As an entrepreneur you want your funder to be influential with the network they have.
2. Community of founders you step into : The founders network that you will step into is important to evaluate as this will be your core peer group that you can potentially bounce ideas with.
When should you raise money?
- When you can clearly explain the problem
- When you can decompose the problem into sub-problems
- When you are personally committed to the idea
- Have a clear business plan in which set up milestones to achieve within 12–18 months. A strategy to be able to achieve the milestones. Ensure to minimize dilution.
Additional considerations to have
- For entrepreneurs, it is important to communicate the inspiration of the company. What has motivated you to pursue the idea, how their personal story aligns with the company’s idea.
- Founder- VC relationship is a long term relationship. On an average, time to IPO or time to exit approximately takes 8–11 years so ensure that entrepreneurs gauge the tenure of commitment . Once an investment relationship is made you cannot kick someone off the cap table so it is important as an entrepreneur to partner with the right funders. It is a two way street do your research before hand.Looking for a sparring partner.
- Turn fundraising to a systematic process. Build a spreadsheet and monitor it . If as an entrepreneur you are in talk with multiple funders, keep all the funders informed about timeline as it helps create competitive dynamic.
- Do not get hung up on the amount you need to raise. Raising too much money too soon at times can be a disservice to your company. Getting into valuation competition is not the goal of raising money. So not over optimize on valuation.
How to succeed long-term?
There is no one type of personality that makes you a leader. Its about being authentic. The only success metric for a leader is Trust. To strive to be a good leader it is best to optimize for trust.
All great leaders do 3 things well:
- Think & communicate clearly: Be able to paint a compelling picture. Simplicity is vital. Improve by step back and take some time to think. clarity of thoughts precedes clarity of language.
- Good judgement of people: Practice helps in building intuition. Important to be aligned from values perspective. Meet people who are great at what they do this helps understand what great looks like.
- Personal Integrity: Standing for something that is bigger than yourself. Mission driven. Avoiding behavior that will create conflict.