Raising Capital — Time to Face the Music

Take it from someone like me, a startup venture capitalist, that sits on both sides of the table day in and day out: raising capital is never easy and that’s a fact. One minute someone is asking me for investment and the next minute I am having talks to raise my second fund. I hear and see tons of mistakes….I even make my own. It’s a constant learning process, a case by case game that is complex and calls for the utmost attention to details….all details. If you don’t, one second you can see the wire instructions being entered and the next second you are a waste of time. After failure or denial I like to say “NEXT” but it’s emotionally difficult to let go, draining to think about the what if’s and it’s always tempting to come up with excuses. For those of you that think raising capital has been easy don’t cut yourself short and realize how many times you were busting it to make that easy raise you experienced come to fruition. It’s a fact and the best way for me to reason, understand and learn is to revisit my old friends DFDT and JDFI. If you don’t know what these acronyms are I have written about them here and here and have now applied DFDT to raising capital the best way I know.

DFDT

  1. Only raising using a Convertible Note or SAFE? If you are a startup looking to raise capital for the first time you should be more concerned about raising capital however you can with the right investors and operating your company at low costs then about only using equity or convertible notes for that raise. If you need some pros and cons about this read here.
  2. Dropping names? Please refrain from doing this unless the person is actually on your team.
  3. Pre-maturely disclosing another investor is interested? Don’t count your chickens before your eggs are hatched.
  4. You have to live in Silicon Valley or New York to make your startup pop? What you are really doing is turning your back on your own community. The same community you know like the back of your hand, where you have meaningful connections, where you can collect the same data points, get traction, prove your concept. You know, that place where the entrepreneur could make it happen more efficiently.
  5. Think it’s wise to quit your job before launch? Consider keeping that job for the first 6–12 months. Sound body and sound mind is actually correlated to your success. If no income isn’t something you can handle for a long time then DFDT.
  6. Using financial plans for your company with no traction that show billion dollar revenues by year 5. Just stop. Okay?
  7. While working from your bathroom you expect to dominate your industry and change the world in the next 3 years? Don’t forget to wipe.
  8. Already talking about how you’ll get investment rounds beyond your current unfinished round? Come back down to Earth and focus.
  9. You’ve applied to an accelerator and things are looking pretty good huh? Check the approved applicant stats my friend and maybe reconsider your stance.
  10. Can’t clearly communicate what your business is doing (shocking how often this happens)? Pull yourself together and don’t forget the people on the other side are probably looking at this for the first time.
  11. Have a great idea but nothing to support it? Why are we talking?
  12. The only validation you have is what’s going on inside your head.
  13. Get a great referral and don’t bother to followup for days on end. Lazy.
  14. Promise to send something and then send it weeks later. Lazy.
  15. Valuation, valuation, valuation. It’s fine for an early stage pre-revenue to want $250,000 for 5% but are you backing up that valuation? If you can’t, prepare to get rejected. Side note: Don’t worry that you will be diluted. Would you rather own 100% of a $200,000,0000 company or 20% of a $1,000,000,000 company? A sane person will take the 20%.
  16. What are you using the capital for? I bet you don’t know and you need to. No your slide about marketing isn’t a marketing plan. You have no marketing plan and need one.
  17. Pivoting your business plan during the first call with an investor. Why are we talking?
  18. Sending your own term sheet before you even get a verbal offer. Aggressive and stupid.
  19. Sending a non disclosure agreement after communications have stopped and or you were turned down. First, you are too late. Second, unless you are really going for the scum of the earth investment dollars you can put your guard down because no one is stealing your company.
  20. After being turned down you decide to throw a shit storm back at the investor. Burning bridges is never a good idea.
  21. Sending multiple business plans. Fine. Sending the 2nd plan before you’ve even heard back about the 1st is not fine.
  22. Unable to focus your launch plan. Assume you can go after everything, everyone, every city, every country, etc. Earth do you read me?
  23. Asking for more capital than the explicitly stated investor max. Then asking that investor to pull together some contacts to close the gap. If it were only that easy my friend.
  24. Rejected because you don’t fit the investor mandate. Then you tell them why you do fit. No need to play god, move on.
  25. Grammar, spacing, font and other presentation sloppiness? DFDT. This is your shot so put your best foot forward.
  26. You have no operational structure or plan. There are two equally important sides to a startup business 1) product and 2) management.
  27. Your financial projections and valuation essentially tells me you do copious amounts of drugs or can’t properly analyze a situation. Come back down to Earth and let’s talk.
  28. Competition — I typically refrain from feeding any info about competition because I want the presenter to acknowledge it themselves. Do this, it is important.
  29. Chill out and don’t be nervous. Early on it’s about getting to know each other. Show a little faith and trust your fellow human. You may not hit it out of the park business plan wise but if you’re a good person people are more likely to keep listening and analyzing.
  30. Holding off spending $100 to make an awesome website that effectively communicates what you are doing; one that can help you raise capital? Show some initiative and make a nice page.
  31. Can’t stop editing? Stop editing and actually start your startup even if you’re bound to start slow. It’s time for getting feedback and if you don’t start you are behind in the game.
  32. Don’t say you can’t launch your social marketing awareness initiative because you don’t have investors, you don’t have a prototype, you don’t have whatever. Start your startup.
  33. Don’t want to communicate what you’re up to? Think you are in “stealth mode”. Then don’t reach out in the first place.
  34. I reserve #34 for your own personal DFDT

So like I was saying it is never easy to raise capital. Even when you do get there it can often be humbling. Take it all in stride. Keep pushing and try not to make any regrettable DFDT’s.