Fundraising for an Early Stage Startup
Fundraising is sales. When raising money for your company, you are are selling a portion of the company in exchange for money. It’s therefore helpful to view your company as a product and fundraising as a matching process between your company and a prospective buyer. Most buyers are seeking a financial return but it’s also worth considering some of the intangible benefits an investor might also be seeking — from association and reputation, to the opportunity of being part of something exciting.
Fundraising should be managed as a sales and marketing process. This doesn’t mean it’s as easy as ABC.
It’s more helpful to think about it as a sales funnel:
Firstly, recognising the stage you are in clarifies what you should be focusing on — are you building more awareness, asking for introductions and leads, or asking for a decision?
Secondly, it’s important to qualify the prospects at the top of the funnel. You can waste a lot of time talking with the wrong people and asking for the wrong thing. Think about the type of investor that might be interested in your company and consider whether the prospect has interest and the capacity (money) to make the investment you are seeking.
Finally, it’s worth reminding oneself that it’s not personal but a game of numbers. There is a certain amount of attrition in going from one stage to the next and it’s easy get dismayed with rejection. Especially, when it’s single digit: if you expect 6% of prospects to convert from awareness to interest, then you’re going to have to talk with more than 100 qualified prospects for you to have six people entering the decision phase! The work then (and where the biggest gains are) is to focus on filling the top of the funnel with more qualified prospects.
Build engagement. Once you have a qualified prospect the task is to build engagement. One needs to create and find ways to engage and re-engage with people. You need to be tenacious: pushing gently until you gain more interest or a soft no. Don’t share everything at once. Pace the information you have to test and grow engagement. At this stage, you're trading information for engagement.
The prospect is invariably going to ‘go dark’ on you. Find ways to re-engage by sending them information every few days, weeks, or months to keep them updated of your progress. It might be 3 or 4 emails before you get a response. I find it better to assume they are busy than to assume they have lost interest. Assuming the later leads to the dangerous path of fear, rejection, anger and the dark side! :)
Ask for advice, not money. I subscribe to the saying that: if you ask for money, you’ll get advice; but if you ask for advice, you’ll get money twice.
(I’m disappointed that when I google this for attribution, I find that these are the sage words of Pitbull and Christina Aguilera.)
Aside from fundraising, I have found this to be true in other areas of life — from looking for a gig, a job, or validating a new product. I think this has partly to do with human nature and our tendency to push back when pushed.
This doesn’t mean it’s about tricking people! Asking for advice needs to come from a genuine place of inquiry and humility. There is also a balance of confidence — one shouldn’t come across as clueless!
When thinking of the sales funnel, asking for advice includes asking people for introductions. I’ll ask: Do you know anyone who might be interested? — even if they are a prospect themselves. Posing such a question gets the other person ‘on the same side’ as you and gets them thinking about how to help you rather than coming up with reasons to say no.
Fundraising is tough work, so I try to keep in mind that I just need one yes. There is a lot of probability, elements of serendipity and luck, and an acceptance that there are many things beyond your control. However, there’s a snowball effect when a single prospect says yes — and it’s a wonderful payoff for all the hard work — many of the other prospects, who were sitting on the sideline, follow out of FOMO.
