Actionable advice and learnings: Playing the big funding game
Going back to basic is trending and who doesn’t want to be up-to-date and in vogue? In our effort of being so, we dedicated our 10th StartupTalk-anniversary to the “basics” of funding — how, where and when to get it. To secure the reach of the preach we didn’t just share funding tactics and tricks in the safe haven of Copenhagen but also went into new territory with a StartupTalk in Aarhus, the unofficial capital of Jutland.
Startup funding is often compared to the good old dating game and if anyone know how to get that investor-founder flirt going it’s the two gentlemen Ken Villum Klausen, the CEO at Lunar Way and Peter Michael Oxholm Zigler, who co-founded Autobutler and now is in the midst of a new adventure. As founders they’ve both gone all the way from being greener than Kermit the frog in the funding game to confidently play hard to get in big funding rounds.
A good reason to why the two gentlemen have reached a point where they can ‘flirt’, be cheeky and play hardball with investors is because they’ve been in fundraising mode so many times. They know the ins and outs of a VC business model, the investor mindset and the signs to look for. And to let other founders into exactly that knowledge not just through the experienced of Michael and Ken but straight from the investor’s side of the negotiating table our very own Investment Managers at PreSeed Ventures Alexander Horten-Viterbo and Anders Bach Waagstein spoke at PreSeed Academy.
Enough about who, what and when. Let’s cut to the chase — in this article we dig through and synthesize the many words of wisdoms into a handful of the most essential funding hacks for your search of gold and diamonds.
Use your stalking skills — The shotgun approach is a dead-end
First things first. Before you turn on your charm and approach every business-looking type in the hope of finding an investor, do yourself the favor of knowing exactly which investors would match your startup. First there’s the type of investor. You can find a ton of different possibilities in terms of funding sources, including VCs, Business Angels, grants, loans, your uncle and so on. To target the right ones you obviously have to know what stage you’re at and what type (and amount) of investment you’re looking for.
The ideal investor would be someone who not only can provide an appropiate ticket size but has expertise in your specific industry and market, and has a succesful track record of helping similar startups grow. Get out your best stalking skills (we all have them) and remember Crunchbase, pitchbook and a bunch of other databases are your ally. If you’re not targeting the right investors, and in a way that speaks to them chances are they’ll reject you or just never get back to you at all. Another scenario is that you take in funding from investors who are a bad match and therefore can’t help you with anything else than pouring money into your business — even worse ‘bad investors’ might even end up dragging you down at a later point, but that for another PreSeed Academy session.
When you’ve had a look in the funding landscape and think you’ve found the one and only, or several promising potential investors, you can advantageously get in contact with their current and former portfolio companies to get an impression of how the investors are to work with.
With that being said, you shouldn’t save all of your charm just for the one and onlys. Investors know each other and when you don’t fit their criteria, they might be able to push you in the right direction.
Find your inner OCD to systematize your funding
Ken has boxed the compass in regards of talking to investors and if you’re smart you’ll follow his example: set up a system for your funding and investor relations. You can start with an excel sheet, but a CRM system is very useful. Fill in all the investors you know, meet or hear about. Write down if and how they match your business, who you’ve talked to, what they’re doing, and the like to map your personal funding landscape.
This will help immensely at any stage of your funding journey, because you’ll always be able to track who you’ve been talking to at an earlier stage, why they may have rejected you and so on. It will help you have a structured approach rather than the aforementioned shotgun style. Nobody wants to read or hear a generic message. Personalize and adjust your message for each and every potential investor. Think of the dating game again: The investor wants to feel special and your job is not only to make them feel so, but also to convince them why you’re worthy of a coffee-date or Skype-meeting in their company.
Create lines not dots — invest in your investor relations
Finding out who you are, what you need, who you want in on your journey and setting it all up in a system are the ‘easy steps’. The next step is actually getting to know the right investors and building a relationship to them. Don’t assume investments happen overnight. We know, you think your product is revolutionary and will change the world, and that’ll convince investors, if not it’s just because they don’t get it, right? but finding someone that is willing to invest is about a lot more than your product, especially in the early stages where you don’t have ton of numbers and metrics to prove, that you’re revolutionising the world. It’s often about trust and relationships. That’s the reason why many startups searching for funding often finds their first round in the inner circle of family and friends. Why? Because they know and trust you.
The case is exactly the same in regards of investors — we invest in lines and not dots. That’s Mark Suster’s clever words not ours, and if you haven’t read is article about it you should. When you meet an investor for the first time that meeting is a dot. It’s a point in time. When you meet him or her again, you form another dot and you’re now in the process of creating a line. By continuously meeting or updating the investor, the person is able to follow your progress and he/she does so by connecting all the dots. In doing so, the investor is able to map out your development and see whether or not you’re able to deliver on your plan. Investors want to follow your startup for a while, before taking any action and committing themselves to it. Therefore, you should keep on making follow-ups with the potential investor(s) and continuously improving your fine line by creating several dots all the while you gain their trust and get to know each other.
All of this takes work and it’s a process. Should it happen that you eventually get a loud and clear rejected, despite having spent a large amount of time in charming the investor(s), don’t give up hope. The very same investor may be relevant later, if not directly by investing in you, then by recommending you to other investors. It’s about trusting you early stage, whereas later stage it’s also about trusting your data.
You and your team need to be on fire
And you’re not the only one investors need to trust. The investors need to trust that the entire team have the competencies and drive to execute on the strategy you pitch them. And we know, you’ve heard it all before, but team is in many ways the one measure to rule them all. Ironically you can’t really measure it. It’s all about the team, according to investors and co-founders alike. The importance of the team in a startup is the material to clichees such as: ”Rather invest in an A-team with a B-idea, than a B-team with an A-idea,” and “The team is the biggest derisker.” But clichees rarely come out of thin air. Whether clichees really are cringe is debatable, but one thing is for sure and that is that every single investor will take meassure of your team in their assessment. The importance of having the right people is especially valid in early stage startups, as you often times have zero or limited data and traction to show for yourself. Therefore, investors have to assess your potential on a belief in not just the potential of market, product, scalability, sustainable edge, but in your teams ability to reach those release the potentiel.
It’s a lot about something as soft as gut-feeling and vibes, so I can’t be hard to do anything about this parametre — either you got that fire in your eyes or you don’t. BUT there are a few rules of thumb you can follow that investors definitely will look at. Firstly, investors love people that has experience in starting and scaling companies. However, you gotta start somewhere, and luckily everyone, experienced or not, can deal with the second rule of thumb, but that also means it allows for no bad excuses: Have a team with complementary skills. Investors want to see a team composed of people with different skillsets and competencies for running a business. Being in a one-man band is rarely a pleasant sight for investors, just as three co-founders with the same background and skillset isn’t the best scenario.
There’s a lot more to building a dream team, which is why we’ve previously devoted a StartupTalk on the subject. Dig deeper into the matter in our previous article from PreSeed Academy.
Understand the rules to play the game
The last advice we’d like to leave you with is to understand the dynamics of investors. Look into their business model to figure out how they make money and hereby what they’re specifically looking for. This also makes it easier for you to know how to approach them. Naturally, different investors will have different points of view and business model, but there are similarities to be found. As Peter emphasized, one of them is that investors suffer from the very same as all SoMe-addicted Millenials: The Fear Of Missing Out (FOMO). They all want to be in on the next big thing and not miss out on a sweet deal. In that connection, Peter pinpointed a law of nature ruling in the funding landscape, which he defined as the law of attraction. Once you get one investor hooked, others will come around as that gives a notion of something big is coming up that they don’t want to miss out on. It adds to the importance of targeting the right investors at first hand, as already described, as this will increase your chances of getting investors on board ASAP.
It’s how you plan to spend the money that matters
One thing is to get funding, another thing is what to do with the funding. Peter Zigler underlined that
Money isn’t a measure, but a means to something
What he wished he knew a few years back, is that you should have a detailed plan with the funding you get. Most investors wants to see this anyway. Don’t just show how much you’re looking to raise, but show how you’re going to spend the money and what you’re going to achieve with them.
That was the words this time around. Happy funding hunting!
With the basics out of the way, we’re heading the exact opposite way in our next StartupTalk, where we focus on AI strategy. Stay tuned for our next round of actionable advice.