Every Monday morning, I would fly out of Dulles Airport and crisscross the country to pitch my dream of a new, sustainable, home improvement store to potential investors. The weeks and months dragged on. The dream started to unravel.
Investors committed, only to bail months later because the process was taking too long. My friends sent e-mails with subject lines like, “Are you alive???” It was even worse at home.
A creeping separation had started to set in between my wife and me. We were spending too much time away from each other. Our love was icing over. Our lives were diverging, and I hated the direction in which mine was headed.
I knew a lot about raising money. After college, I worked as an investment banker on Wall Street, where I sold mega-companies like Burger King to private equity firms. I had analyzed hundreds, if not thousands, of deals. When I left New York, I cofounded an angel investment group in DC. I knew what investors wanted because I was one of them. Every day I received e-mails from people looking for tips on fundraising. I was the fundraising guy. And yet, here I was, two years into launching my first startup TreeHouse Home Improvement, with a third of my $7.5 million round left to close in the worst housing crisis in US history. It felt like Groundhog Day. In every meeting, I relived the same maddening defeat over and over again. Eventually, a few friends had the courage to tell me that the dream needed to die. In November 2010, for the sake of my marriage I finally admitted that there was no way I could close the remainder of the round. This email was my white flag of surrender:
Then, a miracle happened. I got a call from Greg King, one of my investors. “TreeHouse needs to come off the shelf,” he said. He would help us raise the remaining $3 million. Within thirty days, we had closed the round.
The Startup World’s Dirty Little Secret
Sixty-three percent of today’s American twenty-somethings want to start a business. Whether it’s the next Facebook, the next world-changing nonprofit, or the next coffee shop down the street, starting something is the ambition of today’s generation.
But here’s the dirty little secret: starting something is insanely hard. Launching the venture of your dreams takes more hustle, more failure, and significantly more resources than a lot of people can stomach. Yet, talk to any entrepreneurs who’ve been through it and they will tell you one thing: it’s worth it.
Three years ago, I set out with long-time friend and entrepreneur Evan Baehr to demystify one of the most intimidating parts of launching a venture: fundraising.
Why most advice on fundraising sucks.
There’s no shortage of advice on fundraising. Most of it is terrible. Self-described experts spout phrases like, “create a business plan,” “show traction,” and “create urgency,” without any practical insight into how to do what they suggest. A great strategy for a serial entrepreneur with a track record of success will likely be the worst possible advice for a first-time founder. Experienced entrepreneurs forget what raising money is like when you have no network, no track record, and, at best, only a conceptual knowledge of a term sheet. The entrepreneurs we know aren’t interested in the theoretical best way to do something; they are interested in what works. We asked ourselves: What if we could give entrepreneurs what we wished we had had when raising money for our ventures?
There’s a big gap between what experienced entrepreneurs like giving out as advice and the specific circumstances in which young entrepreneurs are operating. — Deena Varshavskaya, founder and CEO, Wanelo
So, Evan and I got to work. We mentored dozens of first-time founders and interviewed angel investors, venture capitalists, directors of angel networks, heads of family investment offices, and CEOs of crowdfunding platforms. We took improv classes. We worked with some of the country’s biggest accelerators and angel groups, and sweet-talked fifteen successful entrepreneurs into letting us show you exactly what they did to raise money, including the pitch decks they showed investors. We’ve also raised over $45 million for our own ventures, including the second-largest round ever raised on the startup platform AngelList at the time. We did all of these things to answer one question: What does it really take to raise money?
What we discovered is that the skill to raise the money you need, get expert feedback, and build partnerships isn’t just an X factor that some people have and others don’t. On the contrary, it can be decoded.
There are specific habits and tools that aspiring entrepreneurs can cultivate to dramatically increase the likelihood that their ventures will succeed. Here are a few of them:
- Don’t write a business plan. Create a pitch deck. Far too many entrepreneurs are still wasting their time writing a business plan. Don’t do it. Nobody reads them. Instead, create a pitch deck: a series of presentation slides that illustrate your venture’s story and business model. Create two versions: a presentation deck and a reading deck.
- Don’t listen to experts. Look over other founders’ shoulders. Entrepreneurs, especially first-time entrepreneurs, don’t need a perfectly optimized fundraising strategy; they need to know what works for them. Entrepreneurs need to see the real pitch decks of ventures who raised money. They also need to see what kind of investors they closed, the email scripts they used to close them, and the mistakes they made along the way.
- Communicate visually. Great visual design is critical to communicating your vision to others. Visual design masters like Nancy Duarte, Dan Roam, and others have shown that good design is more than just window dressing, it’s a critical part of getting others to understand and care about what you are doing.
- Tell stories. Great fundraisers are master storytellers. They develop their own versions of 4 basic story archetypes that answer 4 critical questions about their ventures: the origin story (why are you doing this?), the customer story (what problem are you solving?), the industry story (why now?), and the venture growth story (what have you done?). What we discovered, though, was that as helpful as these techniques are, they are not the secret to raising money.
Nearly every startup founder we interviewed had a “miracle” like the TreeHouse story you just read about — some unexpected occurrence that catapulted him or her into ultimate success. As we dug in, we discovered that these miracles weren’t really miraculous at all; they were the direct result of relationships the founders had nurtured earlier. In my own life, my friendship with Greg King caused Greg to put his own reputation on the line to help me close TreeHouse’s funding round.
The secret to raising money is one simple principle: successful fundraisers don’t raise money, they raise friends.
There needs to be more entrepreneurs raising wildly successful funding rounds. But even more than that, there needs to be entrepreneurs who build friendships that outlast any term sheet and create true value for them, their ventures, and their communities.
Parts of this post were excerpted from the upcoming book, Get Backed: Craft Your Story, Build the Perfect Pitch Deck, and Launch the Venture of Your Dreams, by Evan Loomis and Evan Baehr, to be published by Harvard Business Review Press on November 17th.
Learn more at getbacked.com.