How to Raise Money When You’re Not From the ‘Startup World’?
It’s not going to be easy, but there are ways to avoid detrimental mistakes during the crucial initial stages of starting a business.
A few days ago I came across an article with a very intriguing and subversive title: Fuck You Startup World — I really couldn’t resist a title as brash as that, and surprisingly, the article resonated a lot with me because even though I’m currently in the process of raising money for my own company, I never recognized myself in most of the mentioned stereotypes (well… maybe some of them☺). I then realized that it’s because I don’t see myself being from what the Author shem called the ‘Startup World.’ When you are not from the tech industry, the process of raising money can be much more challenging, especially for an ‘unconventional’ business. And by ‘unconventional’ I mean a type of business that doesn’t match with the code and requirements of the current Investors and Venture Capital landscape. So I thought that it would be interesting to write an article to shares my experiences and the important questions that came up along the way — all of which I had to figure out myself.
“I personally believe that there are many valuable businesses and entrepreneurs with HUGE potential out there that aren’t necessary building apps, developing game changing algorithms or planning to cure the cancer.”
When we are talking about funding, ‘technology innovation’ seems to be the main criteria, but I personally believe that there are many valuable businesses and entrepreneurs with HUGE potential out there that aren’t necessary building apps, developing game changing algorithms or planning to cure the cancer. Business innovation is real and I’m not saying that non-tech startups are never funded, I just think that there are typically a few additional obstacles in an already extremely challenging process.
First, let me introduce myself
Because you probably have no idea who I am, I think it’s important to start by giving you some context about myself and what I do. Back in 2008, out of France, I co-founded with my then-girlfriend-now-wife the very first multi-platform media brand that focused on street culture called Be Street. It started as a side project which quickly and organically evolved to where it became our main focus. Because we didn’t really know what we were doing at the time, our approach was very honest — almost naive and full of mistakes (which was an invaluable learning process) — but I believe that our first fans could sense that honesty, and in only few years we became the country’s main reference within our industry: half a million visitors every month on our site, 32 issues of our quarterly printed publication with thousands of copies sold despite the print industry’s struggle to remain relevant, a strong and engaging community on social network, producing dozens of events (from a few hundreds attendees at our “underground” parties to our very own festival with +20,000 attendees in 2015) that lead us to collaborations and campaigns with major brands like Nike, Converse, Warner Bros, Heineken, and a yearly revenue of up to $1.5M.
Honestly speaking, this is something that nobody expected (including ourselves) from an independent media brand focusing on a very niche market, and with a core team of only three people. But… when we had the opportunity to move to the U.S. in 2016 (thanks Uncle Sam 🇺🇸 for the greencard!), we realized that our business model wasn’t special enough to stand unique in a much bigger and competitive market, thus being very hard to grow on a global scale. And even if we are not from the Startup world, entrepreneurship runs through our veins, and the status quo was never, ever an option. We wanted to grow — and will — no matter what.
It took us six months to understand the market, identify a need, and build a new business model that we consider will reinvent the current media landscape. Unrtd.co was born and the media platform is only the first step to a much more ambitious project. Although being in the media business was the crux of what Be Street was, it’s not our core business anymore with Unrated, but what we consider as one of our main competitive advantages; a huge leverage and the capability to generate revenue from scratch.
But while that’s all fine and dandy, we still recognized that after eight years of working on Be Street, we had to start all over again, and we didn’t want to spend years before achieving a well established business, so we decided to explore the fundraising option. Working on a new business plan and building deck after deck, we thought that we were ready to start pitching ourselves in front of top VCs and investors. But wait… how do we start when you don’t really know anything about fundraising, not knowing more than what you see on TV shows like Silicon Valley and Shark Tank? That’s the tricky part, even if every entrepreneur can identify that at some point they need money, if you are not from the Startup world then you have to be ready to spend weeks, nay months to fully understand the rules and build a fail-proof game plan.
I had read dozens of articles which I considered extremely helpful, but I realized that they are all very similar and not really adapted for a non-Tech startup. So that’s why I want to share with you the key milestones in my own process of being prepared for a very exciting time, and probably the biggest challenge in every entrepreneur’s life; a point in which we accomplished a solid pitch, a series of meetings with investors and hopefully a successful funding round by the end of January.
Learn the rules and play the game!
Even if that sounds obvious, you can’t just absorb Fuck You Startup World and expect to raise money — If you somehow did, please hit me up because I’d love to hear your story! But until then, no matter how good you are, you want to be sure that you package and present your business in the right way. Here are the questions and aspects you need to consider:
Why are you trying to raise money?
The first rule (and probably the most important) is to understand why are you trying to raise money. You can’t expect to raise money from investors if you’re looking to simply finance a marketing campaign or your new website. If you want to do that then you should probably call your bank to get a loan or use a crowdfunding platform. Investors expect from you a long term, big vision project and a game plan with successive (and successful) funding rounds. What they are looking for is a significant return on their investment (with the flexibility of pulling out) having multiplied their original amount.
They are not really interest by yearly dividends, instead, they are looking for a dramatic growth of your company’s valuation over the coming years. On our end, after building our pitch and vision for Unrated, we needed some help in validating our business model, and our projection over the next 18 months. Equidam is a company that offers an easy-to-use tool to determine the value of your business, but more than that, what they offer is a financial consulting service — it’s very important to surround yourself with experts. You don’t want to end up in front of an investor with a complicated spreadsheet filled with approximations…
You have to accept that you can’t be an expert in every aspect of the business, however that’s not saying relinquish responsibilities. The point here is to make sure, at that early stage of your project, that you surround yourself with the right partners to help you on parts that you’re not strong in yourself.
Connect with Startup insiders
Even if I’ve learned a lot online, nothing was more valuable than the conversations and feedback I got from actual member of this Startup world. And what I love about this is how open Startup entrepreneurs are in sharing their experiences. It’s part of the ‘open source’ culture and you can’t really find that in other industries. I can’t thank enough Quentin Lechemia, founder of SocialWall.me and MyBandMarket for all the meetings and hours on Facetime with me reviewing my pitches and to give me all the tips to help grasp the Startup mindset, and CyrilPaglino, the founder of Tribe (funded by Sequoia Capital) for being brutaly honest and having taken the time to give me valuable feedback — despite his extremely busy schedule! What I value the most from this exercise is that all of them were not from ‘my world.’ So their critiques were different and refreshing to what I’m used to, free from prejudice, and if I was able to impress them with my pitch, I knew I could move forward to the next step.
Build your personal brand
Even if there are many opinions on what it takes to convince an investor to invest your business, most will agree that Angel Investors and VCs care a lot about the team, especially the founder(s). In fact, most investors will tell you that the team is even more important to them than the business plan, because an A-team with a B-plan will always find a way to make it work, when a B-team will probably bring an A-plan down. So in our digital era, if you are not a TED speaker or already a well established entrepreneur, you need to build your own profile which could be tricky because again, knowing how to do this is not common knowledge. Personally, I’ve always been more focused on building the company itself over my personal branding, because at the end of the day, that will be your legacy and not everybody likes being in the limelight.
But if you plan to grow, you should put some effort into yourself and update your Linkedin profile, create an AngelList page, start your personal Twitter account so you can connect to other real people (it’s very hard to do that through your company profile). Literally do everything you can to help establish yourself in the public eye. You don’t have to be at Gary Vaynerchuk’s level in few weeks, but it’s not hard to start and again, don’t forget that you are already engaged in a very long journey so allow yourself some time to grow — it comes in handy for the next rounds.
Bring some serious KPI to the table
If you are not an innovative tech company, you need to show them what makes you special. VCs or Tech Investors understand tech businesses. So if you can’t check this box or if you’re still figure out why you’ll need to hire a CTO then you should probably focus on generating real traction. And by traction I mean: traffic, followers on social network and revenue. Generating revenue should be your main focus because it’s going to give you the freedom to say no and avoid inevitable failure by not being able to raise money for your business. Being an entrepreneur comes with responsibilities, and you want to protect your business before bringing anyone else on board. For Unrated, I spent the first months hustling day and night to secure deals so that we were in a profitable position before the end of the first year.
I’ve seen many decks with numbers much lower than what we have down, yet have successfully raised millions of dollars. So I’ve worked harder on the traction aspect because you want to show with your numbers that nobody can argue with your capability of making money and proven business model. Then you can use this as your answer to many of the standard feedback you’ll probably hear, like “how do you make money?” or “I don’t understand the business model?” “Your team seems pretty small…” “What is your go-to market?” “Your acquisition channels…?” All these questions are implicitly answered by the fact that if you already have the traffic and followers, you obviously know how to attract users. If you are able to create revenue with a small team then maybe that means that you don’t really need to prove anything more on that, and if you already have clients for significant means of revenue then you don’t really have to prove your business model or your acquisition channels. Be careful though, I’m not saying that strong KPIs are the golden tickets to the Startup world, what I’m explaining is that KPIs can help a lot. You’ll still have to prove and explain your market size, scalability of your business, unique value proposition, etc., but this is the next step.
Angels over VC’s
At least for a Seed Round. First of all, good luck with getting a warm introduction with a VC. I mean, it’s already a challenge getting an intro to an Angel Investor, let alone a Venture Capital at this point. Secondly, from what I learned, VCs at this point will probably not fully understand your project because it’s not fully packaged. They want a ‘business model similar to AirBnb,’ but in reality, not every business model is that simple, but that doesn’t means that there’s no potential. Because you most likely won’t have put together an A-team of employees and advisors, I believe it’s not worth trying out right now. Let’s keep VCs on hold for the next round. What we are looking for right now is to build a syndicate of Angels that can represent you in the next round, and more importantly, understand your business. Raising money means huge growth acceleration, so at this time, you want to be sure that you’ll be surrounded by the right people to help you in this process. Not only investors, but successful people from your industry that will help guide you — that’s a solid leverage.
Create your chance
What I consider to be the most challenging part of all this is the introduction part. When you are not from the Startup world, the question is, how do you successfully get a face-to-face meeting with potential investors? To be honest, I’ve tried different tactics, but even if ideas and method about fund raising are all different, EVERYBODY is aligned on the fact that you need a personal introduction. I didn’t work my ass off on pitches just to end up at a dead end. Instead, I started to write down a list of potential links from my network of people that could be connected in any way to investors — and don’t expect here 1st or even 2nd degree connection (but who knows), as even if some of these meetings will not end up leading to the right introduction , at least this will give you the opportunity to perfect your pitch.
Talk to people that understand the market, but are not your friends or potential clients, so any feedbacks will be objective.
You can forget Linkedin and AngelList at this point. I mean, I tried to connect to many of my +5000 connection on Linkedin and even my 1st degree connection never answered my message. AngelList on the other hand is a great tool for the following stages after you’ve filled out your company page with a list of your initial investors because you’ll have a blank profile page otherwise… and the hardest part is convincing your first investors, which won’t really work if there’s nothing to go by.
Don’t cross the line…
This is a very important. Even if you want to give it the maximum chance to make it, don’t cross the line. At the end of day, what makes you special is who you are. Don’t build an app or create an algorithm just to make you look like a Startup, because even if you can fake it for a short period of time, how will you deal with that for the rest of your life? And if you do last a while, you’ll have to spend the money you raised on a product you didn’t really wanted, or needed in the first place!
This is not an ultimate guide or secret recipe, but I hope at least this helps you in some way to be prepare for your fundraising or find solace in knowing you’re not alone in feeling like an outcast in the Startup world. If you have a similar experience, I’d love to hear from you so feel free to contact by e-mail or follow me on Twitter and Facebook, and if you are interested to hear more about Unrtd.co you can always hit me up!
