via Economic Times: Regardless of the time of year or the general news cycle, there’s little doubt that a company with substantive fundraising news will nearly always take center stage in the media. Was it always this way, and if so, why? To better answer that question, it’s important to first examine the universal truths around human psychology. We humans are a diverse set of individuals that go about a variety of disparate tasks in our daily lives.
The media knows this reality better than most and as such, they typically seek to chart out a least common denominator as it relates to quantifying achievement within the community of startup companies. This is helpful for the general public since it gets folks relating to the material much better.
When it comes to startups, that quantification is quite often reduced to fundraising because it’s simple, easy, and eye catching. Irrespective of an individual reader’s background, the media consistently takes a bet (usually correctly) that raising large sums of money will perk up the ears and lure readers forward. On most occasions, this does appear to be the case as evidenced by the social media sharing eco-chamber often surrounding most fundraising stories.
Alright, enough with the psychoanalysis on why funding news attracts the eyeballs. What actually makes a great fundraiser? Are there particular traits, characteristics, or strategies that great founders consistently employ when raising capital? The simple answer is that there’s no magic bullet to securing outside capital. That said, I’ve highlighted 10 general principles that can hopefully be helpful as you navigate the corridors of the investor community:
1. Sell yourself first and foremost
No matter the stage (but especially early on in a company’s life), the investor is always investing in you the person and not the company. Ideas and strategies can change, but always remember that the investor above all else wants to believe in you and your ability to figure it all out.
2. Know your numbers cold
While this may seem quite obvious, far too few entrepreneurs have a very strong handle on their second order numbers. I’m not referring to your headline P&L numbers, but more your numbers one level down. Think customer churn ratios, NPS, G&A costs. Having a strong command of these metrics simply inspires more confidence that you understand well the underlying dynamics of the business.
3. Money follows money
The unfortunate reality is that very few investors are original thinkers and the majority of individuals or companies like strong external validation. This means that a credible, strong brand name always helps. The earlier you can get this name, the better (in most cases).
4. Always raise capital when you don’t require it
While this may seem a bit counterintuitive, this is probably as close to a universal axiom as you can get. Investors love nothing more than companies who are doing well and still have strong cash in the bank. This provides more confidence and makes the investor’s decision-making process that much easier. If you’re rapidly running out of cash, investors will know that your options are dwindling. This is when the squeeze can occur.
5. Negotiate actively with multiple parties
For any entrepreneur who’s gone through the rigors of a business school negotiations course, this one will seem straight forward enough. Still, far too few entrepreneurs end up taking this advice truly to heart. Ideally, you will have 2-3 term sheets to evaluate by the time you’re ready to close your capital. Even if this isn’t necessarily the case, it’s important to manage the engagements such that there’s always a competitive tension with the different investors in the process. This will typically lead to much better outcomes in terms of deal terms and round closure timing.
6. Leverage your existing internal investor base to build confidence
This can be particularly important as you get larger. Having an internal champion on your board who can outwardly project the story to new investors is extremely helpful. Slightly similar to point no 3, this largely goes to help building new investors over the line.
7. Ensure your finance team is ready with a diligence package
Nothing can derail a process quite like not having the required information for an investor to make an ultimate decision. While the style and strategy of investors may different, the information they require seldom does. As such, it’s important to have as much ready upfront as possible. This ensures the deal stays ‘hot’ and that the momentum will stay strong. This will provide a turbo boost to help with an on-time closure.
8. Don’t change your projections midstream
Investors love a consistent story. If you go back to them halfway through the process singing a different song on your future numbers, be prepared for a barrage of questions. This should be avoided at all costs since it calls into question the vision of the company. Even worse, your credibility as an entrepreneur and leader will also likely take a hit.
9. Always emphasize your team
Investors love a well-formed management team that’s been there and done that before. Even if they haven’t done it exactly, highlight the most positive execution-oriented attributes about your C level team. This will help further build out confidence. This can be especially important early on if you as an entrepreneur are into a space where you don’t have much experience. As a company ages, the investor’s expectations around the team strength only increase.
10. Never lose that enthusiasm
Investors know that life isn’t always peachy as an entrepreneur. Many investors will focus on softer questions in the early stages of diligence to get a sense for how you handle adversity. In these instances, take the opportunity to reiterate just how passionate you are for the mission of the company. This is also a great time to highlight how everyone on your team is equally passionate and hungry to solve those big, hairy problems in your industry.
Bonus Tip: Always, always, always raise more money than you think you require. It will always take twice as long as you think so it’s best to be prepared. Don’t forget rule no 4!
While these 10 principles are by no means a mystical panacea to fundraising success, I have certainly seen them help increase the odds for entrepreneurs across the board. Happy investor hunting!