By Stephen Dalby, founder of Gabb Wireless Inc., the first nationwide cellular network for kids.
Raising money as a startup has changed dramatically in the last decade, including more seed rounds. Some companies are waiting longer to secure their first round to aim for a larger amount.
When I started fundraising as a first-time founder, there was a lot to learn about how to navigate the early stages and be successful with meeting fundraising goals.
1. Know how to find the investor for your startup.
Anyone can go on an investor directory or Google a seed round investment firm. You have to do a lot more homework than that to get the investor who fits your startup. Each investor has their own specialty area, investment criteria and set of expectations on timing and amount of return.
Familiarize yourself with the various kinds of investors, and then drill down to address those other things like industry and business segments, investment criteria, and expectations. You will also need to be ready with your wish list that may include how much you want the investor to be involved in the startup and access to future investment rounds.
Make a list of these who, why and how, because this information will shape your search, including the type of investor and channel where you can find them.
2. View fundraising as if you were the investor, not the founder.
As the founder, it’s easy to get lost in what you are building and not see the forest for the trees. However, to approach fundraising with the right perspective, you have to take a step back and see it from the point of view of the investor.
Imagine it’s your money that you are fronting someone else. Think about what you would want to know that would make it a compelling place to put your money. What you are offering that investor is an investment proposition and a return. Focus on that versus selling them your product or technology.
3. Be pitch ready.
It’s important to put together all the materials and collateral necessary to show the investor the value of the investment. I realized that there is no one-size-fits-all document for every type of investor. Instead, I started creating different versions of my funding pitch. This included a 30-second elevator pitch, a one-page overview of the investment, a pitch deck of slides and a comprehensive business plan. I used that to extract the information for the shorter pitches, pulling from sections that highlighted the most value, including opportunity, solution, business model and customer acquisition.
4. Define how you plan to spend the money.
This financial plan is for you, as the founder, as well as the investor. You need to look at how the money will be spent on a granular level around costs. Then, you must show how the spending relates to strategic initiatives that you have outlined in your business plan.
5. Ask for criticisms and questions.
While it’s great to just get an investor who wants to hand you the money, it doesn’t necessarily work that way. Instead, I had to get used to — and actually embrace — the questions, doubts and criticisms.
It’s important not to get discouraged by the feedback when an investor starts pointing out weaknesses or gaps in your startup. They want you to tell them how you will handle these things because they already know that no startup is perfect, especially when it has a first-time founder.
Understand that this can help improve your startup and set you off on the right course with a growth mindset perspective. They want you to do better, and you should be feeling the same way in terms of continual improvement.
Plus, when investors interject during your pitch, it helps you get better at handling those objections and improving your pitch.
6. Focus on future growth potential.
When I pitched one investor, I spent most of my time talking about how soon I thought I could get them the return they wanted. I knew it was important. However, the investor asked me to pause my pitch and tell him about the big picture related to where the growth could go with my business idea. I was so busy concentrating on the near term where the investor might call for his money that I didn’t realize he might want to stay in for a bigger return down the line.
Of course, you can never be specific about what will happen in terms of the market and revenue calculations, especially in such an unpredictable environment, but you can paint that bigger picture in with some details. Have some plausible number of where your business idea is going in relation to market and buyer trends.
7. Keep building your startup while you fundraise.
It can be challenging to split your attention and time between your startup and your fundraising efforts. But it’s important to maintain the schedule and work you need to put into your startup. You don’t want the effort you’ve put into it so far to be lost.
Make sure to optimize the resources you have available while you actively pursue additional funding. This means you can get your product or service closer to market launch to further your value proposition.
These have all been important lessons that I’ve taken with me through the seed round of my startup. The funding lessons have also proved valuable for the other fundraising rounds I pursued after the seed round.