|Estimated Reading Time: 🕘 6 minutes|
Back in the seventies, an unkept entrepreneur named Steve Jobs was scouring Silicon Valley for startup capital. His tiny little computer company needed money to grow. He met a venture capitalist named Don Valentine, the founder of legendary Sequoia Capital. Valentine passed on Apple the first time around, but he liked Jobs and the idea enough to introduce him to Mike Markkula. Markkula loved the idea and wrote Apple its first investment check.
If you take a look at Techcrunch’s homepage on any given day and you’ll see a whole host of fundraising news. It seems like everyone is getting funded. But the reality is, getting early-stage funding for your company is much harder than any tech blog will make it appear.
If you’re looking to raise startup capital for your young company, the first step to getting a check is getting introduced to the investor, like Jobs and Markkula. Rarely do investors invest in businesses that were sent via cold email. Here’s a few fundraising tips to help you get introduced to the right investor and get your first investment check.
When you’re looking to raise money in the early stages of your company, you might not have substantial data points, like users or revenue, to show a potential investor. Fortunately, many angel investors want to invest in the jockey, not the horse.
This means early investors are betting on you, which makes relationship building very important. When someone writes your company’s first check, they’re making a bet that you can make it happen. You might not have the experience, or even the perfect product, but they’re confident enough in you that you’ll figure out a way to make it happen.
The only way you can get that type of trust is through relationship building. If you don’t have a pre-existing relationship, asking for advice is a great way to kickstart a relationship. Start building relationships with people months in advance to you ever asking for money. You’ll find more doors open once you have a solid network of strong relationships.
Ask For Advice
If you have pre-existing relationships with veteran professionals, then use their experience to your advantage. Ask them about their fundraising process and what lessons they learned. They’ll be able to share valuable experiences with you; lessons that you can apply to your company.
Mentors can help you shape your product or idea during its early growth. Or they can help you craft an interesting story to pitch to investors. You’ll be able to learn from their years of experience in a short amount of time and potentially avoid any of the same failures they experienced.
Even though you were seeking simply advice, it might turn into a warm introduction. As the old saying goes, “If you want money, ask for advice, and if you want advice, ask for money.”
Turn To Your Peers
A warm introduction to an investor puts you in front of the line. If you don’t have someone you consider a mentor, there are other ways to get a warm introduction to an investor. Another option is to get introduced by a fellow entrepreneur.
Talk to entrepreneurs who have raised money for their companies. They’ll not only be able to give you fundraising advice, but they can offer insights on the investors they’ve pitched. Not every investor is the same. Each is looking for something specific. If an entrepreneur who has been through the fundraising process can’t introduce you to an appropriate investor, they can at least help you narrow your search to investors who might be interested in your business.
There’s always the outside possibility that the entrepreneur is able to invest themselves. The Wall Street Journal recently reported on Sequoia Capital’s scout program, where the venture firm financially backs well known entrepreneurs who have relationships with other founders.
Crowdsource Your Fundraising
If you’re starting from scratch and don’t know anyone, there is a new option to get funding. Thanks to the JOBS Act, entrepreneurs can skip the introductions and crowdfund their early-stage funding. Previously, only accredited investors could invest in startups. The JOBS Act now allows anyone, no matter their income, to invest in a company.
Under the law, businesses can crowdsource up to $1 million from unaccredited investors. To protect these investors, individuals with a net worth or annual salary of less than $100,000 will only be allowed to invest a maximum of $2,000 or 5% of their total salary or net worth. Individuals with a salary or net worth greater than $100,000 can invest up to 10%. No one individual can invest more than $100,000 in a twelve-month period.
Sites like Fundable, AngelList and Quire offer platforms where entrepreneurs can raise a large sum of money from many, small investors. So if you’re not able to reach a deep pocketed investor, there’s still hope for your business to raise the capital it needs.
Fundraising for your startup is a process. Sometimes a very long and difficult process. But you can do it. If you’re interested in raising money for your company, start building your relationships today and get advice from anyone you can. This is what will help you when it’s time for your company raise its first outside capital.
Creative Commons Image Source: https://www.flickr.com/photos/togawanderings/5899676716/