Tips for Raising Capital
Last week I posted twice (here and here) after I gave a University lecture about raising capital, in repsonse to a few things that were raised by the audience in Q &A. I said I would write a post about the actual tips I gave in that lecture about raising capital. Below is a truncated version of the basic tips which I was asked to write for Harpers Bazaar (you can find the article here I also used their pic in this medium post because she looks like a cooler, badder-ass version of me). I was also asked by Harpers Bazaar to give some tips tailored for women raising money. Frankly, the same challenges exist for men and women, but there are some specific issues and benefits I’ve encountered along the way that may be interesting to some. I’m keen to know if you agree.
1. KNOW THE PROBLEM YOU ARE SOLVING
Investors are trained to focus on the size of market opportunity rather than fall in love with your product. Rather than explaining how amazing your product or brand is, it’s much more powerful to identify and explain the problem that exists, and why your product solves that problem better than any other.
Postscript: As I have written before, its astonishing to me how many founders or management cant actually answer the basic question of “what problem do you solve?”. Know your problem and why your solution is superior.
2. BE PREPARED
There are different types of investors for your startup, ranging from friends and family through to professional investors like angel investors or venture capitalists. They all have different requirements for investment and often have very specific areas they invest in, so do your homework on investors before approaching them — capital raising is a very time and labor intensive process, you don’t want to waste your precious time on investors who will never invest. More importantly, approaching investors without understanding whether you might be a fit for them can make you vulnerable to looking unprofessional.
Postscript: I’ve also written about this before — to be clear this doesn’t preclude you engaging with investors before you are ready for them — meeting with investors before you actually want something from them can be a very powerful strategy for building a relationship and it gives you an opportunity to prove yourself before you go to them with an ‘ask’. My plea here is to demonstrate 1) a willingness to do your homework, be prepared and be strategic and 2) some investor empathy — if you try to understand the investors perspectives and what problem THEY have, you are more likely to tailor your pitch as a solution to their needs, and increase your chance to be successful.
2. BE SELECTIVE
If you decide to take on an investor for your startup, it’s possible this investor will be attached to your business for 3–10 years which is longer than some marriages! Investors can often want to take an active role in your business so they can have a say in the decisions of your company to protect their investment, this can range from an informal advisory role through to a Board of Directors role. They are a partner in your business, and ideally they should provide more value to your startup than just investment — they provide networks, advice and expertise. So be as choosy about your investor as you are about a mate.
3. BE SELF-AWARE
In my experience, by far, the most common reason for startup failure is when founders don’t know what they don’t know. Overconfidence and lack of risk mitigation is the biggest killer of startups. Companies change gears from good to great when they focus on their weaknesses not just their strengths and when you acknowledge honestly where you need help, you can choose your investors wisely to help plug the gaps.
Postscript: This is obviously way harder to do than to say or write. I’m a big fan of relentless self examination and radical candor despite the criticism that its navel gazing or indulgent. I’ve written about this before too. Yesterday, I had some pretty brutally honest negative feedback from a external colleague (ie from another VC fund) — I took the punch to the guts, took my medicine, apologised and will bank that feedback to amend my approach to things in the future. You must surround yourself with knowledgeable, experienced people who will tell you the truth, you have to replace the sensation of fear (that you’ll be embarrassed/lose your job etc) with the sensation of progress. Echo chambers are for recording studios.
4. FIND YOUR TRIBE
The old adage that it’s not what you know it’s who you know has never been more true and its especially true for startups. In my experience, the biggest disadvantage for women in business is the relative lack of institutional networks (high school, university, sporting etc) in their sector. Men tend to have much deeper and broader institutional networks more readily available within their industry sectors and it’s a legitimate and necessary strategy to use your networks for business. This is why it’s very important for women to create and engage authentically with manufactured networks, whether they be industry specific networks or women’s only networks. These networks foster warm connections and introductions, which allow you to connect with people who might help you more efficiently than any other, But don’t be that networker everyone has met at least once, you know the one, she attends every event simply to be seen, knows everyone but never actually seems to do anything. Effective networking relies on authentic engagement with people, genuine curiosity about what others in your sector are doing and most importantly giving as much as you hope to receive.
Postscript: An example of this is that in my firm, the five guys I work most closely with got their job with us because they went to school with (or the same school as), university with, played rugby with or worked at their first multinational firm with other men in our organisation. To be clear, they got the job (which are never advertised btw) because they were talented and an amazing cultural fit, but the knowledge of the role and the cultural fit validation came form the social validation of their institutional networks. I, on the other hand, and every other woman in our organisation have 2–4 degrees of separation between themselves and anyone else in the organisation. And our firm is not a special snowflake, this is how many many industries work. If you are a minority in an industry, manufactured networks help to reduce the degrees of separation between you and people useful to you (and who you might be useful to) and increase the social validation which all humans are predisposed to
5. EMBRACE REJECTION
As a venture capitalist, I see over 1000 investment opportunities a year and I invest in around 5 a year. This means I say ‘No’ to people 99% of the time. Accept upfront as you start this process, that most people will say No to you and this is a completely normal part of the entrepreneurs journey, but use every No as an opportunity to understand ‘why’. This could be the critical piece of information that allows you to understand how to pitch your idea better for the next investor, ideas for future product features, or tips to build into your company’s future roadmap.
6. MAKE YOUR WEAKNESS YOUR STRENGTH
Companies with female founders are growing, but sadly, still make up only about 15% of the companies we see. But being an outlier can often be an effective way to differentiate yourself from the masses. Startup investors are looking for disruptive companies, so embrace the ability to think and do differently. Increasingly, there is recognition that teams and companies with greater diversity outperform, and the smart investors will actively seek this out.
Postscript: I get a lot of press, invitations to panel at events and conferences because I’m a woman in this predominantly male industry. Now I can say that without fearing any non-meritocracy backlash because I’m confident the content of what I communicate in these media, is both educational AND entertaining. They wouldn’t keep quoting me or inviting me back to even the diversity quota if I was as boring as batshit. So lets just call it what it is, which is advantages because I’m a woman, because I’m different. There are a whole lot of other disadvantages to being a minority in any industry ( unconscious bias mostly) so I’m just gonna take this and run with it and you should too.