As a founder in fundraising mode, your job is to convince top tier investors to invest in your company.
“At the end of the day you’re fighting a problem not nurturing an idea.”
Know your KPIs, how to communicate your KPIs to an investor and how to make them understand your industry. What influences your profitability? What are your cost drivers?
When it comes to the most difficult problems, you will need to be right when everyone else is wrong. That means you need a good solution to a difficult problem, that is not obvious to others.
Then you need to be able to detail and define the problem in a succinct manner that drives understanding in the investor.
The most difficult type of fundraising is when you have no product and at the same time having to educate VCs on how [Insert Technology] tech could be revolutionized by building said product.
“At the beginning, either the new thing itself or the companies bringing it (or both) tend to be bad at the things the incumbents value, and get laughed at, but they learn those things.”
Chris Sacca passed on Dropbox based on the idea that Google Drive would wipe them out. In fact, cloud storage turned out to be such a huge market and Drew Houston and Arash Ferdowsi built such a phenomenal business and product, that they were able to build and IPO their business, even with the gargantuan shadow of Google breathing down their knecks.
Now, that’s some premium level execution.
However, there aren’t too many examples of companies that follow Dropbox’s kind of trajectory. Dropbox went on to secure a Series A round later from Accel and Sequioa. You may argue then that Chris Sacca didn’t do his research and should have invested. But hindsight is 20/20 and in all honesty, most of us can agree that after having used Google’s (pretty much) identical product, we too would have passed on Dropbox.
So, with whom does the onus lie when it comes to generating buzz and convincing people to invest? I believe it lies with the founders; founders know their business inside out. They know their market. They are the experts. Therefore if a founders hasn’t messed up somewhere along the way, they need to communicate that information in a form that can be digested and understood by a potential investor.
There are the basics:
- You need to have a plan for the business (NOT a 60-page business plan but a direction and strategy) and other back up material for any questions
- Financial plan (at seed level this should really just be unit economics) detailing how the business plans to grow
- You need to know what the key risks for your business are, in the near term and in the long term, if one is aware of the unknowns one can prepare and put contingency plans in to place.
With this, you are selling the investor on the value of their stake in the business after you have burned through the cash. That means you need to be able to estimate where the next fundraise is coming and for how much it is going to be.
Either she invest or she doesn’t.
If she doesn’t, consider bootstrapping.