I’ve played a role in founding three startups, but I’d never tackled the trials of fundraising until Roomi. Within a year, I raised $2 million.
Convincing someone to invest in your brainchild is one of the biggest challenges a founder faces, and solo founders are often perceived by investors as an unsafe bet. In theory, a co-founder doubles your skill set, resources and productivity, increases accountability and oversight. By the time I began fundraising, I’d put a lot of sweat equity into the company. It seemed absurd to give away half of my company just to legitimize myself to investors. Plus, co-founder relationships can be complicated – a mismatch can fraction the company’s vision, slow down decision-making and growth, or become a source of emotional attrition. In fact, irreconcilable co-founder differences cause 65 percent of startup failures, according to Noam Wasserman’s book, The Founder’s Dilemmas.
After much deliberation, I decided to go at it alone, confident that the right investors would see the potential in my vision and take a chance on me. My strategies apply to any entrepreneur, but they were especially helpful to me as a solo founder while building the network and credibility that ultimately led to funding.
Fundraising is a mind game as much as anything else. Setting expectations appropriately can mean the difference between success and failure. Expect rejection as part of the territory, but try to see it as a learning opportunity rather than a failing. At first, pitching feels like really putting yourself out there, but the right investors will see your company’s potential. Envision yourself receiving those checks.
Rather than taking rejection personally, I realized that the quicker people said no, the sooner I’d find those who’d say yes. In the interim, I gained much-needed pitching experience and began to see fundraising as an enervating challenge.
Focus on Traction
Substantial gains in marketplace popularity impress investors more than any other metric. Focus on building your user base from day one. During our alpha stage, I personally messaged at least 100 people daily. These first users became evangelists, providing feedback that helped me test and shape the product. The early traction we gained demonstrated to potential investors a genuine marketplace need and interest in our platform. After all, if people will use the bare-bones version of your product, investors can envision what you can do with development and marketing budgets.
Seek Good Advisors
The best mentors are those who believe in you and your business. They’ll be your sounding board in lieu of a co-founder. Reach out to them through any means available: Twitter, Facebook, LinkedIn or personal connections, when possible. Great mentors provide excellent business advice, such as insights into approaching investors and negotiating equity distribution. They’ll help you validate your idea, figure out how to differentiate your product, and expand your network. Investors are generally too busy for cold calls, but they may entertain a referral because of your advisor’s credibility.
When I founded Roomi, I compiled a list of the top 50 people who could strongly impact my business. A perfect advisor for me was Andrew Chen, who heads driver acquisition programs for Uber’s growth team. He’s one of the best out there, so I tweeted, “All I want to do is meet @andrewchen. I flew all the way from NY and it wouldn’t be worth it if I don’t,” to get his attention. He replied, “@yadavajay send me an email!”
Perfect Your Funding Platform Profile
Funding platforms, such as AngelList and CircleUp, give investors access to support ventures based on the quality of the idea. People invest as much in the person as the idea, so whichever platform you use, ensure that your profile is excellent. Don’t be afraid to include your other business ventures, even if they’ve folded. Investors will appreciate your experience — founders who fail with their first venture are more likely to succeed with their second.
Build Your [Lean] Team
Having a great team alleviates a major investor fear—that you have some deep personality flaw. But more than that, when you begin raising funds, your attention will be diverted from the day-to-day of the business for months. Planning for it with strategic hiring will ensure that the company (and traction) don’t suffer.
We leveraged AngelList to find smart, creative people who truly believe in the product, which moved the business to the next level. They manage their own workflows, allowing me to focus on fundraising. Since I’m still the only founder, I’ve retained a large share of equity and the power to make expedient decisions that reflect my vision for the company.
You can’t divide and conquer as a solo founder. Build relationships with as many people as possible both for the practice and to save you time with investors who string you along. Prepare components of the pitch before asking for the meeting, and support all claims with metrics that demonstrate your company’s potential for producing great returns. Practice your pitch with your mentors and team, and then get out there for real.
Even if the investor doesn’t offer you money, they may invest later. Stay positive and maintain good relationships along the way, periodically updating those you’ve pitched. I was rejected by more than 60 angels and VCs before landing my first check — from someone who’d already said no 25 times.
Spend For the Future
Before you accept a deal, ensure you’re comfortable with it. Get excellent legal advice before signing. It may seem like a huge expense, but it could prove invaluable in the long run.
Managing resources wisely will help you raise a good round next time. Common mistakes include raising too much money with a valuation and goals that are impossible to achieve or raising too little money to achieve significant results and having to ask again too soon. It’s best to be raising money while you still have money so that you’re not inclined to accept a bad deal.
Lastly, leading a company intermittently on the financial brink is taxing, so while funding may feel like a relief, prepare for the oversight and obligation that accompanies accepting a huge debt. You have responsibilities to your employees, investors, and users. Slowing your burn rate can mean the difference between shutting the doors early or trying one more test.
At my company, we’re meticulous about cutting costs. For example, when a team member suggests a big budget marketing idea, I always challenge them to find a way of doing it cheaply. Often, this is how we get our most creative solutions. But when it comes to serving the customer, we never compromise.
BusinessCollective, launched in partnership with Citi, is a virtual mentorship program powered by North America’s most ambitious young thought leaders, entrepreneurs, executives and small business owners.