If you’re a startup founder looking or considering looking for funding, I’m sure you’ve heard all sorts of stories about fundraising. And, if you’ve asked (or probably even if you haven’t), I’m sure you’ve gotten all sorts of advice.
Like everything difficult in life, there’s always lots of (usually bad) advice.
And, getting investors to write you a check for part of you and your dream is just hard.
[Note: Most of this also applies to obtaining corporate funding of new ventures or businesses.]
What makes it so difficult?
1. The Math – The odds are against you and your investors
- Something like 95 out of 100 startups fail
- A typical angel-type investor typically looks at 40 deals to find one worth investing $100,000. That means that you’ll probably have to meet at least 40 potential investors, maybe 5-10x that many
- For a venture investor to make money or even stay in business, they have to be better than the average of their peers and avoid bad investments. It’s a tough business. The winners really win and the losers go out of business. In fact, the overall returns from venture investing (i.e. VC Funds) and Angel Investors often underperform other, historically less risky asset classes
2. The Paradox – It would be easy to raise money if you didn’t need it
- It’s a classic chicken and egg problem. Investors want more evidence that you’re business is going to succeed. But, getting that evidence takes time and money – which is usually why you’re asking for funding in the first place
3. Commitment – Investors are people too
- Investors are people, not machines. They make emotional decisions like everyone else. They invest in people they like and trust, in industries they understand, in ideas that they get. It’s a high bar. They’re investing in you as much as your business. But, they have to love both to say yes
- Investors often know much, much less than you do about your product, market or technology. You’ll need to impress and educate them while not alienating them. You’ll need to transfer your confidence and enthusiasm
- Like everyone else, investors are busy, easily distracted and can only be involved in so many deals. So, even if you’re perfect, even if you’re business makes sense, even if they get what you’re doing, the timing still has to be right. You need some luck to go with your talent
4. Competition – It’s a competitive market
- There is lots of competition. There are many more companies looking for money than investors and funds to match. And, there is so much variety to entrepreneurs, businesses and investors. You never know who an investor spoke to just before you or will speak to after you leave
- Professional investors are wired to say no. Even more, they are constantly looking for reasons to say no. Saying no is so much easier. And, it only takes one reason for an investor to pass
5. Effort – It’s just a lot of work
- Fundraising can be a full-time job. Just getting meetings with investors can take 20+ hours a week
- Fundraising (aka the “road show”) is physically and emotionally grueling. You have to perform. You’ll probably get rejected 39 times to get to one yes. But, despite this, investors expect that you’re running and growing your business full-time. They expect that you know what’s happening today in the office, what your customers and employees are doing today.
- Investors can be demanding. They expect you to provide them everything they ask for and quickly
- Pitching is hard. It is its own discipline of art and science. Not only do your materials and answers have to be good, your performance needs to be as well
6. Luck – Nothing is guaranteed
- The perfect investor at the wrong time won’t invest. Maybe they have just made a similar investment. Maybe they are overcommitted. Maybe they just don’t have the time
- Even if you do everything right and even if you get to yes, deals can still fall apart. Things come up. Something can turn up in due diligence. The investor could get cold feet. Something could change in the market or competitive space. So, until money’s in the bank, you’ll probably still be looking for more money
If you’re looking for help with fundraising, let me know – geoff@netcapital.com. We can probably help.