Whether early-stage, late-stage or development state, financing is the lifeblood of every startup, yet raising capital can often be quite challenging for entrepreneurs. The funding process is a long, windy road and without direction, you could easily lose your way. Here are a few tips I’ve learned from my personal experience on how to best attract investment dollars and commercialize your startup idea.
Perfect Your Finance Pitch
The key to a successful pitch is the ability to communicate your market opportunity, product, go-to-market strategy and differentiators in less than 20 minutes and in fewer than 15 slides. Know your pitch backwards and forwards so that when you’re thrown a curveball, you’re prepared to answer any question that comes your way. Understand that a potential investor’s time is precious, and never beat around the bush on your answers. Short and sweet is the trick.
Make sure you know your audience too. You must speak the language of the folks on the other side of the table so that they can understand your idea at its fullest potential. Yes, your pitch should convey your passion, knowledge and leadership skills, but above all, you must make clear how your product fulfills a market need. It often helps to bring a prototype so that investors can see how your product works and really get excited about the idea.
If the money is there, take it
One of the biggest mistakes an entrepreneur can make is overestimating his or her market value and thinking that money will always be available. This is never the case. No matter how innovative or different your idea is, there is always a chance someone else will come along and perfect it or even displace it entirely.
As a former institutional investor, I have seen many public companies fail to complete an exit for their investors via acquisition and end up selling at a fraction of the price a short term later. In the private market, this price is much more severe. I have seen teams take less money because they believe the road ahead is always smooth with endless capital available, only to hit a pothole and run out of road.
On the flip side, companies that understand their window of opportunity can make vast returns at just the right time. A great example of this is Instagram. The company experienced a $1 billion exit based on extraordinary user growth and no revenues.
Know When to Tighten Your Belt
One of the hardest lessons to learn when it comes to funding is knowing when to be reserved and when to be aggressive with your spending. There are appropriate times to tighten your belt and appropriate times to loosen it. Ultimately, you should be conservative with your estimates and growth projections and leave room for the ability to pivot your strategy when the unexpected happens.
Learn the Humble Lesson of Sacrifice
In the words of Sir Winston Churchill, “I have nothing to offer but blood, toil, tears, and sweat.” This doesn’t ring more true than for an entrepreneur. You should always be willing to offer up personal sacrifices for the good of your company. Sometimes that means putting up your personal capital to make sure your company makes it to the next level of financing. In the past I’ve given up my salary for six to nine months at a time, but the end, it was always well worth it.
I’ve also spent my fair share of time flying coach from city to city and sharing cheap hotel rooms with my business partner, chasing down the next investor meeting. You need to believe in your idea so much that you will do whatever it takes to get the capital you need to execute your vision.
Have a Plan B. And a Plan C. And D, E, F….
The venture capital landscape is very complicated. While the ideal situation includes a VC partnership in which money is thrown at you for every new idea, more often than not, this is not the case. Particularly in a stagnant economy where funding is in short supply, VC’s can also drive a hard bargain. You can’t expect to pitch only ten VC’s and then get backed 100%. Sometimes it will take four rounds of angel investing before a VC becomes interested.
Be open to other ideas for funding. There is more than one way to succeed and no business gets off the ground with no capital at all. Therefore, find the path of least resistance and take it. If the VC route isn’t receptive, look into angel funding, or private funding from your friends and family. At MiMedia, our initial capital came from investments from friends and family. That capital along with angel funding enabled us to build a company that now has more than 200,000 accounts.
You can also look to crowdfunding options like Kickstarter and WeFunder. The recently passed Jumpstart Our Business Startups (JOBS) Act has opened up a world of opportunities for startups seeking funding. That said, it’s important to keep in mind that crowdfunding means you will have multiple stakeholders in your business, which requires a great deal of transparency and open conversation about your strategic growth goals.
Ultimately, funding is just a numbers game. You only need one person—if it’s the right person—to buy into your idea. It’s your responsibility to find the right person.
Erik Zamkoff is the co-founder and CEO of personal media platform provider MiMedia. Prior to founding MiMedia, Erik was a Senior Analyst following the communications services and technology sector for Empire Capital a $600MM long/short technology hedge fund.