Young entrepreneurs spend our entire twenties raising money. It’s one of the most arduous and draining tasks a founder faces. It can also draw your focus away from growing the very vehicle through which you seek investment. Looking back, I’d like to offer some tips to assist fellow travelers.
1. Do more, pitch less. One of the biggest mistakes I made early on was pitching ideas to investors. When I was doing this, it didn’t lead to one dollar raised. Later, in my early twenties, I began pitching investors on my existing businesses and it changed the game for me. But the game itself has never changed: Money talks. Showing up to pitches with a bank statement and not business plan became my MO. And now, I was closing rounds.
2. The financial model is more important than the business plan. When I was first starting out pitching at 18/19, I would make these wordy, cumbersome business plans. I would print them up on nice paper, put them in binders and deliver them to potential investors at least seven days prior to pitching. Yet, when I pitched, time and time again, the investors were only familiar with the lone appendix to my plans: the financial model.
To be clear, in my early business plans these were projections. My spreadsheet game wasn’t strong enough to turn the dollars and cents of my company into a robust, living document filled with neatly programmed equations and appropriate drivers. The drivers are the numeric values of your company’s KPIs. Once they are properly programmed you can alter only those numbers and watch dozens of different growth scenarios evolve into the cells of your spreadsheet.
Now you have a living document. And this allows investors to run through scenarios on their own. It can bypass some of the tough financial questions involved in a pitch and also garner invaluable input from investors who are often seasoned entrepreneurs themselves.
3. Ask investors who decline what you could have prepared or done better. People are going to tell you no. A lot. And that is fine if you aren’t making mistakes, then you aren’t human. But each no is a phenomenal opportunity to get real time, on the spot feed back on your pitch and your pitching skills. There is a reason you’re asking for money and they’re investing it: they’re already ten steps ahead of you. Those investors are in the financial and lifestyle position you want! Ask them as many questions as they will answer.
Ask them about everything from your tone to the quality of your preparation. Ask them what was the moment they knew they would say “no.” Ask them about the last deal they did, just to learn about the variables in their equation that lead to a yes. Then, ask yourself how your deal is different than the one the investor closed on.
4. Learn to detach from the preconceived negativity of a “no.” When I was younger my heart would sink to my toes when an investor told me “no.” I would feel bad about myself and my project. Then, as I pitched more and my skin grew thicker something interesting began happening. I started getting mentored by almost every investor who told me “no.”
Why? Simply because I accepted their declines gracefully. When I realized that there was no business on the table I began following my own advice and just asking questions. I would follow up with investors when I needed to know something in their particular field of expertise. This practice has allowed me to organically grow in-depth personal relationships with some of the sharpest business people all over the country.
5. You’re probably not ready to raise money. Taking money from the wrong source at the wrong stage of a company’s growth can kill a company’s culture or even its spirit. So many entrepreneurs, exhausted from bootstrapping, years of self-finance and just believing that their company is ready to take them to the next level, begin to create this fantasy that the magical pile of money from the investor money tree is the answer to all of their problems.
It’s not. It’s someone’s hard earned money. If you have been working on a passion or side project for years and it isn’t evolving than that project isn’t a good candidate for a raise. Tweak your model, change your approach and see what happens. If it really isn’t growing year over year in revenue than it isn’t going to be an appealing long or short term prospect for anyone hunting for a solid ROI.
6. Pitch with a partner, nobody succeeds alone. If you show up to a pitch and talk about a key team member or partner and they aren’t with you. News flash: they aren’t your partner. If they don’t care enough to show up a pitch, they don’t care enough to take your company to the next level. Not a single investor got to that position by themselves. They’ve had teams that helped to propel them. They know you need a support system to make it. Show them you have one or don’t pitch until you do.
7. Invest $1000 of your own money into something. You need to understand and deeply respect the intimacy of the investment transaction. YOU ARE TAKING SOMEONE’S MONEY! That money did not appear in their bank account out of thin air. Work your ass off, save up $1000 and buy a chunk of a bitcoin. Watch the value of your investment go up and down. Feel the fear of losing what you worked so hard for. That fear is exactly what an investor feels when that money goes from their account to yours.
I hope some of my mistakes and the lessons contained therein will be of use to any and all who give this a read. If anyone has questions don’t hesitate to reach out to me!