Part two of two-part series. Read part one here.
Let's say you've decided to raise funding from VCs. It's a big decision and one worth doing some initial research how to build and support your startup.
In part one of this series, I focused a bit more on the ‘do you or don’t you’ go the Venture Capital route to build and support your startup. And for factors discussed in that post, I decided to take the big jump into VC land and go for a Series A round for my business dashboards startup, Dasheroo.
It’s the first time for me, and was a bit nerve-shattering at times. So what should you do once you have decided to attempt to raise funding from VCs?
Consult With Others Who Have "Been There, Done That"
Fortunately, I have lots of friends and colleagues that I could lean on for their real-life learnings. Both good (a couple had taken companies IPO) and not so good (a couple others had terrible VC experiences, and warned me of pitfalls to avoid).
Develop a Great Story
I know, this sounds obvious! But seriously, you need a concise and compelling pitch deck, and you need to rehearse it like crazy. We were fortunate to raise the first $2MM of our round without a pitch deck, but that doesn’t mean I didn’t have a ‘pitch’, it just wasn’t in the form of slides.
But I needed a pitch deck for the last $1.25MM, and spent several weeks on it prior to having it be ready for prime time. I like a ‘day in the life’ stories that help explain the problem you’re solving, and then back it up with believable market sizing and opportunity metrics. Need some examples? Check out SlideShare, they have tons of actual pitch decks from successful companies like LinkedIn. And Next View Ventures created these great pitch deck templates.
Investors can smell it a mile away, and you will lose respect - and a deal - immediately. No one expects you to know everything, and if you get stumped during a pitch…well, you probably will freak out a little bit! So prepare all you can, make sure you hit the big notes and also prepare that you may get asked a question or two you can’t answer completely. That’s OK in most cases, let them know you’ll revert back with an answer.
Focus on Metrics
Especially if this is your first rodeo, your potential investors want to be comfortable that you understand the metrics that will drive your business. So even if you don’t have all the metrics you’d like early on, and/or the metrics aren’t as strong as you’d like them to be, your understanding of your KPIs is key to establishing trust with your investors going forward.
How Much Do You Need?
For the Series A for Dasheroo, we modeled our costs over an 18-month time frame (January 2015-June 2016) if we made ZERO revenue. We focuse on true burn rate economics and worst case scenarios. Then we overlaid a modest conversion rate from free to paid and ARPU (Average Revenue Per User) to arrive at a revenue offset. This allowed our investors to look at the risks from a couple different perspectives, and pay-offs.
Don’t Take Money From A-holes
Just like the adage “Don’t hire a-holes,” why take money from folks you don’t feel good about? Please do not underestimate this suggestion. At Dasheroo, we are fortunate that our lead investors, Cloud Apps Capital Partners, are not just brilliant folks, they understand our business freemium model as well as anyone and they are like family. A very functional, business-focused family
Don’t Blow It All in One Place!
You may feel extreme pressure to ‘put that money to work’ ASAP. And sure, your investors want to see rapid progress. But keep your head on your shoulders and keep some money in the tank for opportunities that you may not have anticipated or problems like economic downturns or just plain screw-ups you make.
Bottom line, have a solid financial plan, and it usually makes sense to spend the biggest % of your early stage funding on hiring exceptional people. At Dasheroo, less than 10% of our Series A will be spent on conventional marketing, and about 80% is budgeted for hiring awesome folks.
Related Article: Effective Options for Raising Capital for Your Startup
Don’t give up!
We’ve all heard it, all the ‘no’s’ super successful entrepreneurs got before the big ‘yes’ and a billion dollar exit. Hey, we were very fortunate for our first outside investment (thank you Cloud Apps) to be significant. But that didn’t mean we didn’t get a lot of passes after that. We did. Even when we were within $250,000 of our $3,000,000 goal. I almost closed the round early, and then within 72 hours I had 2 initial meetings with 2 incredibly influential investors who each came in at $250,000. I never would have imagined that, but we hung in there, and it happened.
Alright, for sure there is not ‘one’ formula for raising money for your startup. We’ve all seen those crazy exciting exits like SnapChat and Instagram. But for most of us, it’ll be a bit more of a long haul.