Raising Money as an Early Stage Startup Now? Yes You Can!
More than any time I can remember in the last twenty years, the advice from venture capital firms to their portfolio companies is overwhelming: Don't raise money now if you can avoid it. The environment is terrible; investors aren't putting money to work. You need to extend your runway and do what you can to push off fundraising six months, if not twelve or eighteen.
- A clear and solid story. This includes a concise and compelling pitch, understanding of your market, persuasive go-to-market and expansion plans, and strong understanding of the metrics that drive your revenue and how to manage those metrics.
- Incredibly strong team. Investors invest in people as much as they invest in ideas. Build a team with a mix of skills and expertise that can help your startup grow. They don't all have to be 20 year veterans, but 1 or 2 people on the team that have done it before can make a huge difference in avoiding pitfalls. If you have gaps on your team, especially on the experienced startup veteran side, consider engaging fractional support to provide guidance and expert advice and execution.
- A growth and financial model that focuses on balanced and smart growth in a way that it didn't need to two years ago.
- Your growth assumptions should still be optimistic, but they should be achievable, and your key revenue drivers should be defensible.
- The expense side is now more important than it normally is in a bull market. For example, if your revenue is increasing by 5x per year (woo hoo!), but it requires your ad spend or your sales team to also 3-5x or worse, investors will move on, even if 2 or 3 years ago, they'd fall in love with that revenue growth.
- On the flip side, if your model shows you increasing revenue by 3-5x per year, but your expenses are flat or increasing by only 50% with no clear explanation of how you'd generate that leverage, investors will also move on.
- Ultimately, show that you understand how you'll get your company to the holy grail: profitability, where you can control your own destiny. It doesn't need to happen in the next twelve to twenty-four months, normally, but you have to understand how you'll get there and how long it will take.
- Networking and transparent communication. Keep your existing investors apprised of your progress. Ask them for help, ask them for tips, ask them for introductions. Keep your broader network updated on your progress. Ping your old manager and colleagues. Talk to key vendors and customers with whom you have a really strong relationship. If you've built a transparent culture within your team (and you should have), ask them for introductions and ideas. Most of your employees have likely worked at other startups, and they might have had opportunities to interact with the investors at those companies. Although you don't want to distract your team from their day job, an occasional ping will require minimal distraction but will make them absolutely feel like part of your company's success and make them feel trusted.
- Patience and unending optimism. If you've been fundraising for months already, it's hard not to get fatigued and investors can sense that. What do you need to do to reset your mood before another pitch? Run around the block? Jumping jacks? Spin in circles? Whatever it is, do it before you start that next meeting. Remember to lean in when you talk. Remember to be excited. Remember to explain to the investor why you want *them* on your cap table.
- Creativity. What other ways can your company either generate cash or reduce cash burn? Have you reviewed all your software spend? Are people still traveling? Can you give customers discounts to encourage them to increase their spend, speed up the sales cycle, or extend their relationship with you. If you still need to hire, can you engage consultants or fractional employees rather than full time? Can your hires be remote or offshore? Be creative and flexible!
- Alternative forms of financing.
- If you've still got six or more months of cash, there are a number of debt firms that could be good fits for runway extension. Engage your finance lead or fractional CFO to reach out to these firms.
- If you've not already asked your existing investors to do a convertible note or SAFE to extend your runway, do that now. Don't wait until cash runway is less than six months.