90% of founders should not seek venture capital dollars. These funds are for the 10% that can achieve “hyper-growth.” But for those of you who want to raise capital, here is how you do it! Free game alert 🚨
1. The first round you raise is from your checking and savings accounts, credit card or 401k. You are the first investor. Get some skin in the game. Start something with your own money.
2. The second round is FFF (family, friends, and fools). They are investing in you mostly because you don’t have a business yet. A pitch deck, idea, and website is not a business. You need a product and customers to have a business. Raise from FFF to try to create some product.
3) The third round of capital you raise is from angel investors. They will look at your demo or MVP and take small bets on you. Alumni networks, fraternities, church members, business owners and a lot of you try to get athletes and entertainers here. Use this money to get that product in the hands of a few customers/users so you can show VC funds TRACTION.
4) Venture Capital funds: it’s very important you find a strong lead investor who will do all the due diligence and negotiate pricing and terms. Other investors will invest along with those terms so you don’t have to negotiate with 20 people at once. Most of you try to go to VCs as step 1, and when they don’t give you money because you don’t have the traction, you believe the articles that say VCs have a diversity problem. The truth is, founders have a checking account, FFF and angel investor problem. Unless you are a repeat founder with exits, it’s unlikely a VC will fund your PowerPoint presentation. But your friends may.
How do you close VC’s? Three things:
A) Traction: They want to invest in growing businesses, not starting businesses contrary to popular belief.
B) Competition: You have to put them in the competition! If you don’t, they will drag out the process and negotiate with you on your deathbed. But if someone else is going to win the deal or the round will close without them watch them move.
C) Run a full process: do a roadshow, set a timeline, have a data room, track, updates, CRM, compare term sheets and pick a winner! Easier said than done, but ask any questions below!