Raising capital is an endurance sport: brotherly-but-bloody investor meetings by day, painstaking number-crunching by night. Deal fatigue is real, but you can’t stop dancing.
When I co-founded SocialCentiv in 2008, I had no idea what I was in for. In eight months, I pitched to more than 50 investors, leveraging tiny nibbles into hype and higher valuations. To be fair, if I’d known what investors wanted, the rounds wouldn’t have been so brutal.
What saved us? A sizzling product at the zenith of the social craze, plus heavy dashes of luck, naïveté, and perseverance. We showed steady traction with growth metrics, countering investor skepticism until we shook on a $4 million pre-money valuation.
Hit ’Em With a Viable Product
First, if you’re still finding product-market fit, stop raising money. Investors don’t buy ideas. I wasted much of 2007 talking to VCs pre-product. Nobody was interested, and I looked like a noob. If someone actually bites, you’ll lose equity on crappy terms before you even get started.
If you haven’t already, find a technical co-founder. Sorry, sales and business guys, you can’t do it alone. Pick a CTO who knows AI, machine learning, and data science. Above all, split the equity fairly. Already have someone in mind? Great. If not, check out FounderDating. Date around and do some projects together before committing.
With a technical co-founder on board, focus on your product. It likely sucks at this point, and that’s OK. The goal of your minimum viable product is to test your hypothesis and iterate upon it until it connects.
Be flexible, and get educated. Read everything by Nielsen Norman Group, and take a week to complete its UX certification. I also recommend Eric Ries’ “The Lean Startup” and Diana Kander’s “All In Startup.” Knowledge is power, and power is money.
Got a Product? Get Pitching
With a solid product, you’ve got leverage. Here, angel investors — likely friends of friends — are your best shot. With a $5 million valuation, expect about $500,000.
Network your butt off, and find 10 people to write $50,000 checks. Don’t waste time emailing or cold calling. Be creative and authentic. In 2008, I reached out to second-degree connections for newsletter interviews. I met influential people like Gary Vaynerchuk this way. Add value before asking for it.
If you’re not a C corporation already, consider restructuring. Incorporate in Delaware to save money. Why? It makes fundraising less messy. SocialCentiv started as an LLC, which allows just one type of ownership and makes raising multiple rounds difficult. C corporations clear the path toward an exit, which is investors’ ultimate goal.
Consider hiring a law firm. I don’t mean your cousin who does family law. VCs use complicated term sheets, and a one-word whoopsie can cost millions. Spend money on a good Silicon Valley venture firm like Cooley or Perkins Coie.
Traction Means Money
Once you have revenue rolling in, you’re in a better place. If you’re banking $5,000 per month with double-digit monthly growth, you might get $1 million on a $5 million valuation.
The greater your revenue, the more you can ask for. At a $12 million valuation with $20,000 in monthly revenue, look for about $3 million. Don’t bother with big boys like Sequoia and Kilner until you’re topping $5 million in revenue annually.
Above all, don’t expect it to be quick or easy. Raising money takes years, and some days you’ll be broke, depressed, and doubting yourself. You might need to take part-time jobs to pay rent, but don’t get desperate, and don’t quit. It only gets better from here.
Adam Root is a founding partner at Tricent Capital, a venture capital firm based in San Francisco.