Entrepreneurship is not a job description. It is a lifestyle full of sacrifices with missed birthdays and other important dates from friends and family. Some of the most notable sacrifices are around stability, work/life balance, income, sleep, and comfort.
During the entrepreneurial journey, one of the most important things to note is that entrepreneurs are fundraising 24/7. There might be times where you are with 6 months left of runway where the clock is ticking and other times where you have enough cash in the bank to accomplish your next biggest milestone. However, you are always on the run making sure that financing will always be there for the business. The ones that succeed at fundraising are a special breed.
Unfortunately 65% of companies fail due to being unable to secure the financing they need to continue supporting the execution of their vision. The main reason behind this is due to not being able to understand the process, the psychology, and the strategy that goes behind raising a round of financing. A big part of this is the execution and the team accountable for realizing the vision.
Keeping the founding team in mind, as we have seen on CoFoundersLab, one of the largest networks of entrepreneurs and company I lead, there are certain patterns and traits that successful entrepreneurs have in common. These are also patterns that VC firms track and look for when deciding to make an investment. We have seen those traits repeating on many of the 200,000+ introductions that we have made in the past 2 years to build startup teams. These traits that successful entrepreneurs have in common are as follows:
- They are honest and have high integrity levels
- They are grounded with the facts of the business and its market
- They listen to customers, to investors, and partners
- They sell their vision, and they sell it hard
- They know how to tell the story of their company and leave inspired customers, potential new employees, and investors
- They are optimistic and positive
- They are creative and resourceful
- They are strong with details
- They don‘t take a no for an answer and they are relentless with the execution of their vision
Taking the above into account, there are over 500,000 new businesses that launch every month in the US. Unfortunately only 1,000 of those will end up receiving a check from a Venture Capital firm that is not part of a follow on round. To give you an idea, a VC firm will receive a year around 2,400 solicitations from entrepreneurs looking for financing. The firm will only end up funding 4 of those applications. These 4 companies will be checking the boxes of the traits listed above with flying colors. To give you an idea, typically the venture funnel looks as seen on the picture below.
Another big problem is the fact that it is getting harder to raise a venture backed financing round. Top tier investors like Accel or Sequoia are getting pickier with their investments and investing tickets of $10M and up. That is a big stretch from the amounts that were being invested back in 2005. A $10M round would have been considered a Series B years ago while now it is a Series A. This only increases the bar for startups that are now required to show significant traction upfront where revenues are the most important metric.
The biggest misconception that entrepreneurs have is thinking they will receive an investment in their company the first day they meet with an investor. This is far from the truth. Normally it will take a few months for an investor to connect the dots, to trust you and to finally place a bet on your business. What I always tell founders is to prepare and structure the last 6 months of cash in the bank as the time where they need to have their fundraising strategy in place.
As seen on the slide above, everything starts with the introduction which comes from a mutual connection that you share with the investor. From that point on your main duty is to continue moving things forward and addressing concern after concern in order to get to the next meeting. This will lead to having the offering documents signed and to receiving the wire of the investment in your company‘s bank account.
To address the lack of fundraising education, master the process, and see what is missing, we recently launched on CoFoundersLab Learning Center the course Mastering The Fundraising Game. The purpose of this 3 week comprehensive course is to learn as an entrepreneur everything related to how fundraising works. It introduces the fundamentals on how to prepare your pitch materials, fundraising strategy, attract investors, and close the deal. This is the pragmatic approach which is complementary to the book that I recently published called, The Art of Startup Fundraising, which has now been read by thousands of entrepreneurs.
With the Fundraising Certification that we have now made available for entrepreneurs you will now have the tools to reduce your learning curve, develop a solid fundraising strategy unique for your business, and discover tips to optimize your effectiveness with prospective investors.