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The Art of Startup Fundraising by Alejandro Cremades

The Art of Startup Fundraising by Alejandro Cremades

by Parker · 231 things on Twos

The Art of Startup Fundraising Summary
The secret to growing a business fast is to never wait until you’re ready
Everybody wants what everybody wants and nobody wants what nobody wants
If you don’t have people clamoring for your venture, you’ve got to dream up a way to create the illusion that there is demand
Aggressive entrepreneurs bring home the bacon
The idea can either be a totally new invention lots of people will use or a much better way of doing something that’s been done a hundred times before
Cutting the noise is one of the hardest things that entrepreneurs have to master in order to focus on what really counts, which is the execution of business strategy
Embrace the process. Be optimistic and have fun with it. Remember, you will never fail—you will either succeed or learn
By building the product first, entrepreneurs establish that ownership, control, and lead
More money just helps to speed up the achievement of various milestones, and to magnify the successes and strengths
Most startups eventually pivot to adjust to what the market is telling them
Take a moment to think and reclassify why you are raising capital. Consider what it will do for you, and what the opportunity offers to potential investors
Aside from the right mindset and expectations, successful fundraising takes making connections, marketing, and proving yourself and the product. It takes strategically rolling out and executing a plan
Venture capitalists fund 2 percent of the opportunities they review
Notable milestones to be achieved during your startup and fundraising process:
Idea conceptualization
Market research
Business plan creation
Testing the waters
Finding your cofounders
Making key hires
Building a board
Prototypes and beta testing
Launch of a minimal viable product
Expanding early adopters and users
Gaining revenues
Proof of demand and potential for scale
Break even point
Investors don’t want:
To lose money
To be made to look foolish
Investors want:
A well thought out and researched business idea and plan
Organization
Integrity and character
Answers to obvious questions
That you know what you don’t know and don’t have, but you have a plan to get it
Market potential
Plans for repayment of seeking a loan
Pans for additional rounds of funding and/or exits
That you have put your heart Tibor the project
That you have and will keep skin in the game
Feedback from others
Proof of demand
That they can get along with you
That you are coachable
Consideration of the safety of their capital and time
A good match
Passion for your product or service
Passion for connecting with and working with them
An opportunity that will take them closer to their goals
One of the best ways to attract capital is to outperform the competition
Can you outperform in profit margin, sales, social media, startup battles, or growth? How about outperforming on fundraising?
Ways to gain traction and visibility:
Prioritize and focus attention on that area
Get help
Get up earlier
Compete in competitions
Participate in development or coding marathons
Attend conferences
Go to networking sessions
Join invitation-only communities of like-minded people
Do not underestimate the time and money investment required for marketing—both ongoing and fundraising-specific marketing. All marketing speaks to potential investors. It tells them a story about the value and potential of your company, and what you are really about
Don’t burn out on marketing. Don’t burn up your marketing budget and bankrupt your startup and fundraising mission right before you see results. Plan to need to market longer than you think until you secure funding and see your cash replenished.
A serious viral loop on your product that keeps bringing people in the door. Venture capital firms are enthusiastic about social networking effect.
The best entrepreneurs are not the best visionaries. The greatest entrepreneurs are incredible salespeople. They know how to tell an amazing story that will convince talent and investors to join in on the journey.
Document everything that led up to the idea. Document every step of the journey. You have a story. If you don’t tell the story, others will make up a story about you and your business or product in their minds, and it might not be the story that serves you best.
A professional storyteller and branding expert can objectively leverage the most powerful elements of your story for the overall mission.
Daily journaling is a common habit of highly successful entrepreneurs, and if you haven’t started, this is the opportune time to begin. Journaling can help you connect the dots regarding how life has prepared you and carried you to this point, what drove you to make this leap, what is unique about your process, and what is better about your product or service.
Truly wise entrepreneurs are those who are smart enough to know what they don’t know, and when to leverage an expert.
Remember, there is nothing to lose. Ask! People truly live by the pay-it-forward philosophy.
The pros of raising capital
Leveraging power contacts and influencers
Speeding up results
Funds to improve the product or service
Investors don’t want to invest
At a management level you need people who can contribute a good amount of energy to the mix
4 steps for messaging:
Define to whom you are speaking
Determine how you can win the opportunity to serve them by highlighting that you have exactly what they are looking for
Emphasize specific words that will resonate and improve your positioning (and that connection)
Get the whole team on the same page
An effective elevator pitch:
30 seconds long
Sparks interest and response
It’s clear
It’s authoritative
It’s about them (customers), not you
It highlights your value and what problem you are solving
It introduces your uniqueness
It’s relatable
Six tips for mastering the elevator pitch:
Role play your pitch with team members, friends, and family members
Record yourself and tweak it
Listen to other pitches and note what works and doesn’t work
Check out elevator pitch competitions
Document it in your mobile phone, so you won’t be at a loss for words
Practice, practice, practice until it becomes natural
10 aspects for a pitch deck
Use ranges for the amount of money you are looking to raise
Startup due diligence checklist
Key team member bios and resumes
Market size
SWOT analysis
Patents
Technology used
Financial statements (3 years)
Information on who is providing accounting services
Valuation
Capitalization table
Exit strategy
Company articles of incorporation and certificate of good standing
Organization charts
Lists of places the company does business in
Credit reports
Background checks
Inventory and assets list
Financial forecasts
Cash flow projections
Details of current funding, financing leases, credit, and investors
Bank statements
Trademarks and copyrights
Employee and contractor agreements
Insurance documents
License and permit documentation
Tax returns and receipts
Marketing plan
Brand style guide
List of professional and legal consultants used
Offering documents
You don’t want to raise venture capital money at an early stage where you are still trying to figure out product and market fit
When you being onboard VCs that means that you know that if you invest X, you will be able to produce XYZ
Analysts have no decision making power
Associates don’t make decisions
Principals can bring you in and be your lead to help bring you through the entire process of receiving funding
Partners make decisions and raise capital
Limited partners are the investors of the venture capital firms
Identify the VC that might be investing within your vertical
The best introduction comes from entrepreneurs who have given good returns to the VC
The goal is to talk to a partner ASAP
You will send a presentation after the first call
If they like the presentation you will go to their office
If you connect on a personal level you will present to the rest of the partners
A term sheet is non binding
Then they do due diligence, then you get the money
VCs will normally buy in equity between 15-45 percent of your company
Closing a fund typically takes between 12 and 24 months
Ask how they typically work with portfolio companies
Ask for introductions to a few other founders
Private equity firms normally invest in later rounds
Friends and family -> angel -> VC -> M&A/IPO
Hire a market research company to carry out some small surveys for you to see how well a concept will be recieved
Incubators offer assistance to startup entrepreneurs such as office space, training, and management advice
Accelerators provide mentorship and capital in return for equity
For seed investment, your immediate needs for your company will include market search, conceptual design, developing infrastructure, and creating a prototype
You have to show why your startup is an opportunity that they wouldn’t want to miss
A good potential investor should have the following qualities:
Interest in the sector your startup will be trading in
Necessary capital to contribute to your startups immediate needs
Will listen to your pitch
Reliable and has a trustworthy reputation
They understand entrepreneurship and have a decent level of business acumen
Divorcing your wife or husband is much easier than divorcing your investor
Three factors you should be looking for in investors
Domain experts
They can lend their experience to help you make traction
Ask what expertise they bring to the table that makes them more valuable
Connected
Put a product or service into the hands that can promote it through their channels, and it can be an overnight hit
Financial strength
If the investor isn’t doing well financially, that person is going to be under a lot of stress, and that pressure will flow down to you
Birds of a feather flock together
Three factors to avoid in investors:
Greed
Watch out for red flags during negotiation
Lack of values
Trust your instincts
The takeover
Six questions to ask potential investors
Expect to be asked:
What is the difference between you and your primary competitors?
When will you break even?
How much is revenue forecast to be this year, and next year?
How will you use the money?
What risk factors does you business face?
What round of funding is this for your startup?
What terms are you seeking?
Who is the management team, and what is their experience?
What is your burn rate?
Why did you start it?
How long have you been working on this startup?
How does the business model work?
Do you have wider expansion plans; where and when?
Do you hold any patents or proprietary technology?
What makes you think you can excel in this space?
Who are your other investors?
How are existing investors involved?
What’s the exit strategy?
When do you expect to exit?
How much money has been raised so far?