Raising money for your startup can seem daunting, but it doesn’t have to be.
When it comes to resources to help founders raise a seed round, there seems to be no shortage of material. However, I found very little help for founders who are not sure how to begin raising money.
Like most things, preparing for a seed round can be more intimidating than it is difficult.
Here are a few foundational steps to take to being organized for a healthy successful seed round raise.
Focus on the five-year plan
There are a few different ways that founders do this, some of them more useful than others.
Perhaps the most helpful question that I have stumbled on at this stage is:
“in five years, how do you want to be spending your day?”
All too often, founders get caught in the trap of thinking about how big they want their business to be, or how much they want to be making. They focus on employee growth or sales numbers.
This is all for naught if a founder does not enjoy how they spend their day.
By focusing on this early, it becomes much easier to construct a business around lifestyle over statistics. If the desired lifestyle requires a big exit in 5 years, that’s great, I say go for it.
For most people, however, the lure of entrepreneurship goes far beyond the growth of a business. It is about having an impact, leading, having freedom of schedule and more non-monetary benefits.
In the fire-hydrant of the funding world, the more intangible human goals are missed.
By focusing on what a founder’s ideal workday looks like, they can begin to construct a goal for funding that fits that vision. If that vision is more oriented to freedom of schedule, VC may not be the way to go as VCs often look specifically for high-growth opportunities that lead to long hours for years to come.
If the vision is to have an impact on a certain group or problem, then taking money to scale faster and tackling that problem more efficiently may be the best recourse.
We live in an amazing time to be raising money for a startup. This is in large part due to the huge amount of offerings available. Founders today can decide whether to pursue, equity, crowdfunding, debt, alternative funding, bootstrapping, grants, ext.
This decision can be overwhelming at times but when looked at through the lens of a five-year goal, the number of options begins to narrow.
Decide on a healthy mix
There is often a wide gap between which kind of capital will create a profitable company, and which kind will create a content founder. Focusing on the latter, before raising money, will help keep the desired view of the future in focus.
This also applies to the funder themselves, not just the type of capital.
If you have funders that agree with your long-term plan, the chances of having outside hands grab the steering wheel in jerk it into oncoming traffic are drastically reduced.
First, let’s take a look a building a healthy mix of capital.
Raising debt, for example, will allow a founder to keep control of their company. The founder will not sign away board seats or introduce the startup to the whims of a VC. However, the pressure to be consistent and grow sales numbers will be omnipresent.
Obviously, debt forces a company to make regular payments back to the lender. However, it goes beyond this as well. It also forces a founder to think about the consequences of failure. If there is a personal guarantee involved (there almost always is) then the founder’s personal assets could come under fire if things do not go to plan.
Having debt looming over a company also hamstrings the business’s ability to pivot and be flexible. This creates an atmosphere when making new and risky decisions become much more difficult.
Debt is one example, but each capital type comes with its own trade-offs. When those trade-offs align with a founder’s vision, friction is greatly minimized.
Equity is most commonly how startups think about raising money, but does not always agree with what is best for the direction of a business. With the variety of options available, a mix of capital types can be much more conducive to success than just one.
Plan your attack
The final step before jumping into the funding world is preparation.
Based on your mix, begin to organize which investors, capital types, and platforms will give you the best chance of achieving your goals.
I recommend using a tool like ClickUp, Airtable, or Trello to create a chart of potential investors. Using these resources, you can track how many have shown interest, how many have rejected proposals, and even keep track of close you are to filling your round.
Begin building resources for each kind of investor. What you provide for a VC should look vastly different than what the bank will need to see for a traditional loan.
If crowdfunding is more your speed it will involve social platforms, email campaigns, and more developed marketing materials.
Knowing what materials you need in order to appeal to funders will help lower the long-term effort. When an investor expresses interest, being prepared with the kind of information they look for will add greatly to the level of professionalism your brand communicates.
Preparing before reaching out to potential funders will increase the chances of your proposal being taken seriously.
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The most important part of this entire process is to have a five-year goal in mind. This will help make decisions when the options seem endless, and keep the founder on track when things get difficult. Having a well-thought-out plan not only for funding but for the business as a whole gives outsiders less opportunity to steer the company off track.
Best of luck out there,
JP
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