10 IMPORTANT TIPS FOR FINDING VC FUNDING
by: Adam Goldstein
from: fastcompany
1. DELIVER A PRODUCT THAT PEOPLE--INCLUDING YOU--TRULY BELIEVE IN.
Investors are good at sniffing out people who aren’t excited about what they’re working on. That’s not to say you have to build a consumer product, but it does mean that your fundamental reason for starting the company should be something more than “I think it’ll be easy to raise money for this idea.”
2. DON’T BE AFRAID OF FAILURE.
Nobody’s going to fund you if you have something that’s not working. But if you show yourself willing to pivot to more promising opportunities, you have a chance. Our initial idea for Hipmunk was all about flights, but once we realized that we’d never be able to build a huge flight business, we put our energy into hotels.
3. MAKE SURE YOU’RE FILLING A REAL NEED BEFORE RAISING SIGNIFICANT FUNDING.
When we started Hipmunk, we believed there was an opportunity to make travel search faster and easier. But we didn’t raise our seed funding or Series A until after we launched the product and confirmed that thousands of other users loved it too. The startup world is littered with failed companies that raised money to scale up without having a product that could scale.
4. DEMONSTRATE TO POTENTIAL INVESTORS HOW ENGAGED YOUR USERS ARE IN YOUR PRODUCT.
You can’t fake loyal users. Use hard numbers rather than soft “positive user feedback” whenever possible. But use the metrics that make sense for your business: if you’re building a product that you’re trying to get people to use every day, report how many people are using your product every day--not every month.
5. CHOOSE A COFOUNDER WITH COMPLEMENTING SKILLS.
When we were launching Hipmunk, I took on the business development role, while my cofounder (Reddit’s Steve Huffman) focused on technical development. Investors, particularly in early-stage companies, have seen companies explode because founders couldn’t agree on roles. Having agreed-upon roles before fundraising makes you a lower-risk investment.
6. FOCUS ON BUILDING THE BEST TEAM POSSIBLE.
If you already have traction, a great team is an extra plus. If you don’t already have traction, a team is the main thing investors are betting on.
7. TAP YOUR PERSONAL CONTACTS.
If you want to talk to a particular investor, hit up people you know in common. Remember: if you’re introducing your great opportunity to an investor, you’re helping them. The threshold for being annoying is higher than you might think.
8. DO RESEARCH ON INVESTORS BEFOREHAND.
Accelerators and incubators like Y Combinator and resources like AngelList make fundraising more accessible, but if you use them right, they’re also a great way to learn who the best investors are for your business. This is particularly relevant if you’re in an industry with an existing “power elite” (like travel), where relationships are built over decades. Having an investor with domain expertise and connections can make a huge difference.
9. DO YOUR HOMEWORK AND LEARN TO SPEAK “VC.”
Term sheets have gotten more founder-friendly, but you still need to understand what you’re actually signing up for. Your lawyers will help, but don’t make the mistake of leaving the negotiations entirely to them--it’s your company, not theirs.
10. OPTIMIZE FOR WHAT YOU REALLY WANT, NOT JUST VALUATION
.While large valuations sound impressive, they’re really just a guess at what the company is and will be worth. Remember that investments also come with things that are much more concrete: ownership stakes, board seats, veto rights, and cash in your bank account. Those things are usually more important.
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