What Are The Five Rules To Getting Your Company Funded?
“Man, you’re living a charmed life right now,” I said to “Ray,” the CEO of a very hot startup I’ve been working with.
“Thirty minutes and he’s (an investor) going to give you $75 million!” I shook my head in disbelief.
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“It makes up for the problems I had earlier,” Ray said.
When your startup is hot, you can get funded insanely fast.
“I remember,” I said to Ray. "I remember."
But that wasn’t the situation Ray was in now. His company was hitting on all cylinders.
The company was landing major customers at a very fast clip. They had a huge technical advantage versus the competition. And now, investors smelled the success.
In fact, Ray wasn’t planning on raising money for another six months. However, investors could see the multi-billion dollar exit coming, and they were seeking him out.
Oh, it’s good to be successful in a hot market.
Rule number one: You have to persevere to get early stage funding.
Yeah, it’s really easy to get funding if you’re in a huge market, and you’re dominating the market like Ray is. However, as I said, it wasn’t always that way for Ray.
When Ray started, his company was just Ray, a power point pitch deck, and the promise of attacking a huge market with what might be better technology. In fact, Ray’s early stage funding was anything but assured.
Prominent VC after prominent VC turned Ray down. There were all sorts of reasons investors passed:
- Some investors said it was too early for Ray to be raising money, and...
- Some investors said Ray was focused on the wrong end market, while...
- Still other investors thought Ray was trying to raise too much money too soon
Ray stuck to his guns. And, after seven months he raised his initial funding.
Rule number two: Investing is a bet on you, the CEO.
So, why was Ray successful raising money? Obviously, perseverance (Rule number one) is a big part of any startup CEO’s success.
Every investor has a different criteria, but you’ve got to have the right stuff. My advice is just be a confident version of yourself.
In other words, be proud of what you’ve accomplished. And be proud of where you come from.
Most importantly, be true to yourself. If you think that you need to be flamboyant when you’re more reserved, then you’ll fail.
In Ray’s case, he was the classic engineer turned CEO. In fact, you had to dig deep, in those early days, to see the CEO in Ray because the engineer came through loud and clear, but the CEO inside Ray didn't.
The good news for Ray was the engineering part of Ray was much more important than the CEO part of Ray when Ray was starting out. The hope was that Ray would grow into the role of being CEO which he did.
Rule number three: An investor has to buy into your vision.
Ray knew exactly what he wanted to do and how he wanted to do it. Ray’s vision was a contrarian vision for the future of his industry.
There were a lot of skeptics, like there always are when you’re a contrarian. And a lot of those skeptics were so-called “experts” too.
That’s probably part of the reason why it was difficult for Ray to get funded. I remember sitting in on an investor pitch Ray made to one of the largest funds in Silicon Valley.
The fund brought their expert in the domain to listen to Ray’s idea. Ray explained how his company was going to solve the problem, but the expert just didn’t get it.
Sure enough, the large Silicon Valley fund passed.
Eventually through perseverance (back to Rule number one again), Ray found two investors that did believe in his vision. Now he was on his way.
Rule number four: You may not end up with the investors you want.
“I want Tier One investors,” Ray said to me when we were outlining his original fundraising strategy.
There’s certainly nothing wrong with Tier One investors. The problem, in Ray’s case, was the Tier One investors weren’t biting.
So, what do you do when the Tier One investors aren’t biting? That’s right, you move on to the Tier Two and Tier Three investors.
You know what? There’s nothing wrong with Tier Two and Tier Three investors. It’s like my dad used to say to me, “Brett, everybody’s money is green.”
Rule number five: Once you get funding, you’re going to need to execute in order to continue getting funding.
Ray’s company proved the skeptics wrong. His elegant idea to change the industry did indeed work.
Just as importantly, the major customers Ray was courting approved of Ray’s idea in the only way that matters: with their wallets. Revenue is already approaching $100 million.
That’s why, in one thirty minute meeting, an investor was willing to invest $75 million. If you’re a hot startup, in a hot space, with a dynamite team, executing at the top of your game, then fundraising gets really easy.