One of the questions I’m asked often is how to go about the fundraising process. In my experience, there is no one way to approach it, though I have found it to be true that investors like to see that you have skin in the game, prefer to fund growth over hunches, and care way more about your execution and ability to find a way to win than they do about your idea or even your team.
Still, there are a lot of different kinds of investors with different approaches, areas of expertise, and preferences. We hope these resources help you find the approach that works best for your situation.
1. Khan Academy – Raising Money for a Startup (Video, 12 mins)
If you’ve never taken a class on Khan Academy, you’re missing out. Sal Khan has built an amazing system of free resources to help people learn nearly everything. He has a talent for demystifying complex topics and making them easy to understand.
Now, he’s applied that talent to the fundraising process.
In this video, he provides a simple, easy-to-understand overview of the fundraising process, starting from the fundamentals: what’s actually happening on the firm’s balance sheet. He provides an overview of angel investors and venture capital and introduces important terms such as pre-money and post-money valuations.
If you’re new to the the world of investors and investment, you should absolutely start here.
2. Sam Altman’s Startup Class – How to Raise Money (50 mins)
Sam Altman’s Startup Class, taught at Stanford and produced in collaboration with Y-Combinator, features the “who’s who” of, well, all things startup.
In this segment, Marc Andreessen (Andreessen-Horowitz) and Ron Conway discuss their approaches, including what they look for in an entrepreneur (good leadership, obsessed with their product, focused, and a good communicator), how dependent funding is on outliers (heavily), and how the ultimate key to success is “to be so good, they can’t ignore you.”
These guys are two of the most important investors in the Valley. This is worth watching.
3. Steve Blank – Raising Money with Customer Development
Steve Blank, author of The Startup Owner’s Manual, one of the four books I think every startup founder should own, reminds us that fundraising is a means to an end.
Traditionally – and I still see this a lot – people pitch ideas based on products and without hard customer metrics. These people get funded on intangibles and assumptions.
It’s also really hard.
Instead, Blank advocates chasing customers and a repeatable business model, not investors. His perspective? Once you have product/market fit and need to scale, investors will be more than eager to help you out.
4. This Week in Startups – How to Raise Money from Angel Investors (15 mins)
In this video, Jason Calcanis discusses how he and other angel investors like to be approached and how they review deals.
He recognizes that approaches to investing change over time and advocates starting with a “Friends and Family” round to prove ou have skin in the game. His opinion – if you haven’t the guts to ask your friends and family for help, is it really that good of an idea?
He also describes his extremely strong preference for “walkers, not talkers” – people who don’t wait for permission or funding to make progress. You should be able to make progress before approaching an angel investor. Execution is everything. Ideas are worthless.
Is it possible to raise too much money?
In short, yes.
But it’s more complicated than that. In this post, Carlos Eduardo Espinal describes how to figure out how much you need to raise and highlights some of the dangers of raising too much money.
In addition, he talks about the importance of understanding your financial model, burn rate, and how those things relate to your business milestones. His main point: focus on raising money in the timeline, so that there’s enough to accomplish a key milestone (plus a little buffer) before the next round goes underway.
6. David Cummings – Assorted posts on investment/investors
David Cummings, who sold his company, Pardot, for $100 million dollars blogs every day on topics related to startups. His is one of my favorite blogs. He has written a handful of posts on how the venture world looks from the perspective of a limited partner, how investors view cash flow, relationships, and returns.
His posts are short and insightful.
Funders and Founders – How to Raise Money for Your Startup [Infographic]
For those of you who like pictures more than words or videos, Funders and Finders has put together this nifty little infographic: