Raising money is often one of the hardest things for a founder to do. You know that you have a great product and you are sure that all you need is a little bit of money in order to make your company highly successful. However, when you go out looking for money, you find it can be extremely hard to raise this. People are very reluctant to sign a cheque, no matter how hardworking you are, how smart you are, and how many widgets you’ve already sold.
They come up with all kinds of silly objections, which irritate you because it’s quite obvious that they are clueless and cannot see the big picture. Even the ones who are willing to write a cheque not willing to give you what you think you are worth.
No matter what you do to sell yourself, it’s not very easy to find people who are willing to buy into your idea. The number of funders are few and far between; whereas the number of founders with clever ideas is far higher. This can be frustrating – especially when it comes to the matter of valuation. After all, how much should you value your company at today if it’s going to be worth millions in a few years? Can’t the funders see what a great, cool idea you have? And that this is going to be the next billion-dollar thing? Why are they being so stingy about giving you the money which you need in order to grow? Why can’t they just be your funding partner and help catalyze your success so that both of you can grow rich together? Can’t they see what a great return of investment you are going to be able to give them if they invest in you and your idea?
There are two important variables in funding – the quantity, and the quality. The quantity is fairly straightforward – it’s how much money people are willing to give you, and for what share of your company. This is tangible and easy to measure, and it seems to be common sense to get the maximum amount of money you can raise from someone who’s willing to sign a check.
However, you also need to check the quality of the funds you are raising. If you get the wrong investor on your board, no matter how much money he has given you, or how highly he has valued your company, you’re heading for disaster , because you’re going to have lots of friction and pain points going forward. However, just like it’s very hard for us to judge the integrity and quality of the founder, it’s very hard for entrepreneurs to judge the quality of the investors . In their desperation, they end up taking the first cheque they get, and this can be a decision which they rue for the rest of their life.
Because this is an intangible, you need to use measures such as guesswork, chemistry, gut feel, and what the market reputation for the funder is. It’s a bit like a speed dating game, which both funders and founders play. Let’s not forget that funders would not exist if there weren’t any founders and just like entrepreneurs need investors, investors need entrepreneurs as well. The trick is to position yourself properly in the speed dating game, as being a highly desirable catch, so that people line up, wanting to date you. If you can master this skill, you’re going to do very well. It can be hard, and you are at a bit of a disadvantage because investors have played this game many times before in the past, whereas perhaps this is the first time you’re learning how to do this.
Having said that, as an entrepreneur, don’t forget that you’re smart , and you’re capable of mastering these skills very quickly. You should try to set up a competition between different investors , who are now keen to give you money because you are the beauty queen on the block and are seen to be highly desirable … not desirable just because you have a great idea and are a great entrepreneur, but because desirable simply because there are other people who want to give you the money ! You will then be in a much stronger position to be able to command the kind of valuation you want from the kind of investor you want.
Speed dating has become popular because it saves time; and allows people to explore lots of potential willing dates quickly , so they can be matched
efficiently . This is exactly what smart founders need to be able to do.
A happy ending would be to raise the quantity of money which you need, from a high quality funder, who understands the value which you bring to the table. Don’t sell yourself short, but on the other hand, don’t have such unrealistic expectations that you let your company die while trying to raise funds, because that would be the biggest tragedy of all.
