Raising capital for your venture, whether it is your first or fifth time, is a feat of its own.
Though there are many factors impacting why the majority of startups fail to launch, learning the art and science of fundraising remains top-of-mind for most entrepreneurs, as it should. Last week at General Assembly’s Flatiron hub, experienced founders and investors across New York’s startup scene gathered for an evening to debunk fundraising strategies.
Among the speakers were Plated Co-Founder, Josh Hix, Betterment Founder and CEO, Jon Stein, and Daniel Dehrey and Sebastien Park from Collaborative Fund, an investment fund with an impressive portfolio of companies such as Kickstarter, AngelList, and TaskRabbit. From fireside chats to founder panels, the following are best practices and insights distilled from the night, which these entrepreneurs shared from their own victories and mishaps.
1. Test for proof of market
Plated, a membership-based service, delivers fresh ingredients to your home so that you can cook a gourmet dinner in 30 minutes or less. Before founders Josh Hix and Nick Taranto approached their friends and family for funding, they first tested whether they could ship enough boxes to prove to themselves that there was a market for Plated. The process of testing product-market fit through continuous user testing is critical to gauge demand and the accuracy of your positioning.
Tangible proof of demand may be gathered through primary research, user interviews and prototyping.
The insights obtained during this process will later act as evidence of product-market fit when you pitch to potential investors. Lack of funding inhibits many startups from launching, yet of those who do make it off the ground nearly forty percent fail because they built something that lacks a true market, a figure Alex Osterwalder, author of Business Model Generation, recently gave during a presentation on value proposition design.
2. Focus on fit
The need and urgency for capital causes some founders to overlook taking a strategic approach to building a pipeline of investors to whom they can pitch. Many turn to the “pitch as many as possible” strategy, and while volume is critical, it’s also essential to make sure you are pitching investors with an interest in your market. Research angel investors and VCs who focus on your funding stage, market, and company mission.
Though initially you will likely accept money from any source, the idea is to progress to “smart money,” namely, investors who will add value to your business in addition to funding, which Paul Canetti, Founder and CEO of MAZ explained during his presentation Fundraising 101.
3. Understand the individual approach, mindset, and motivating factors of potential investors
Ali Hamed, Co-Founder of CoVenture, a company that invests in early state startups by building software in exchange for equity, explains the importance of understanding the economics of investing, “You must understand the mindset of investors and their own personal stresses and what they need to accomplish.” Next, you’ll want to align your story with the potential investor’s interest, which may be accomplished by first “asking them what their thesis is on the business you are in,” advises Jon Stein, CEO of Betterment, “Then you can tell a story that plays into that.”
When Plated launched in 2012, it was also the day Hurricane Sandy hit Manhattan, making it nearly impossible to fulfill orders on their first day in business. Both before and after your company opens for business, you’ll have many near death experiences. “You’ll have 149 pitches at first and 149 no’s and persistence is maybe the most common thread through anything that works,” Hix recounts.
5. Let your passion fuel your storytelling
When asked to give a final piece of advice to the founders and entrepreneurs in the room, Sebastien Park from Collaborative Fund left the room with a note of inspiration. “Along the way in your process you will come across people who say what you’re doing doesn’t work, but if it’s something you have conviction on, it’s something you should see through. You shouldn’t be deterred by no’s.”
Daniel Dehrey added, “The companies that stick out the most with us specifically, are where you see the founder internalize what they are building, like there is no separation between business and individual.” Like Dehrey said, you’re not just giving a pitch, you’re telling a story. Demonstrating this level of passion, whether it’s to connect with your audience or to fuel your internal hunger to succeed, will help you persevere through the countless hurdles you’re bound to encounter.