You are probably not investment-ready – and that’s okay.

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I regularly come across posts on Facebook where young founders ask for contacts regarding raising funds. A lot of the time, it seems that there is a significant lack of understanding regarding how funds should be raised – and there is a certain trend regarding this:

  • You are asking random facebook strangers where you can find investment
  • You are expecting random people to invest in your startup
  • Your startup is in the idea stage and you are looking for investment without any traction
  • You aren’t sharing any data, deck, or relevant material to back yourself
  • You think money is the only problem in your startup journey

Having raised my first investment in 2015, given my experience in multiple startups that have gone on to raise multiple millions, and my current exposure at a fast-paced hyper growing B2B tech enterprise, I can give you a few basic pointers regarding what you should be doing:

  • Don’t say that you have an idea. Show it.
    • Build a prototype
      • It can be a WhatsApp Group
      • It can be a 1 pager website
      • It can be a flyer with a phone number on the bottom
      • Get it up and running even if it is a facebook page. Grind on it every day.
      • Brand it well
      • Get 10 super-users who love your service
    • Prepare a deck.
      • A short form you can show everybody.
        • Tell your story here
        • Show the market size
        • Show the growth opportunity
        • This should ideally speak of your numbers in % growth or % achievement
        • Speak about competitors & your edge
        • Speak about you and your team
      • And a long-form deck that you mail to potential & interested parties only.
        • Explain your secret sauce here
        • Talk about the potential expansion plans
        • Speak about the market & your long term vision
        • It should have real traction & sales figures
        • It should concentrate on your results so far
        • It should say what can change if they inject money
    • But my idea is super secret and what if they steal it?
      • Nope. Doesn’t happen. But you can make them sign an NDA nevertheless
      • In reality, its easy to find atleast 10 startups in any segment you can think of. Ideas are cake. Execution is the real game in this world.
    • I just want to talk to them face to face.
      • Doesn’t work like that
      • Someone who has money to spare has very little time to spare
      • You have about 1 minute and a slide to catch their attention
  • Fix your financials and put them somewhere visible.
    • They should ideally be auditable, real-time, and capable of being broken down into individual payments for analysis.
    • Lots of graphs and charts because you can’t expect investors to read Colum 4 Row 453 and guess everything.
      • Show what’s growing
      • Show what can grow better if they inject money
    • There should be at maximum a 2 year outlook into the company’s future.
    • Look at this financial model and build something 10% close to this (most of it won’t apply for your usecase, but it gives a good idea of what needs to be done).
  • Track your key metrics and report those in a single dashboard/google-sheet early on. How much you want to raise and how you plan on giving it back isn’t super important at this stage. Your growth, churn, and gross merchandise value are better indicators of success. But memorize the following numbers so that you can answer them off the top of your mind:
    • Customer Acquisition Cost & CAC Payback
    • Retention Rate
    • Customer Lifetime Revenue
    • Monthly Recurring Revenue
    • Burn Rate
    • Cash Runway
    • Active User Count (Daily/Weekly/Monthly)
    • Download Count
    • Gross Margin
  • If you have no plans of hyper-scaling, Startup VC’s won’t fund you. Or in other words, if you say that you will raise 50 lakhs and have the ability to return it in 3 years, then you should rest assured that you aren’t a startup and you have no hope of raising from a VC. Rather, you can reach out to traditional banks, private debt funds, or venture debt organizations that offer recurring revenue financing instead.
    • Here is an article you should read
    • Couple of things you can do to help:
      • Build a business, not a product. If you have a chicken and egg problem (ie. only if I have enough money to burn on marketing – I will get 100X more clients), then you should stop and rethink your business. Ideally, investors will only invest when there are already enough clients and all you need is money to scale/serve-them. The opposite always happens – but the odds aren’t in your favor in that case.
      • Build a partner universe. Integrate with 10 other startups/products if you can. Build an open API. Make it usable for free if necessary! Remember this: the best problem to have is that my software/service doesn’t work because too many people are trying to use it at the same time.
      • Build the right networks. Knowing people can get you places. One introduction could be the difference between raising millions and thousands.
  • For guidance/strategy, you are better off applying to accelerator programs.
    • Here is a list of good accelerator programs
    • Here is an older list of good accelerator programs
    • Having a good accelerator program as your initial backer is a good way to prove that you have a proven model and that your business is solid
    • Usually, its best if you can get an industry veteran on your board (10+ years of experience and willing to speak and mentor you weekly)
    • Join every single social group where your product might be relevant and hear the pulse of the market
  • Be willing to throw away what you have built so far instead of getting too attached to it. If you are too early, too late, or have a market that doesn’t understand your product – walk away and build something that can scale better.
    • Your tech is expendable
    • Your revenue pipeline is expendable
    • Your story is expendable
    • The only thing that is not expendable is your family and your team
  • Write bi-weekly investor updates even if you have none
  • Document your experience somewhere (blog, video, podcast, etc) – investors always love someone who is super invested in their business themselves. If you live and breathe your industry – there is a big chance that you will remain committed to it when things go awry.

And lastly – take whatever is written above with a grain of salt. Not everybody who is giving you advice is right. And if you have enough reason to believe that they are wrong – then fight the system!