Raising money for a startup is just like trick-or-treating. You have to knock on a lot of doors, push past all the other little monsters and try to gather enough treats to satisfy your cravings until next year. Having raised hundreds of millions of dollars for startups during my career, and in the spirit of the Halloween season, here are the five must-haves needed to scare up millions of dollars in venture capital.
Friends and family. Just as it’s frightening to go out alone, you can’t skip the friends and family funding round. It’s not so much the amount of money you raise that makes this step so important, but the fact that the people who know you best believe in you. Investors don’t invest in ideas — they invest in people and want to know that others trust you. Will you overcome your fears or flee the first time a competitor spooks you? Experienced investors also know that friends and family are the last people you want to disappoint, and that is great motivation to keep you going when things get tough. If you have been walking around this planet for decades and don’t know a single soul willing invest a few thousand dollars in your startup, then you are doomed to haunt Sand Hill Road as a lonely zombie for eternity.
Data. Ghostly vaporware and decorated PowerPoint presentations don’t cut it anymore. With cloud hosting and SAAS tools greatly reducing prototyping costs, investors expect to see a working minimal viable product (MVP) and some early user test data. The more irrefutable information you can provide about consumer adoption, virality and usage patterns, the easier it is to get them to rave in and the harder for them to say, “Nevermore.” Data about the founders is equally important. Tools such as TrepScore provide potential investors with a way to track you as an entrepreneur, keep others apprised of key documents and root out any skeletons in your closet. Tools that enable transparency give potential investors insight into both your character and your progress.Advisers. Knowing which partners at which firms are interested in your sector is difficult to discern for the first-time entrepreneur. Within the larger venture-capital firms, each partner or associate tends to focus on a specific area of expertise. You don’t just need a champion at the firm; you need someone who the other partners consider the expert on that sector. Use LinkedIn and other networking tools to find experienced industry luminaries who have been through the process before and are willing to make introductions. Better yet, find someone who has made money for the firm in the past and can make lightning strike twice. Having a guide through the labyrinth of VC politics and relationships will speed up the process and greatly increase your chances for success.
Know your numbers. VCs know that the devil is always in the details. While investors are more likely to believe in werewolves than your five-year projections, your numbers provide a chance for VCs to go behind the curtain and learn how you think. Many founders get stuck in the quagmire of not understanding the costs associated with scaling an enterprise. Avoid this quicksand by modeling what you know and admitting what is still guesswork. No VC expects you to be able to predict the future, but the more comfortable you are with explaining how you arrived at your fortune telling, the more telling your fortune will be.
Get noticed. To raise millions of dollars, your startup needs to be as noticeable as the best Halloween costume. Top venture-capital firms hear thousands of pitches over the course of a year and fund less than one percent. You either get noticed or get buried. Use your creativity to stand out from the crowd and generate meaningful press. Leverage celebrities, keynote major conferences, win awards or publish a tantalizing white paper that the blogosphere can’t ignore. Do whatever it takes to rise above the clutter of hackneyed press releases and self-published dribble. I once went so far as to throw a rock concert at 30,000 feet to get noticed and drove millions of first-time customers to my website in one week. Earned media can actually be the quickest way to raise money because all of the potential investors interested in your space will seek you out. Remember, the easiest sale to close is the incoming call.
Raising money can be as fun as trick-or-treating. If you are prepared, perhaps this year you’ll see the Great Pumpkin and fund your startup.
This post first appeared in the Wall Street Journal October 16, 2014