How to get Momentum when Fundraising


The most powerful tool you have in closing an investor is fear of missing out (FOMO). FOMO only occurs when you have momentum in the round. Once you get that momentum, you start closing investors and a virtuous circle begins, increasing FOMO and carrying you to a great round. Here’s three ways to build momentum when you’re fundraising for your startup.

Low Round Targets

Setting a low round target does 2 things: first it broadens the number of investors who can participate in the round, increasing competition. Second, the round looks almost closed with even a small amount of investment. You can always increase the size of the round later as demand catches up. The only cost of this approach is creating a credible business plan for each successive target.

For example, you only need one investor with $50k to be half full in a $100k round. Conversely, if you tell an investor you’re raising $3M and have $50k raised, the situation seems less attractive. When you start getting yeses you can increase the size of the round in stages and still have the majority raised at all times.

Reserving Space

You can also build momentum by getting smaller investors to earmark parts of the round. This usually comes in the form of new, angel investors and existing investors participating with their pro rata (or more). Ask the investor if they’d like to reserve a spot while they decide? If you get a verbal yes, you can’t give that space to another investor and thus more of the round is now ‘earmarked’, ‘spoken for’ or ‘wrapped up’.

For example, say you’re raising $500k and currently have $150k committed. When talking to a new and interested investor, Investor-A, you ask their usual check size, which is $100k. Next, ask if they want you to hold that space for them while they decide, as the round is filling up. If Investor-A says ‘Yes’, then going forward you can’t offer that space to any other investors. Thus, your round is now half full.

Maybes are worse than Noes

One of the hardest parts of fundraising is hearing noes. Your fear of these noes can hinder momentum. All great companies get a lot of rejections during fundraising and being willing to push for a decision will actually help your process. Leaving a potential investor for weeks in the maybe column will almost certainly result in a no. Follow up regularly with updates but don’t blast everyone with fake success to push for an immediate decision.

To avoid hassling a deciding investor without cause, your follow ups should be focused on good news. Provide updates on new investors, or reservations, in the round, customer wins and product launches. At the end of each email you can ask if they’ve decided or need anything else. Eventually, you have to give a deadline to avoid dragging out the conversation too long. Even if that leads to a ‘no’, it’s still progress.

Hi Joe,
Wanted to quickly share some great news, the team closed Hooli today and the contract should be signed next week. Let me know if you have any questions or if you’ve come to a decision?
Thanks
Ash

Raising money for your startup is a grueling test for any founder but it gets better once you have momentum. Making use of these strategies makes it easier to get started and increases your chances of getting the round you need.

Thanks to Duncan Davidson, Pejman Nozad, Mar Hershenson and Kaego Rust for reading drafts of this.

Cofounder & CEO @SendHub (Cameo Global), Faculty @AlchemistAcc. Alum@YCombinator@UniofOxford. Prev: @Klout (Lithium), @OneRiot (Walmart). IG: ashrust

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10 Due Diligence Points When Selecting a Startup Accelerator

Last week Samir Kanji (First Republic Bank) published a blog with a list of the accelerators ranked by graduates who received more than $750,000 in funding.  Cromwell Shubarth of the San Jose Business Journal pointed out a change in the rankings for the Alchemist Accelerator.

Game Changers Silicon Valley had a chance to catch up with Ravi Belani and Danielle D’Agostaro from the Alchemist Accelerator a few weeks ago.  This interview, conducted for the Game Changers Silicon Valley show, as part 1 of a two part show.  Here is a 2 ½ minute segment from the interview with the Alchemist Accelerator.

Accelerators provide an Education in Entrepreneurship

Accelerators are very similar to educational institutions, and it is important to separate “the signal from the noise” to allow company to identify the best fit among the many accelerators.

The Alchemist Accelerator admits only companies that monetize from the enterprise and who have established technical teams.

A focus on the enterprise allows companies to identify customers and generate revenues from the enterprise which improves the viability of the startup.

The classic enterprise entrepreneur is the person with 10 years of experience, although there are very disruptive companies who have never worked in the enterprise space.

Valuable learning can be gained from the mentorship via coaches and experts, every companies has a CEO coach, a Sales Coach and Goal coach plus domain knowledge experts.

There are five venture capital investors and five corporate investors who provided the working capital of the Alchemist Accelerator.

Both segments of the Alchemist Accelerator can be viewed at the link for Game Changers North America

Take-away considerations for entrepreneurs:

Not all accelerators are created equal:

Founding teams should review and qualify accelerator program in your geographic area.  Most of this information can be taken from blogs and articles.  Some of the areas for a general assessment should be:

  1. List the terms of the accelerator program including program duration, working capital provided, common stock contribution to the accelerator, physical work space, frequency of meetings, and training sessions such as pitch training and business plan reviews.
  2. What is the reputation and value proposition of the accelerator?  Most accelerators have a mission statement, a primary value proposition and an operating plan ( number of classes per year, number of companies per class, and a list of participating investors at their demo day)
  3. Does the accelerator have domain expertise via mentors or coaches in the markets or the technology areas being addressed by the startup?
  4. Does the accelerator do an in-depth review and qualify companies applying to join the program?
  5. What is the level of investor interest, traction and engagement with companies during the program, ideally there should be engagement well before the demo day.


Once a startup company narrows the list of accelerator programs that would be a fit, the founders should conduct their own due diligence on the accelerator.  The following our list of starting points:

  1. Contact companies who completed the program, including both companies who received follow on funding and those who did not receive the follow up funding. Speaking with co-founders of companies who did not receive follow on fundingwill provide insights into the perceived reasons funding was not obtained as well as help verify the quality of the program.
  2. Review the alignment of the accelerator’s domain and mentor expertise to your company and the founder.
  3. Review and evaluate if the listed investors who invested in previous graduating companies are the appropriate type of investors for your company.
  4. Review the connection and relationship maintained by the accelerator with post graduate companies, can a company who has completed the program continue to draw upon the resources and advisors connected to the accelerator.  
  5. Review published videos from the demo-day presentations.  These publicly available sources provide insight into the type, status ( pre-revue, revenue) and quality of the companies in the various startup accelerators. Some accelerators have a webpage listing their demo day presentations, or do a quick search on YouTube for “accelerator_name demo day”.

Summary

The first decision is to determine if an accelerator will materially promote a startup company's progress both in development and execution of the business plan and engagement with potential investors. 

Choosing the wrong accelerator can result in a disappointing experience.  All accelerators will quote metrics on the average follow-on funding received as a result of the program.  However, the average funding percentages for companies in past programs represents only one data point. Conducting additional due diligence can significantly improve your chances for the right decision as well as a successful engagement and outcome.

For more Game Changers Silicon Valley shows: http://www.GameChangers.tv

Facebook: Game Changers Silicon Valley

Twitter:  GameChangersX


Jim ConnorExecutive Producer at Game Changers Silicon Valley; Angel Investor

Why Startups Fail

“90% of startups fail.”

You’ve probably heard that before. But what does it mean?

Over the past couple years, I’ve :

  • been the founder and CEO of multiple startups
  • raised money
  • been acquired by a public company
  • participated in the world’s top startup accelerator programs,
  • failed and watched others fail
  • succeeded and watched others succeed
  • and ate a lot of ramen noodles #truth

Given my experiences, I thought it would be valuable to share my views on why startups fail.

If you understand why startups fail, you will be more likely to succeed.

In school, we’re taught history to avoid repeating the same mistakes. Similarly, as entrepreneurs (practicing or aspiring), we should understand why startups have failed so we can decrease our own chances of failure. After reading this, you will understand the main reasons startups have failed in the past, making you more likely to succeed.

Defining Failure

Startups fail when they can no longer operate -> Startups can't operate when they run out of money.

Understanding this may seem basic, but it’s important. I’ve heard many times that, “the reason a startup fails is because they run out of money.” That’s not a reason. That is the result.

Failure = No Money.

If we can agree that in most cases startups fail because they run out of money, then to truly understand startup failure we need to understand why startups run out of money. Make sense? Great, let’s dig deeper.

Top 3 reasons why startups run out of money

Lucky for us, all we need to know is the top 3, because those 3 reasons account for over 80% of startup failures. I definitely just made up that statistic, but it’s probably in that ballpark.

    Reason #1: Building something nobody wants

Over the years, it has been clear that if a startup doesn’t build a product/service that people want, they will not be able to generate revenue.  

Revenue = money; no revenue = no money; no money = fail.

In one of Paul Graham’s famous essays, he wrote about this topic and why startups need to “make something people want” (http://paulgraham.com/good.html). It seems so obvious, but in reality it’s not.

Entrepreneurs need to think differently and see the future. While doing this, many assumptions are made because there isn’t enough information to make decisions - if there was enough information, someone else would already be doing it. One of the worst assumptions entrepreneurs make is that people will want their product. The problem is that this should not be an assumption, instead, it should be a hypothesis. Having a hypothesis that people will want your product means that you need to prove it. The biggest mistake entrepreneurs make is: they don’t prove people want their product. What ends up happening is founders skip this step and go directly to building products, hiring people, finding partners, then trying to sell. “Trying” is the key word here, because after they realize they can’t sell, it’s too late and they’ve run out of money.

Learning Point #1: Prove that people want what you’re building. 

Before building anything, prove to yourself and your team that people actually want what you’re building. A trick I’ve learned over time is to start with designs. Create your designs on Photoshop or Sketch and use a tool like InVision. This will help you simulate your product without having to write a single line of code. It’s easier, faster, and cheaper to iterate on designs than code.

    Reason #2: No Focus

From my experiences founding and mentoring dozens of startups, I’ve seen that focus and prioritization are necessary to achieve success (and avoid failure). Again, doesn’t this sound obvious? It’s not. In a startup, you’re being pulled in all different directions. Founders think they have to do everything at once. They are meeting investors, partners, mentors, customers, building products, figuring out a marketing strategy, going to all the conferences, and blah blah blah...

In reality, there are only 1-3 things at any given time that actually matter. Ideally, you’ve identified and prioritized those things, then distributed the responsibilities across your team. Time is against startups, so it’s important to focus on what matters and optimize your time. Many startups make the mistake of prioritizing raising money from investors. This is because that’s what everyone else is doing and it seems like the cool thing to do. They end up wasting so much time because the company isn’t ready to raise money. Either they don’t have a good product or have low traction, and often they don’t know why they’re raising money in the first place. In the end, they waste months talking to investors, and in that time they could have been proving that people want their product, building it, and selling it.

Learning Point #2: Prioritize, then focus.

Figure out what are the most high value areas you need to focus on. Here’s a prioritization order that applies to most B2B startups:

1) Prove people want what you’re building

2) Build it

3) Get early customers

4) Raise money

5) Hire smart people

6) Sell to more customers

7) Raise more money

8) Hire more smart people

9) Make your product better

10) Sell to more customers

At any point, you should know what stage you’re at, and therefore, what you should be spending most of your time on. This focus will lead to stronger execution and catalyze your growth. Without focus, a lot of money will be wasted and chances of failure will be higher.

    Reason #3: No Passion

A lot of people have this notion that starting a company is the dream. It’s no surprise given all the recent exits and IPOs. Startups have become sexy. As a result, I’ve seen many people start a company because they think they’ve stumbled on a great idea. Heck, I even did this back in university.

Whenever I meet a founder, I ask: “why did you start this company?”. This is the single most important question I’ve learned to ask founders. If you asked me that question when I started my first company, I would have said, “because I think it’s a good idea and the market is huge!”. The problem is, I had no passion. That company failed. There was nothing driving me behind the idea. Similarly, many startup founders I meet have no real passion or a deeper reason why they started their company.

If you’re starting a company without passion for the problem, then during the hard times you will be less motivated to power through them, and your chances of failure will be higher.

Learning Point #3: Do something you’re truly passionate about

I heard this saying somewhere: “Attitude is Altitude”. In my personal experiences, I’ve found this to be true. When you’re faced with hardship, either professionally or personally, staying positive will always increase your chances of success. It’s easy to get mad, depressed, and/or stressed, but try to control your emotions and stay positive by remembering why you started in the first place.

Having real passion is essential to get through hard times with your company. To get through the hard times, you need motivation. I’ve found that passion is the strongest motivator. When founders are extremely passionate about the problem they’re tackling, they figure out how to solve the issues at hand. The best motivators I’ve seen are:

- The founder(s) experienced the problem themselves

- The founder(s) believe in a future that may not exist unless they create it

- The founder(s) have close family and friends that have been affected by the problem

Putting it all together

Whether you’re working for a big company, thinking about starting a company, or already founded a startup, it’s worth reflecting on the lessons we have learned from past failures.

1) Build something people want, and prove that they want it.

2) Have focus at all times by prioritizing high-value initiatives.

3) Be real with yourself and do something you’re truly passionate about.

The interesting thing is, these 3 areas also apply to big companies. But, instead of the companies failing, individual products fail. There are multiple examples of products failing in big companies because they didn’t build something people want, or they lost focus. Learn from the past, make new mistakes, and remember, "Attitude is Altitude".

Lastly, Snapchat.

I’ve found that Snapchat is a great way to talk about these topics. Everyday I try posting interesting content on my Snapstory. Don’t wait for my next post on LinkedIn, follow me on Snapchat. Add my username: nav1d

By adding me on Snapchat, you can watch me talk about a variety of startup topics. In the past, I’ve talked about Marketing & Sales Tactics, Raising Money, and Staying Motivated. Add me and share with your friends and coworkers.

#learnfromfailure #startups #innovation #product #studentvoices #leadership #entrepreneurship #businessstrategy #bigideas 

Learn forward: 4Ps for Picking Better Than a VC

This post is, like many a blog, written largely as a bread crumb — a way to track my thinking. In the weeks since closing the sale of StackStorm to Brocade I’ve set off on a great adventure — getting to know many more entrepreneurs and investors while attempting to sharpen my understanding of relevant domains and technologies.

My goal is simple — I want to learn to pick opportunities better. And while doing so I want to help entrepreneurs and learn a lot.

This blog covers the discipline I’m attempting to follow in evaluating opportunities. My next blog will cover some of the opportunities I’m uncovering.

Picking:

Josh Kopleman from First Round (@joshk) has a great series of tweets recently on the importance of picking for entrepreneurs as well as investors. One of my favorite tweets:

Yes, +100. So how does an entrepreneur pick?

(Please, please correct and expand my thinking here.)

  1. The $1bn bar. Michael Porter in effect.

The trick is to find opportunities that you *know* can create a space or at least become a winner in a space that is large enough that you’ll be worth $1bn with growing revenues in less than 10 years.

OK, once again, how? How do you make that determination? In my case, I write-up 5 forces frameworks. And I have a lot of question marks in the key areas that I seek to fill in through conversations and education. I’m hopeful that these write-ups will themselves become breadcrumbs that will help me and the entrepreneurs I’m supporting.

I tend to drill in on ecosystem and community dynamics because I’ve been somewhat successful in understanding and leveraging these areas. I am extremely confident in my ability to see how hard or easy it will be to get a community and a channel going.

And here is one spot where a VC — who has lots of advantages versus me in picking including an infinite network — does not have something I do have: years of experience in actually doing the work. It is easy for me to go from a) potential space to b) community dynamics to c) relevant partners and d) a team than someone who is looking at many, many opportunities.

The judo I typically try is to define a space and to start to market that in my discussions with potential teammates, investors and users. Also something that has been helpful for me in the past is to think about a tag-line for the space — think of the space itself as a product worthy of positioning.

Once you find such a space — one that you can both help create and that you are confident is worth billions — then claiming leadership of it is pretty straightforward. Think software defined storage and Nexenta or event driven automation (still young) and StackStorm. We were able to seize leadership of those spaces (for better and worse) because I had helped to create them.

2. Personas

While arguably you could subsume a focus on personas as one part of the 5 forces framework, I choose to break these out.

A focus on who are the users, where do they hang out, what do they believe, how are they changing is all important. This does not necessarily mean that you need to be one of them. However you do need to know the secret handshakes. Only by getting inside their head can you become the natural choice for them.

Yep, I’m talking design from the get go. If an entrepreneur pitches me an idea and yet does not engage with me on who exactly is the user and how is that profile changing over time, well, at the very least they need a lot of help.

I’m working with one company that has recognized that developers have become all important to their adoption. And yet they have not yet unpacked what that really means for the self adoption journey from hearing about them through initial usage and support and so forth.

3. People

At this stage of my career it almost goes without saying however the people need to be people I want to spend years with -> I’m going to help them achieve their dreams, will I care about them, respect them, go the extra mile for them and with them?

Also, not quite the same point, but the more I do this the more I understand the importance of taking the time to shake and grow the network to find the penultimate list of experts as teammates and as initial users. If I were thinking about a start-up focused on public government I’d be looking to get on the President’s calendar. And if you cannot get to that level then something is wrong either with the idea, your pitch and positioning, or — your passion.

4. Passion

At some point something should click. For me I imagine betting absolutely 100% of everything on the idea, including the next 5 years of my life. Will I bet my daughter’s college fund on this idea, team, and opportunity? If so then I know I’m onto something worthy of all out effort. If not, then I owe it to myself to not dive in and to help the entrepreneurs see what at least for me is missing. As an aside — note to self — if I don’t chase at least a small percentage of the entrepreneurs away by being too direct and candid, then I’m being too nice and wasting everyone’s time.

For those following closely you might have noticed that this boils down to 4Ps: Porter (i.e. the space and 5 forces), Personas, People (focusing on the team and early user)and Passion.

In the next post I’ll highlight a few of the spaces I’m learning about and companies I’m helping or at least trying to help.

As a bit of foreshadowing, I’m trying to improve my extraordinarily rusty coding skills — doing some python hackery — and am fascinated by opportunities being created by machine intelligence, serverless computing (and other aspects of the AWS effect), non volatile memory, and more. I also think DevOps has a long, long way to go before becoming mainstream, which is both a shame and a huge opportunity. And I’m wrestling in a few cases with whether a company should focus on picks and shovels or whether they should be mining the gold themselves.


- Written by Evan Powell, Founding CEO of Stackstorm and Nexenta, and Advisor / Angel investor in a few Alchemist companies including TextIQ and Data Fellas.