What I Learned Raising A Million Dollars For a Startup With No Business Plan and No Financial Projections (While Drinking a Beer)
For years now I’ve read startup and VC blogs just like many of you. I read a ton of posts about what my business plans should say or how to do financial projections. But in the end, that stuff was always painful for me. I’ve always been more of a doer than a planner, and more of a boostrapper than a fundraiser. The thought of wasting valuable business time working on a business plan made me want to puke.
Over the last few months, as I finished the fundraising for Backupify, my perspective has changed a lot. On the one hand, I was able to raise money without a business plan or any financial projections. That felt good. On the other hand, I learned some things that changed my perspective on the fundraising process. When I go through it again for our next round, and for future startups, I will approach it much differently than I did this time. So I thought that now, while these thoughts are all still fresh in my head, it would be good to write about my experience going from a newbie to the VC scene, to the CEO of a VC backed company. If I wait too long, I know I won’t remember things correctly, so this post is about what I learned and what I would suggest to those of you going through it for the first time.
There Is No Right Way To Do It, But There Are Wrong Ways
Posts that tell you what VCs look for should be taken with a grain of salt. In my experience, they all look for different things. At best, that post tells you what that particular investor wants in a company and team. I sat in front of VCs who thought I was crazy for not having a business plan. I was asked “how can you run your business if you don’t have a written plan?” I also sat in front of VCs who said “glad you didn’t waste time writing a plan, because we wouldn’t read it anyway.” It’s really more of an art, not a science. It’s kind of like dating. What I mean by that is…
It’s Not About Convincing Them, It’s About Whether There Is A Natural Fit
I always thought the goal was to be so smart and savvy in the presentation that some skeptical VCs would be won over by my impressive arguments. It doesn’t work that way. They either like you and your idea, or they don’t. It’s like dating because your goal in dating is not to convince someone who is a bad match for you that somehow you are really a good match. That’s a recipe for divorce. It’s really about finding the person that is naturally a good match. Same way with investors.
A perfect example is to look at the questions I got after each presentation. If someone said “interesting, but why does anyone want to backup Twitter?” I knew instantly they weren’t a fit. They saw the small version of Backupify. They saw where it was, not where it could be. The people who eventually invested realized after just a few slides that it wasn’t about backing up Twitter at all.
Look For Vision
The best thing that can come from your presentation is lots of ideas generated by the potential investors. When investors start asking questions like “what if you could do X?” or “have you thought about creating a feature for Y?” that is a really good sign. It means they get it. It means they can add value. It means they are a good fit.
Moving the Needle Trumps EVERYTHING Else
I’ve been involved with startups that spent months working on a business plan to go out and raise money. And I’m not knocking plans overall. They can definitely be a great exercise in thinking through your company. But the single biggest thing you can do to impress these guys is go out and move the needle on your business every day. Mark Suster says entrepreneurs need to Just @#$% do it, and I couldn’t agree more. There are so many people who think they want to be entrepreneurs because it sounds fun to run your own company and “be your own boss” (which isn’t true anyway), one good way to weed them out is to see who can move the needle without many resources. All VCs know you could do more if you had a boatload of money, so to go in whining that “we can’t do anything because we don’t have money” is a waste of time. Figure out how to maximize what you have. Investors see all kinds of people who have day jobs, little free time, little spare cash, but big ideas. Most of those people don’t move the needle. Others figure out how to do it. Those people get funding.
At Backupify, we did whatever we could with the little cash we could scrounge up. We got free labor at times, we used whatever connections or resources we could find, we nagged people to help. At times, I felt embarrassed showing the product to people because it sucked so bad. But look, even if you have no cash, you always have time and creativity. Find a way.
When I presented at the Open Angel Forum in L.A., I told investors if they were interested they had to talk to me before 10pm (the presentations ended at 9, I think) because I was leaving to catch a redeye to Boston for a morning presentation to a VC firm. Somebody in the back yelled “I love it.” Many of these angels were in your shoes once, and they love to see you display the same suck-it-up, gritty determination that made them successful. Show them you are going to do whatever it takes. Move the needle. Eventually someone will fund you.
Practice, and Listen
I did my presentation a BUNCH of times. The first time I presented to an investor group, I had 30 minutes. I went 40 and only got through half my slides. Each time it got better. Each time I revised the slides to make them clearer. It was boring as hell, but it’s exactly what you have to do to get better. It’s the same stuff you do on the product and marketing side, just apply that mindset to your slide deck. And most importantly, listen to the feedback. Early stage investors see tons of startups, and as a result, they build great filters for what works and what doesn’t. They aren’t always right, but their experience in the meta-patterns around what you are doing may be helpful, so give it serious consideration.
David Cohen commented on my drinking a beer during my OAF presentation. It’s not something I would generally recommend that you do, but for that specific event, it just fit. It’s very tempting to listen to potential investors tell you to be this way or that way, but in the end, you have to be yourself and you have to be comfortable around them. Once you get funded you have to make lots of hard decisions and the last thing you want to do is built fake rapport with investors, because that is going to lead to lousy discussions about serious problems.
The point of all this, and the reason I wanted to dump this out of my brain while it was fresh, is that many of the people who write about startups have either been it so long (or else have never been on your side of the table) that they look at it through lenses that won’t work for you. Don’t think that there is some magic bullet, some secret phrase you can say or slide deck order you can use that will make it easy to raise money. It’s never easy, not even when you have a good idea. That’s the point. That’s why so few people ever do it. That’s why the best thing you can do is to accept that and just trudge forward trying and trying and trying.
Reading about things and doing things are very very different. If you want to learn to raise money, the best thing to do is go try to raise money. It will suck. But at least now you know you can skip that business plan.