Posted on October 9, 2010
Filed Under Entrepreneurship |
Backupify has now raised a total of $5.6M. My fundraising success has led to many entrepreneurs reaching out to ask for advice. I see a common set of mistakes that people make when they think about raising money, based on my conversations with other entrepreneurs. Below are the three key things you need to think about to be successful.
1. It’s never the right time. Talk to investors now.
There is a common pattern where people reach out and ask me questions and, when I like their business idea I offer to introduce them to some investors who may like it. “We aren’t ready for that,” they always say. This is mistake number one. You should always be building relationships with investors.
I know what most of these entrepreneurs are thinking. They are thinking that if they go to talk to somebody once they have a kick ass product and a bunch of users, the investors will be impressed and cut them a check. And maybe that will happen. But business isn’t about magic milestones, it’s about grinding it out through the good days and bad. So if you talk to an investor in the early early days, when they won’t fund you, and they see you make progress as you keep checking in every few months, that is so much more impressive.
Reach out to investors early and often. Tell them what you are going to do, then do it. That is the best way to get funded.
2. Ask for money.
I see way too many entrepreneurs dancing with investors waiting for the investors to make an offer. Don’t wait. If you think you are at a point where you need or want funding, ask directly. Don’t keep pitching without asking. If you don’t force investors to make a decision now, it is in their best interest to wait, so that is what they will do. I realize it’s scary because when you start asking you will get a bunch of NOs. But I guarantee you that almost every VC backed entrepreneur in the world has gotten way more NOs than YESs. Dozens of people have passed on Backupify. But what do I care? I found a few believers. That’s all that matters. If you are uncomfortable asking for money and being told NO, you are probably in the wrong business.
3. Don’t get hung up on valuation..
I see too many entrepreneurs who are concerned about their ownership percentage. Don’t be. Instead, be concerned about being easy to work with and providing a good return to your investors, and then you are backable again. Get a big win under your belt, and trust me, you can negotiate a much better premoney valuation next time around. For now, just get it done and get a win. Too many good ideas never make it because the entrepreneurs get offended by what they believe are lousy funding terms.
It’s never easy to raise money. It requires gumption, persistence, and hard work. Each time you get told NO, don’t look at it as a failure - look at it as a learning experience that puts you that much closer to a YES.