3 Steps To Raising Capital the Delta Awesome Way
I’ve been helping companies raise Seed and Series A money for the better part of a decade. As a multi-time founder and angel investor, I’ve been on both sides of the equation (one even as a practicing lawyer, but I beg forgiveness for that misstep of youth).
In the 18 months, our Delta Awesome clients have raised an impressive $15M in Seed Stage startup capital. Before doing this as a function of startup advising, I helped dozens of companies with their seed rounds (and still do). Along the way, I’ve picked up some extremely helpful little tips, tricks, and dare I say “hacks” to capital raising.
But before I dive in, I want to begin by saying that there is no such thing as an easy raise in startup land. I have never — and I do mean never — experienced an easy startup raise. And sometimes “hard” doesn’t do it justice either. From time to time, raising money can feel simply impossible. In order to help you navigate this complex and challenging world, here are three tips that I always tell founders when it comes to raising money:
1. Know your audience.
While it may be easy to lump all investors into the same category, I’m here to tell you that all investors are not the same. In general, investors can fall into three different buckets: 1) Upside, 2) Downside, and 3) Team (more on these three below). Based on what type of investor they are, they think differently, they act differently, and they are motivated by different factors. Your job is to understand what type of investor you’re speaking to and work on highlighting or selling the unique facets of your company that will resonate most with the investor. Let’s explore each of these investor profiles:
Upside: you can think of an upside investor like a gambler. These are investors who like making big bets and are interested in the upside of the arrangement. They get really excited about unique opportunities to win big and want to feel confident that there will be a significant return on their capital, which they are counting on you to make happen. If you’re speaking with an upside investor, you’re selling the gamble. You’re selling the opportunity to win and have fun.
Downside: these are the investors who are constantly worried. They will be focused on all the ways that your investment isn’t going to work and how they are going to lose their capital. Downside investors are hard to win over, yet they often can provide valuable insights into how to make your company better by stress testing your offering. When you’re speaking with a downside investor, your job is to convince them that you and your team are capable and that there is a product, market fit.
Team: team investors are typically in it for the people. They want to build a relationship with you and your team and believe you will be a good steward of their capital. Even if you don’t solve this problem or get this product to market, they believe in your ability to produce something over time. When you’re speaking with a team investor, sell the dream. Speak to how great your team is and focus on building trust with them.
Regardless of which type of investor you’re speaking to, please know that they are always thinking about when they will get their money back and how much. You have to answer those questions in your pitch and be able to speak to them with confidence.
2. Always seek “network and advice”
Remember that investors are people too. In the same way that you wouldn't walk up to someone on the street and ask them for money, the same principal applies to investors. You need to take the time to get to know them. My suggestion here is to genuinely ask an investor for either introductions to their network and/or advice as the first step before you even think about asking for money. Create trust and build a relationship with the investor, during which time you can simply state that you are raising money without pitching them.
3. Be Prepared For Everything To Take Longer Than Expected
Data shows that it takes 6 months to raise capital, and we’ve seen it take as a long as 13 months. Acknowledge that early stage investors will want to spend time getting to know you and that the needed process of building trust takes time. After you’ve gotten investors to fall in love with you and gone through due diligence you’ll likely need to manage various VC or Angel politics, which inevitably delay the process even further. Regardless of how long you project you can close your raise, I’m here to tell you that it will take longer. So plan for that in advance as best as you can.
Hopefully with these three initial steps, you can start on your way to navigating the land of capital raising. Have questions or need support? We’re here to help.