This post is directed at you, an entrepreneur who is looking for funding for his startup. We always talk about business model, sales, sales and sales, added value, pain & gain… but sometimes I discover you are absent minded, and when I see you I know that you are sick of funding. Related to this topic I have seen almost everything, (you are not alone), including buying lottery tickets, advancing the legacy of his grandfather, and gaming at the casino. No kidding!

Let’s see if I can provide some useful advice. Last Saturday I read a paper from Paul Graham, one of the Y-Combinator co-founders, where he gave an overall advice about fundraising. He said:

“My overall advice is not to make fundraising too complicated…Avoid investors till you decide to raise money, and then when you do, talk to them all in parallel, prioritized by expected value, and accept offers greedily… Don’t introduce complicated optimizations, and don’t let investors introduce complications either”

I’m going to be provocative, and I know that it will not be easy to listen to me: stop talking about funding. Funding is a mean, not an end. Recently, I remember how a promising and intelligent entrepreneur, (someone who could be like you, with a scalable and profitable product that allegedly allowed recurring revenues), presented a product of e-Health in a forum. Vanity was pouring out of their pores when he said that they had covered a first round of funding in less time than expected, gave the names of the investors, and said he had… a queue of people waiting for. But he spoke little of its product, its channel and its first sales (which by the way, did not exist).

Yes, we need to fund the startup, but, my friend, when we’re on stage of financing. Then fund and go!, but meanwhile do not leave the only sustainable way (and the one will allow you get funding), value creation for customers.

You will always find a reason to find an exception to these rules, but my advice is that you apply them strictly (Yes, I know that you will do what you want, so you have your creature-startup ;)). It is the best guide I know and which, I insist, I would recommend you to keep. Today we will start with the first 10:

  • 1. Don’t raise money unless you want it and it wants you. Otherwise you’ll waste your time or you will be burnt
  • 2. Be in fundraising mode or not. It is digital, not analogic. It is impossible to devote resources to funding ab und zu because it is terribly distracting
  • 3. Get introductions to investors before you talk to them, either from a well-known investor who has just invested in you or from a founder of a company they have funded
  • 4. Hear no till you hear yes.. Be careful (your passion can betray you), and do not mix facts and wishes. Attend the meeting with a pessimist, who does not speak, but listen, and two days later ask him what does he think. Just remember that some investors will never say NO, because they will try to gain time to join the investor pool when another does say yes…
  • 5. You should always talk to investors in parallel rather than serially, (you will earn time and pass them some pressure), but giving priority to the most promising according to expected value:

    Expected Value = How likely an investor is to say yes, multiplied by how good it would be if they did

  • 6. Know where you stand Never leave a meeting with an investor without asking what happens next, and if investors are vague, assume the worst
  • 7.Get the first commitment (money from FFF’s doesn’t count), because this will be half the total difficulty of fundraising
  • 8. Close commited money because it is not a deal until the money is in the bank. This is VERY IMPORTANT. Although you have been told a hundred times, believe me, one more: it is not a deal until the money is in the bank
  • 9. Avoid investors who don’t lead. Saying that they want to investí but that they do not lead could be translated to “they will not invest if you do not turn out to be a hot deal”, the default opinion of any investor, and so equivalent to telling nothing.
  • 10. Have múltiple plans, and I know this sounds weird, but wouldn’t it be weird to ask a buyer how much is he going to buy in a store? It depends on what he finds, right?. Therefore why do not design different scenarios of funding instead of one? It is quite reasonable, isn’t it? So…

Tell me, how many exceptions have you made to these ten first rules..? 😉