Published by Carlos Espinal back in 2015, “The Fundraising Field Guide” helps early-stage tech startup founders decipher and navigate the fundraising process. The book provides an overview of the challenges founders face in their journey, from reaching out to investors to dealing with rejections, understanding valuations and deal terms or managing the legal process. Carlos kindly accepted our invitation to take the stage at How to Web Conference 2015 and share his personal experience of investing in 170+ companies at Seedcamp.
Seedcamp is a first round fund, investing their network, learning and capital to help founders scale their businesses. Over the past 8 years, they’ve backed close to 200 companies ending up with one unicorn and 350+ million USD raised by the alumni in follow-up funding. Seed investor & partner, Carlos leads the startups’ experience from the initial investment to the Seedcamp Academy and beyond. Last year, he pooled his experience into “The Fundraising Field Guide” to equip early-stage tech founders with the know-how they need to successfully raise money.
If you’re an early-stage startup founder looking for money, here are the key take-aways Carlos shared last November with the audience of How to Web Conference 2015, as well as some further resources you might want to take a look at.
Seeking institutional funding is not for everyone
Not every startup founder is designed to receive an investment from institutional investors, Carlos pointed out, and there’s nothing wrong with that. Add this to the fact that the odds are against you even if you are prepared to do so: you have a higher likelihood to climb mount Everest (80% failure rate), than to succeed with your startup (90% failure rate).
Your past experience and a great team matter
When you speak to an investor, it’s your past experience and the people you surround yourself with that make a difference. There is a lot of buzz on the importance of the team lately, but it’s crucial to actually understand what this means and what is your probability of success with your current co-founders.
Your context matters
With the odds working against you, the context you’re operating in has an important bearing over your future. On the mountain, it’s your body that makes the difference. With a startup, however, it’s not only the internal factors such as your team, but also the external ones: the country you’re in, the investment & support ecosystem, etc.
For example, it takes 50% longer to raise capital in Europe in comparison to the US, according to Max Kelly, Managing Director, Techstars London (if interested, you can explore the key findings of the Techstars report here). As a result, if you’re a startup based in Europe you’ll have to spend more time fundraising, talking with investors, perfecting your pitch, answering all the questions, etc. However, when you get over the hard part (early-stages), the US investors will also get interested!
Don’t go for underfunding
“You need a minimum amount of funding to survive. When you raise too little capital, it’s the same as trying to get to basecamp without enough food or oxygen. 29% of startups fail because they run out of cash. Shoot for 12 to 18 months of cash runway on your first round to make sure this does not happen.”, Carlos advises.
Pair up with an experienced advisor or investor
It’s important to find the right people to share the journey with (and this does not apply only to your co-founders, but to the investors as well). As an early-stage startup, you’re always in danger of raising money from the wrong crowd, which could end up with you having significant problem in the board.
“On the flipside, when you have an amazing investor (not necessarily the richest), he can open doors for you, facilitate introductions, give great feedback and considerably improve your likelihood of succeeding”, Carlos continues.
Get into the fundraising mindset
When you’ll start fundraising you’ll have lots of meetings with investors. Fundraising looks a lot like dating: some “dates” can be painful, some a lot of fun, all sorts of things can happen, some people are wacky, some will simply waste your time.
“The important thing here is to learn what you need to learn and go forward. One of our companies got rejected 86 times before raising money, so keep going on without being discouraged”, Carlos points out.
Run the whole thing like a process
Fundraising is an iterative process, and this is how you should regard it, from start to finish. It’s important to set milestones in terms of product development, hiring, how many people you’d like to talk with, or any other stuff that you consider relevant. You’ll then have to put them together and start working on the story that you’re going to pitch to investors.
Storytelling & FOMO
“Tell a story that creates FOMO (fear of missing out). You want your potential investors to think that they’ll miss an opportunity if they don’t support you. Tell a story on how people are going to be using your product. The power of a startup that hasn’t sold anything yet is to convince the investors that they are going to miss the next big thing”, Carlos said.
Create an investor pipeline
Once you’ve come up with the narrative, created everything you need (including your prototype) and polished your pitch to tell a compelling story, you have to proceed to creating an investor pipeline that includes all the people that are relevant to you and you’d like to connect with. Do your homework and find out everything you need to know before going out there to approach them!
Be keenly aware of your market
42% of the startups fail due to lack of market need. 19% fail because they’re out-competed. Make sure you have traction, you know your competitors and you have a strong differentiator.
Understand the fundraising cycles to make sure you don’t run out of cash
“The fundraising cycle excludes a couple of months of the year. If you didn’t raise money by July, you’ll probably have to wait until October. The same thing happens at the end of the year. Think about this as you have conversations and make sure to have enough money to give you air until you close the next round.”, Carlos adds.
Prepare yourself for the journey
Last but not least, you should prepare for the journey and make sure you’re ready to tackle the challenges that come along with it. Read books, blogs, term sheets: these will give you the right mindset and get you ready to adapt quickly and go forward.
Carlos Espinal recommended a couple of books that might come in handy to early-stage tech founders looking for money:
- Venture Deals: be smarter than your lawyer by Brad Feld & Jason Mendelson;
- Zero to One. Notes on Startups or how to build the future by Peter Thiel;
- The hard thing about hard things by Ben Horowitz
Interested to find out more? Then get “The Fundraising Field Guide” and take a look at Carlos’ talk from How to Web Conference 2015.