The days of getting investment with no more than an idea on a napkin are virtually gone. Shows like Shark Tank have glamorized the fundraising process, which has led to an excess of deal flow. Essentially, there are more companies looking for funding than there is funding available.
If you’ve already attempted to raise money, you have likely discovered that fundraising for an early stage company is sort of a catch-22. Investors want to see traction before they are willing to take a chance on your business, but you need their investment to reach those traction points. Convincing an investor to take a chance on your company before you’ve reached those key performance metrics can be very challenging. However, overcoming the adversity of consistent failure is the humble secret to raising capital.
What if you are doing everything according to the book, but still not seeing the result that you were expecting? The key ingredient that you are likely missing is consistency. Fundraising can take quite a toll on your ego, but overcoming the adversity of hearing no is necessary if you want to reach your goals.
There are countless stories of founders that struck out time and time again but pulled themselves back up by the bootstraps, and eventually, their efforts paid hefty dividends.
For example, Kathryn Minshew of The Muse overcame the adversity of 148 rejections when seeking capital, but went on to raise nearly $30 million from over 20 investors.
Pandora cofounder Tim Westergren struck out approximately 300 times before finally securing funding. In 2019, SiriusXM acquired Pandora in a $3.5 billion acquisition deal.
Some people believe the secret to raising capital is having a fancy pitch deck or being an expert negotiator. However, if you’re truly committed to raising capital for your startup, then you’d better be prepared to learn how to overcome adversity because you are very likely facing a daunting journey ahead.
According to Jason Humble, CEO of Humble Capital Consulting, founders shouldn’t aim to avoid adversity. Instead, they should attempt to embrace it. Learning from your adversity is the secret ingredient to raising capital. Humble speaks from experience: He faced adversity at an early age when he and his siblings were thrust into the foster care system.
So how does the founder of a startup overcome the adversity of raising capital? Here are some key takeaways to help you accomplish your goals.
1. Develop a minimum viable product (MVP) and sell it.
In our modern tech era, many startup founders believe they can craft an amazing solution on paper and then find an investor who will excitedly write a check to fund the development. Of course, there are media stories that will hype these rare deals, but in reality, this is like winning the lottery: There are very few winners and lots of losers.
Instead, savvy investors typically look to invest in exciting new tech solutions where the founders prove they can overcome the adversity of bootstrapping the development of a minimum viable product. An even better scenario is when the company has a proven concept that is generating results, such as sales, users, members or even traffic.
According to this infographic by CB Insights, the No. 1 reason startups fail is there is no true market need for the product or service being offered. Can you guess what the second reason might be? The founders ran out of cash.
2. Develop strategic relationships and a network before you need the funds.
One of the biggest mistakes I see founders make is they get so focused on developing an MVP that they neglect to develop the network that will be required to effectively raise capital.
It may take you dozens, or even hundreds, of pitches before you find investors who are willing to part with their capital to an unknown startup.
That’s why it is critical for founders to consistently network, create new potential partnerships and connect with investors. If you delay the development of strategic relationships, you will lose valuable time to your competition, so this means smart founders will have to balance time between product development and investor relations.
Instead of pitching investors directly in the beginning, invite them to follow your journey if they are interested in your concept. As you develop and grow your startup’s product, you also develop and grow relationships with your potential investors.
3. Learn from your mistakes so you can continue to evolve.
The reality when it comes to raising capital is that you will fail more than you’ll succeed. However, don’t view your attempts as failures; view them as practice for your upcoming victory. You only fail if you choose to quit. Instead, evaluate your past opportunities to learn from your mistakes. Many times, those potential investors provide valuable insights on how you can improve your presentation for the next investors.
A few years back, I took a chance as an investor on a startup with an incredible growth trajectory. Unfortunately, in late 2019, it was determined that the founder of the company was using investor money in a potentially illegal manner. They are now under SEC scrutiny, and the founder is facing federal prosecution. We all make mistakes, including me, and it’s important to let go, forgive ourselves and move on. Dwelling on the past steals energy from focusing on future successes.
All it takes is a few wins to raise the capital you need to grow and succeed. Remember, the earlier you learn to overcome adversity, the faster you’ll be able to scale your startup to stardom.