San Diego Startup Week: 4 Tips for Raising Seed-Stage Capital
In 2013, our team embarked on fundraising efforts for TapHunter, a San Diego-based Internet startup. Our Web-based software helps bars, restaurants, bottle shops, tasting rooms, and breweries operate more efficiently and our mobile app helps consumers find their favorite craft beer, spirits, and cocktails.
After launching our business-to-business tools in 2012, we spent last summer driving our key metrics, including month-over-month revenue, and in October I hit the road.
By January 2014, just three months later, we had successfully raised enough money to expand our operations by hiring five new employees and invest in marketing, putting our business in the best possible position to achieve sustained growth. Our round was led by a seed stage fund based in San Francisco. The remaining investments came from San Diego angels.
Financing is key to the viability of any company, but even the most successful entrepreneurs will tell you there is no easy path to raising money for your startup. And while there’s no getting around the hard work and pure hustle required to secure investors, these four tips will get you off and running in the right direction:
—Prove your worth with metrics
Before you make your first call, make sure you can show product-to-market fit. This is often referred to as “traction.” It’s one of the first questions prospective investors will ask. Month-over-month revenue growth is a great way to illustrate demand. Likewise, pay attention to such metrics as market size, lifetime value, customer acquisition costs, growth, and burn. Each of these serves as a benchmark for growth, and all prove your company’s value to investors. You must have a proven operating plan and be prepared to show it to anyone before you can you expect them to open their wallet for you. If you don’t know the answers, find them.
—Look in your own backyard
Once you’ve prepared your financials and spent hours making seemingly innumerable versions of your investor deck, it’s time to build your target investor list. Before you book that trip to Silicon Valley, be sure to look where you live. There are investors in your city and don’t let anyone tell you otherwise. In 2005, CNN Money reported that San Diego had 100,030 millionaire households. That’s the fifth-highest among US counties. Number six? Santa Clara County. That’s right; Taphunter’s hometown of San Diego has more millionaire households than the heart of Silicon Valley. There might not be flocks of venture capital firms actively courting your company, but there’s money in your city and it’s your job to go find it. Pound the pavement.
—Learn from “No”
If someone says “no,” don’t view it as rejection. View it as an opportunity to learn and do better next time. Make sure you know why the answer was no. Be prepared to hear “no,” and keep track of how many investors decline. Don’t even think about calling it quits until you get turned down at least 50 times. Most importantly, learn to identify actionable changes you can make to turn a reasonable number of those to “yes.” Often, entrepreneurs seeking funding spend so much time explaining what the investor can do for the company that they leave out what the company can do for the investor.
—Network like your life depends on it
The most effective way to land a meeting with an investor is to get an introduction from an entrepreneur they trust. I can’t stress this enough. Maintaining a wide network of professional relationships is your best bet to match your company with the right investor or VC firm. If you’re in a budding startup city where VCs aren’t standing in line at Starbucks, ask yourself what you can do to bring them to you. Get involved in startup initiatives in your city and plan events that will attract potential investors. You may even make direct connections in the process. I met three of TapHunter’s investors at conferences and local startup community events. If you’re based in Southern California, San Diego Startup Week is a great place to start.
Raising capital can be intimidating, but if you put in the legwork and focus your energy by using the tips above, you’ll be in the best position to secure investors.
Now get out there and hustle.