Your Tech Startup Is Probably Not Ready to Raise Money

Opinion

I know, I don’t even know you.

Here’s the thing. Let’s say Melanie is an early-stage investor. If she placed a bet blindly for every startup that thinks they’re ready to raise, her chips would fall on the “not ready to raise” words written in fancy script on the soft green felt of the betting table. And she’d win. A lot.

My goal here isn’t to blindly tell you you’re not ready, but to help you figure out if you are (as quickly and painlessly as possible). You see, I thought I was ready to raise money for my last company. Three times.

Raising money takes 110% of your time, and it might take you 2-3 months to wrap up. This is time you can’t spend on your company. If you’re raising when you’re not ready, you might also tarnish your reputation or your company’s by not being self-aware enough to realize you shouldn’t be trying. Not to mention, even for a startup founder with the thickest of skins, it can take a toll on your motivation and ego.

Thankfully, I didn’t actually try to raise money the first two times, so I didn’t waste a lot of time, hurt my reputation, nor bruise my ego. Yet, I still managed to figure out pretty quickly if I was ready or not. There are some subtle tricks to tip-toeing into the capital-raising waters without getting the waders out.

Do you have a network of VCs and angels you’re already talking to?

No? You’re not ready.

Understand this: Early-stage investors aren’t investing in your idea. They’re not investing in your (lack of) traction. They’re investing in you. Plain and simple. Why? Whether they’ll admit it or not, you and your team are the only thing they can get a really good feel for. And more importantly, your idea is probably as wrong as your financial model (yes, we all know that’s wrong too). Whatever you’re pitching now has flaws. Likely some pretty serious ones. The question is, are you and your team the ones that are going to be able to figure it out and make this company work? That is what they’re betting heavily on at this stage.

Knowing this, do you think they’re going to hand over cash on the first, second, third, or even fourth date? Would you get married in four dates? Of course not. Much like finding a co-founder, finding an investor is similar to getting married. There is a dating process.

“If you ask for money you’ll get advice, if you ask for advice you might some day actually get some money.”
—Everybody

So why haven’t you started meeting investors yet? You should be dating now, when you’re not actually raising money. Haven’t we all heard this quote by now?

You should be out there, talking, getting advice, and letting people know what’s going on with you and your company. You should be adding these kind folks to a list that you update with your progress every month (or more frequently to really impress). Tell them what you’re going to do in the next month. Then do it, and tell them what you’re going to do next. Then do that. Repeat this enough and, voila, you’re building a relationship. You’re dating. You and your potential investors are getting to know each other, and they’re learning that you are a hell of an executor. You get things done. You figure things out.

At some point along that journey, raising money is going to come up (and you might not have to be the one to bring it up!). They’ll already know you and be comfortable with you, so you can skip that part and get right to the meat of raising money with a friendly investor that’s already on your side.

The takeaway: Leverage these relationships, through advice and conversation, to get a feel for whether or not you’re actually ready to raise money. Best-case scenario, when they start bringing up the topic you know you’re getting close. … Next Page »

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Al’s been involved with San Diego startups, including founding two of his own, since 1999 after leaving the Detroit auto industry as an electrical engineer. He is currently vice president of product strategy at Seismic. Follow @ALBsharah

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