A Fresh Look at an Old Article - Myths and Tips on Seed and Angel Round Fundraising

A Fresh Look at an Old Article - Myths and Tips on Seed and Angel Round Fundraising

• 2023-06-01 22:50:29

This time let's talk about something entrepreneurs care about most - fundraising.

When fundraising comes up, I imagine many entrepreneurs feel either a headache or excitement, because for a newly founded company the first round of funding is as important as a mother's milk to a newborn.

So how do you get funding? Enough talk - here comes the good stuff:

I am an entrepreneur myself and have raised two rounds of funding. Along the way I have also followed the fundraising of other startups, and I have found several common problems that prevent entrepreneurs from raising money:

1. Not writing a BP, or writing a wrong BP:

I won't say much about entrepreneurs who have no connections and don't write a business plan (BP) - they are bound to fail. Let me focus on the second problem: many entrepreneurs go fundraising with a wrong BP. What is a wrong BP?

• First, for a seed or angel round BP, never write it in Word! For the first round, your product is often not finalized and you don't have much customer data. A lengthy Word document of thousands of words full of data is something investors simply won't read; its only function is to move yourself - "I can still write such a long essay years after graduating." For an angel-round company without a mature product, the most important things are your team, your business logic and the size of your market - and these can be conveyed far more intuitively with a slide deck. Investors will spend at most 5-10 minutes on your BP before deciding whether they are interested, so what you need is to grab their attention within that limited time using visuals.
• Second, sending out a slide-deck BP directly is also a big mistake. In investors' eyes, sending a raw deck is unprofessional, and they may pass on your project without even opening it. Slide-format BPs can also have layout issues on some devices that make them hard to read. So be sure to convert it to PDF!
• Third, too much text per page, with tiny fonts. Too much text in a tiny font is no different from Word. What you should do is replace cumbersome text with intuitive visuals as much as possible - concise, simple and clear at a glance.
• Fourth, keep the total length of the BP within 12-16 pages. Actually 16 pages is already a bit much. Controlling the page count is about efficiency: the purpose of your BP is to tell investors simply and directly why they should pick you. A long-winded BP has no chance.
• Fifth, don't mass-mail the BP to many recipients at once. Investment managers won't even glance at a mass-mailed BP. In short, there is so much to say about BPs that if you're interested, let me know in the comments and I'll consider writing a dedicated article on BP writing techniques.

2. Looking for investors in the wrong places

I won't mention those who look for investment in chat groups. Let me talk about startup competitions and how to reach investment institutions.

• About startup competitions:

For entrepreneurs without investor connections early on, this is a great option. Don't worry about your idea being copied during a pitch. First, there aren't that many one-of-a-kind ideas in the world that belong to you alone. Second, those people have seen plenty of ideas; an investor's goal is to find a good idea and invest in it to earn a return, not to steal your idea and run it themselves - stealing your idea and doing it themselves costs them far more than simply investing in you, and they aren't stupid. So don't worry - boldly take part in some pitches. During a pitch, pay attention to the judges and the investors present, make eye contact, and you might just meet the right person. Be a little thick-skinned, too - you can go catch people afterward.

• About investment institutions:

Finding an email address online to submit to is the worst approach; getting even a rejection letter would be lucky. If you really want to reach an investment institution, the best way is to know someone yourself, or have a friend, or a friend of a friend, who knows them. For early-stage investment, investors mainly back people they know - whether that's someone you know or a friend who knows you. Why? Because early-stage investment, while often offering the highest returns, also carries the greatest risk; there is a high probability the invested company will eventually close. So at this stage what investors value is whether the team is reliable, and with people they know well they feel more at ease. As the old saying goes, a first-rate project given to a second-rate team likely won't succeed, but a first-rate team can often bring a second-rate project to a first-rate level. So when looking for investment institutions, always prefer those you or your friends know. Don't say you simply can't know any - that just means you won't use your head. Isn't there a theory that you can reach anyone in the world through a few connections? If you really want to find an investor and can put your pride aside, you will surely find one. Worst case, go to their office and wait by the elevator - investors will think you're bold and have guts.

3. Lying or being insincere when meeting investors

Honesty and sincerity are always the truth. The lies you tell now will require more lies to cover later, and when you can no longer cover them you'll make a fool of yourself and the problems will get worse - and investors aren't stupid either; they'll have you do due diligence. Lies are useless in the face of data, so be sincere. If investors know the problems, they might even help you - and if you have no problems, why are you raising money at all?

That's all for today - any longer and no one reads it. When I have time I'll expand on each major section separately. Comments and feedback are welcome.