I recently wrote about the need for startup CEOs, especially first-timers, to have a coach or two to help them through the roller-coaster journey.
To continue this series, which is aimed at first-time startup CEOs (mostly in early stage companies), here are my retrospective thoughts on fund raising.
While first-timers may have done Marketing, Sales, Product Management or Engineering in another company, the fact that they are first-time entrepreneurs means that they probably haven’t raised money before. In many cases, the first touch with potential investors is an ‘Alice in Wonderland‘ experience. I too was a complete innocent(!) when I first went out to raise money.
Here are three key learnings from my experience in raising an angel and an institutional round:
- Avoid the ‘long tail’: In the early rounds, you will probably have many well wishers who want to invest in your dreams. While this is very humbling, you need to ensure that you don’t end up with an unwieldy number of investors. Not only will you end up with more administrative work to do as you move to subsequent rounds, but you also cannot avoid the multiple requests for one on one updates. (Sure, you can get all legal and invoke the ‘major investor’ clause about the right to information, but you are not going to do that, especially with folks with whom you have relationships that you value.) Dealing with a large number of investors can quickly become a time sink. Set a floor for the minimum amount of capital that you are willing to take from an investor and politely but firmly decline the others.
- Be thoughtful about the source: I know that the conventional wisdom is to ‘take the money when it is available‘. I beg to differ. I think it is extremely important to not just consider the quantity but also the quality of the money. For example, in my case, I was very careful to not take money from friends and family (unless they were already accredited investors) because I was just not comfortable with blurring the lines of the relationships I had with them. Similarly, watch out for money that comes in from professional investors who don’t have much of an idea about the space you are playing in. You may end up wasting a lot of time later dealing with distractions that you have precious little time for.
- Don’t sell your soul:Yes, fund raising is tough. When you are deep down in the midst of the chaos of trying to close your round, you may be tempted to agree to any condition that is laid out in exchange for dollars. But remember this: regardless of whether you make a multi-billion dollar exit in a few years or shut down the company next month, you have to live with yourself and look at the mirror often enough. Don’t give in to demands that you think are unreasonable. Try to negotiate and reason things out. But if you are unable to meet the potential investor at a conscience level that you are comfortable with, ‘just say no’!
I know that a lot of what I have written above must sound strange to many first-time CEOs, who have been feeding on the regular diet of fund-raising blogs out there. At the end of the day, the way you play out the fund-raising process has a lot to do with your personal characteristics – so, please take this article as a very personal set of suggestions. YMMV
I look forward to your thoughts or questions.
This article orginally appeared on LinkedIn