Fundraising Made Easy
If you are building something big, you need to raise funds, and these approaches should help
No one builds a company to fundraise. It takes you away from the problems/work you love and opens you up to countless rejections. At the same time, it’s necessary, and luckily, it can be optimized like anything else in life. The below approaches should make your next fundraising round significantly easier.
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Every step below should give you an edge in your next fundraise. Remember to start each of these earlier than you think.
Meet with someone who has done it before and repeat this until YOU feel like you’ve done it before
Some people already know what you are about to do, and it’s worth learning from their mistakes instead of making them yourself. MrBeast has a great internal memo to employees that references explicitly how meeting with people with experience is a cheat code. Whatever you think of MrBeast, he has arguably built one of the largest businesses globally in a few years (almost no one reaches that many people, and his revenues eclipse most public companies), so the advice is worth repeating. We’ve included it directly below.
Consultants are literally cheat codes. Need to make the world's largest slice of cake? Start off by calling the person who made the previous world's largest slice of cake lol. He's already done countless tests and can save you weeks worth of work. I really want to drill this point home because I'm a massive believer in consultants. Because I've spent almost a decade of my life hyper obsessing over youtube, I can show a brand new creator how to go from 100 subscribers to 10,000 in a month. On their own it would take them years to do it. Consults are a gift from god, please take advantage of them. In every single freakin task assigned to you, always always always ask yourself first if you can find a consultant to help you. This is so important that I am demanding you repeat this three times in your head “I will always check for consultants when I’m assigned a task.”
Thousands of people have already raised money, and they know what metrics were useful, what firms wasted their time, and how long it took. Not knowing any of those things could be the end of your company so why not reach out.
There are several other benefits to this approach. The first is that you avoid simple mistakes, and when you meet investors, they can tell you are more comfortable as if you know how the process goes (which you do because you chatted with a dozen people who have done it already). “Preparing to raise” is also a much better life than actually raising because you can ask for help from a position of leverage and the names you ask may make the intros/suggestions that lead to a successful raise.
Start this process early. The alternative is you suddenly ask someone for help because your raise isn’t going well and has no momentum, making it tougher for the person to help, sounding scrambled, and wasting your contacts/friend/consultant’s time.
Keep the timeline in mind from day 1
The fundraising timeline shouldn’t surprise you, but there are some essential things to consider below.
Firstly, you don’t want to be trying to close your raise when you only have a few months of runway left. If your runway looks like it surprised you, investors will wonder what else about the business will surprise you.
If it takes several months to finish a raise, from start to finish, you likely want to start those conversations at least a year out. You will want to begin the earlier steps in the newsletter, even before that. There is no leverage if you are about to run out of money, and no matter how good the business is, this will hurt you.
Secondly, there are things you can do today, outlined below, to position yourself to have the most leverage possible.
Investigate venture debt opportunities and make sure you have some available. You never have to draw on the financing, but simply having it available allows you to extend your runway at a time of your choosing, providing support.
Try to make sure the members of your cap table, as you add them, have the flexibility and conviction to support future rounds. For example, if you have an investor who never does additional rounds, understand that when you raise again, you won’t be able to say, “Our main investor is happy to support the story if we don’t find terms that work.” This is something to think about from the very early days of your company.
Have flexibility in your contracts to pull dollars forward. i.e., “Some clients are happy to pay upfront if they get a discount, which lets us control our fundraising schedule.” This ability to move working capital is generally helpful to you and your customers and reduces timing risks around your fundraise.
Fundraising is not easy, but having the timeline surprise you is an unforced error that has led to several good cleantech companies failing this cycle.
Build a list of target investors early
You can use this list to tell your network who you want to meet. Friends, family, colleagues, mentors, and past clients may naturally connect you with investors, especially those interested in your field.
Make sure to remember strategic investors. There are often strategic partners that want you to succeed and accelerate. Consider your big clients (maybe you provide a solution they want to use at their sites) and check if they have investment teams. Many significant energy and industrial companies added investment arms for this exact reason. If your tech is good, they are aligned to accelerate it; they may even make additional intros themselves.
See who has funded similar companies. This can provide a manageable list of investors to test the thesis. If you need help, we keep a database and can pull out the companies that best fit you.
Get in front of investors without the pressure of fundraising
Attend industry events and conferences to a limit. Industry events, investor conferences, and pitch competitions attract like-minded investors actively seeking opportunities. Attend these with a clear pitch and a plan for networking. A good number of pitch competitions are a waste in terms of sourcing dollars but don’t underestimate them for practicing and showing a confident story to others in the room who may be a fit.
Join entrepreneur and startup groups. Entrepreneurial groups, incubators, and accelerators help you connect with investors who are keen on discovering early-stage startups. Participating in these can build relationships and provide a solid referral pathway.
The counter to the above is that events, conferences, and groups can feel like you are accomplishing things, and fill up your calendar, and it’s easy to get away from the real work of building.
Content is also underestimated (LinkedIn, for example) when developing a voice/story in front of investors at scale. It shortens the pitch cycle as names are already aware of some of the basics of the story, and then when you do raise, you can now get into what truly makes you unique.
We have never been to the conference shown here and hope the cars depicted are on display and not driving.
Understand the story you are telling and start working towards it today
You probably already know what metrics your investors care about (Annual Recurring Revenue (ARR), growth rate, gross margins, retention, CAC, etc.). Your capital efficiency is critical in the early days. As you think about these metrics, you must be 1) already monitoring them daily and 2) have a path so that they increase as you talk to investors. Execution is never more important than when you are in these conversations and investors rightly get worried if metrics are declining at the same time they are supposed to be interested in the story.
The last metric we find cleantech investors sometimes struggle with is emissions impact. Suppose you have a technology that reduces emissions and have trouble explaining the specific amount/impact to an investor; then how on Earth will that investor believe you can also clarify that cleanly to a client? It must be measured, defendable (typically third-party), and transparent. Make sure to apply economics to it as well. i.e., “this reduces your emissions by x, which reduces your regulatory bill. This reduces emissions, which is helpful for funds flow from these ETFs”. Walk the investor through the same reason that clients are buying and why it’s so much better than the status quo. Consider how Arbor quantifies emissions for names if any of this is unfamiliar. The incremental value needs to be clear and defensible. This is true for any business. Why is what you are doing so much better for the customer or the world?
Match timescales
Why are you raising the amount? How far will it get you? Is that materially different than where you are today? What is derisked for the next raise that is different? The worst response to some of these questions is, “Well, it depends on how much you will give me.” That’s a somewhat fair response, but it gives investors zero comfort that the business will be worth more when you want to raise again or that the ask is even connected with the dollars required.
This is one of the items that fully stalls cleantech companies and many companies. The steps towards their mission are not broken out and clear. They sometimes focus only on the significant steps that don’t connect with investor timescales (imagine they want to return something in seven to ten years). Will the pilot be complete? Why is the next pilot different? What partnerships will be done? Etc. Will part of the business be profitable? Will scale change the unit economics? Saying something like “We will sign even more partnerships by then” is very scary if the company doesn’t make money now and you are just committing to do more of the same faster; it sounds like you will run out of money. Showing incremental demand (new types of clients that you can now access that are more profitable) is a natural way to improve things.
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