Let’s talk about finding the first true-believer who will put money into your startup. There’s a killer Catch-22 about raising money in that you can’t get that first investor until you land that first investor. Having gone through the fundraising process over and over again, I can assure you it’s absolutely as convoluted as it sounds.
And having been an angel investor myself at one point (but no longer), I can also confirm that investing in startups — whether it’s private, angel, or venture capital — is rooted in herd mentality. No one wants to be first, then everyone wants to be next.
This is because the path to providing outsize returns on a startup investment is a unique path for each startup. There is no guaranteed 12-step program for turning early startup capital into a unicorn valuation. Thus, there is no tried-and-true method for finding early investors and securing that early capital.
But there are quite a few guidelines you should absolutely be following to increase your chances.
First, Ignore the Inbound Noise and Scams
Recently, I wrote a post about all the BS artists that will come out of the woodwork under the guise of funding your startup.
I can’t tell you how many experienced founders and generally smart people latch on to one of these types of fake funding programs. I don’t blame the founders. The smokescreens can be velvet and the lure can be crazy tempting, especially when there are no other options.
Gut Check: If you didn’t ask for the money, don’t take the money. You won’t see all the strings attached until those strings are wrapped around your wallet. Don’t derail the future before it begins.
Obviously, Be Great at What You Do
I know. Duh. But for the reasons I just laid out in the last section, I need to establish what “investable” means for readers who are not you.
Gut Check: To get that first investment, you not only need to have a great, game-changing idea, you also need proof of your potential to execute that idea to its fullest. If you can’t show you are indeed the best person to pull off what you want to pull off, you first need to make enough progress to be able to show that promise.
Talk About What You Do — a Lot
There’s no way to get that first term sheet from that investor friend of an acquaintance of a colleague of your friend without first starting that chain of events in motion. And while it’s certainly a romantic notion to found a stealth startup in a dorm room, garage, or Starbucks, stealth startups are for serial founders who don’t want to be hassled by their investor friends while they work on building something investable.
Gut Check: You need to be able to talk incessantly and intelligently about the business. If you’re not living and breathing your business, you’re not yet personally invested enough to seek outside investment. If you can’t talk about your startup without the fear of someone stealing your secret sauce, your sauce is not yet secret enough to be seeking outside investment.
Don’t Waste Time
When you do get in front of people, you need to speak with the intent of offering an investment. That means that you’re not picking anyone’s brain, you’re not looking for feedback, you’re not even asking for money. Yes, you’re doing all those things, but what you’re really doing is offering an investment in your company.
Gut Check: Put the investment opportunity up front in your pitch, your deck, and your general conversation. Too many first-time entrepreneurs waste time painting the picture before getting to the purpose. You’re going to wind up talking to a lot of people who can’t stroke a check. You need to make it immediately clear that your intention is to get to the person who can.
Come Prepared With a Plan
Once you reach the right person, you need to tell the right story. I often use this phrase I borrowed from The Dark Knight. Most first-time entrepreneurs chase their first investment like a dog chasing a car. They wouldn’t know what to do with it when they caught it.
Gut Check: Be able to show exactly how and when you will spend every penny of raised capital, and also the return you expect for every spend. That return should be quantifiable as a measurement of growth, whether in dollars, market share, or some other tangible metric.
Bonus: Have an Attorney and an Accountant
Even the kindest investor is going to want terms that maximize their investment at your expense. Make sure that you’re not alone in those negotiations. Begin a relationship with both an attorney and an accountant, preferably before you even start your investor search.