Fundraising is rarely easy and is usually a far underestimated undertaking by entrepreneurs that haven’t done it before. In the fundraising section of this blog, I describe ways of approaching the exercise (see related post titled “The Domino Effect of Fundraising“) and what to do if you don’t reach your goals (see related post titled “Stuck at 75% of your Fundraising Goal – Now What?”). But if you genuinely feel like your product idea and business model approach is sound, and have gotten validation of this via investor prospects and your Lean Startup validated learning approaches (order book here), you’ve got to turn your attention to other things that might be getting in your way of convincing investors to write a check. Below are a few on my short list to start with:
Do the founders have the relevant experience that the investors are looking for? Be truthful with yourself and think hard about any feedback you’ve gotten. If you’ve got meaningful experience gaps, hire advisors with that specific experience. It will cost you as little as 0.5% equity and possibly as much as 1-2% but if it fills the void and alleviates the investors’ concern, it might make the difference in allowing you to continue your journey. How about founder “funk”? Do the founders tag-team well during investor meetings or do they contradict each other or trip over each other?
What does the trajectory look like? Graph it. Is it an exponential curve or a straight line? If it’s a straight line, what is the slope of the line? What are your conversion rates (downloads to purchases)? If the investors aren’t impressed enough to write a check, what amount of sales traction would get them excited? Ask them. Demonstrable traction often trumps just about everything else when it comes to investor objections and concerns.
Is your market big enough? Is it trending and sexy from an investor’s perspective? Is your specific niche in the market already crowded?
If you’re using convertible debt, the obvious things to evaluate are the conversion discount and the valuation cap (see related post titled “Convertible Note Basics“). Of these, the valuation cap is the one that most often trips up entrepreneurs when asked to justify (see related post titled “Justifying the Cap in Your Convertible Note“). If you’re raising an equity round, then valuation is everything. If you’ve already had some investors write checks using your originally proposed terms and later realize your terms are getting in the way of closing the round, you’ve got a challenge. Seek advice from your advisors and attorneys to understand your options.
See my related blog post titled “Getting Closure with an Interested Investor“ for more details, but it’s possible you just aren’t good at closing the interested investors. Seasoned sales people have lots of techniques for moving a prospect to closure. You need to do the same with your investor prospects.
Are people in the local startup circles talking favorably about your company and your opportunity? How about the trade press? Social media pundits? If you aren’t getting buzz while you’re in fundraising mode, spend some time thinking about how to influence.
The bottom line is that if investors aren’t writing checks, you’ve got to be brutally honest with yourself and need to get to the bottom of the issue(s) so that you can take appropriate action.