How to Fundraise for a Startup – Let’s Ask the Customer

Ladies and gentlemen, I would like to announce that Phil McSweeney , experienced angel investor and author of “AngelThink”, is guest starring on this week's edition of "Marketing with Meaning".

Why?

Because he’s about to break down how founders can attract investment. From the perspective of someone who actually invests. This is gold dust, everyone. Trust me.

Take it away, Phil!

Say you want to start a new venture.

You want to know how to market your product or service but you’ve never done it before.

Well, you’d think: “Ask a marketer!” wouldn’t you?

And what’s the most valuable thing they’re likely to tell you?

I hope it’d be:?

“Let’s ask customers what they want. Let’s find out if they want it.”

For a business to succeed you need a customer need.

Now, say you want to know how to fundraise for a startup, who would you ask?

Let’s assume you’ve got some answers about a customer need and market size, and now you need money to grow the business.

Here’s one of the biggest problems fundraising founders face – they don’t understand what investors want and how to give it to them.

(Often, they don’t even appreciate the need to understand this in the first place.)

You guys in marketing, you’ve probably seen more variations of a funnel than a shipbuilder.

Some funnels tack on loyalty and ambassadors etc. but let’s begin at the beginning.

What NOT to Do

Fundraising founders often try cold outreach.

It’s a ‘scattergun’ approach, trying to hit any angel investor that moves – though they often have an ideal angel investor in mind.

This ‘throwing an axe at a barn door’ method sometimes works, say 50 in 1000 investors open your email and 5 in 1000 want more information.?

It’s pretty wasteful, and you’ve probably burnt a lot of bridges on the way.

And what do you cold outreach with? The standard ‘problem-solution ’format pitchdeck?

Most founders don’t visualise angel investors as customers with their own desires or pain points.

That’s their first mistake.

Your business customers’ problems aren’t the same as an investor’s problems.

There’s no universal description of an angel investor.

Sometimes they’re active, sometimes they’re not.?

They might invest twice a year on average, and anywhere between ￡1000 and six figures.

Again, on average, investors will invest ￡10k-￡25k per deal to spread their risk.

What you’ll hear investors say often is that they want “great deal flow”.

At an early stage that means, more often than not…

→ a sizeable market opportunity

→ a sound GTM strategy

→ early revenue

→ good profit projections

Do you tick these boxes?

If you’re going to interest investors you’ve got to understand the WIIFM question (What’s In It For Me) and meet their needs at the time.

I think I’m uniquely qualified to give you some answers to that, as I’ve been an active angel for nearly 15 years.

I advise and mentor startup founders, and I’ve written a book called AngelThink that tells founders how to think like angels.

Let me share a few first principles.

Addressing the WIIFM Question

Consider this – why do you think angels invest at all?

I’ll spell it out:

ROI. Return On Investment.

Take all that ‘giving back’ and ‘paying it forward’ stuff with a pinch of salt.

Of course, I want to see new founders do well… but find me an investor who doesn’t want their money back and multiplied a few times.

Those people give to charities and become patrons.

And let me emphasise ‘return’ here – because return means exit.

Exit simply means finding a way to give an investor a profit on their investment, not necessarily through IPO, trade sale, or MBO.?

It could simply mean finding a way to buy them out, for example.

Investment = money in and money back, just like debt.

So after you’ve managed to convince an angel investor that you understand the obligation that goes with taking investment, what next?

I’d put getting them to trust you right up there.

No one gives a large sum of money to someone they don’t trust (I’ve never really understood political donations).

And here, several things come into play.

Trust stems from building a relationship, which comes from establishing rapport.

Rapport is built from common interests and points of connection – you both value X, you both support Y, you’re both mutual friends of Z.

Then you’ve got to address the WIIFM question, and that comes from knowing me, knowing what I’m looking for in an investment, knowing what I can offer as well as money.

Passive vs Active Angel Investors

Many angels are happy with what’s called ‘passive’ investment.

They want to be kept informed of how the business is progressing regularly and for that trust to be there that you’ll do that regardless.?

Others want to be much more ‘active’ – making connections for you, networking for you, advising, coaching, mentoring, possibly a formal NED position.

Some will be using you to leverage their own position in a relationship. If an investor is going to invest a decent sum of money in your business, you should make an effort to find out what they want from it.

I’d put ‘looking like a winner’ next.

• What can you tell me about your competitive advantage in your sector?
• What is your authority built on?
• Who do you know that’s going to be pulling
• strings for you or leading you to significant business?
• How confident are you?
• How courageous are you?
• How ‘crazy’ are you (to use Steve Jobs’ definition)?
• What is it about you that will make a team want to work for you?

Essentially –in the race you’re in – how will you get your nose in front of all the other contenders?

It goes without saying, don’t look like a loser – e.g. be arrogant, sound entitled, be needy, etc.

Lastly, let me mention risk.

You hear a lot about ‘de-risking’ an investment.

I want to remind people who say this that “this is angel-investing” – it doesn’t involve putting money under the mattress. We’re all thrill-seekers – and most angels probably prefer investing to bungee jumping.

You must, of course, know the risks and minimise what risks you can early – like not building a product there is no market for, not giving investors tax-relief opportunities, or not calculating how you’ll be profitable.

And don’t conflate ‘risk’ with being ‘risky’.

Not every business has to be game-changing, and even a so-called ‘boring’ business carries risk. Try to find the right balance between risk and excitement for investors and yourself.

Key Takeaway: Treat Investors as Customers

Ok – pulling that together – if you’re fundraising, treat angel investors as customers:

• Try to find the ones that will be interested in your sector.
• Begin relationship-building early.
• Try to build trust.
• Answer the WIIFM questions.
• Manage risk/excitement balance
• Look like a winner.

That will take you down to funnel towards conversion and, if you continue to manage the relationship right, you’ll create a loyal customer who may tell his or her angel friends about you.

Good luck!

That was Phil McSweeney , everyone!?

As mentioned, Phil is the author of “AngelThink: The Founder’s Guide to How Business Angels Think and How to Raise Money from Them”.

If you’d like more insights from him the book is available as a paperback and ebook on Amazon.

(with 60+ ????? reviews).

It really is a must-read for any business owner or aspiring entrepreneur. I can’t recommend it enough.

Enjoyed this newsletter?

Luckily for you guys, I want to help educate businesses about the principles that underpin “success” regularly.

Here are a few more newsletters you can check out:

• Q1 Marketing Budget Guide for 2024
• Omnichannel Marketing: Why Brand Building Is Expensive
• Sales & Marketing’s Best Kept Secret: The Flywheel

And finally, if anything has piqued your interest in this one, comment! Don’t be shy! Let me know what you think.

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Have a great day :)