What we learned from raising money

After seven years we recently took on funding.

More accurately, after bootstrapping the firm, early last year things were going so well that my co-founder Janelle and I decided to (1) cut in a few folks who had been great supporters and would help us to grow the network, and (2) double-down on our success. And so we did a round.

Succinctly, the both of us spent most of the summer in 2017 handling this. It’s a strange and unscripted process that involves quite a bit of work. But there are a few principles to consider that helped us along the way.

There is plenty of money, so relax

Dismiss it as surviver bias, if you will. Or perhaps it was because we weren’t “pre-revenue” — a strategy that we were never able to afford. But as soon as we put out our feelers and asked industry friends for references, people came knocking. There is no scarcity in people looking to make great investments in companies like yours, especially if it demonstrably performs well. Yes, few of them were the right fit (see #2) but where I initially was worried about walking into an empty room, the real challenge in finding funding is locating the right counterpart in the crowd.

What really helped us was knowing who we are as a business, what we stand for, and what part of our efforts actually work. This helped narrow down the available suitors and sympathisers and get on with buildig the business. Just like investors have a particular company profile in mind when looking for investment targets, you can do the same.

Kiss all the frogs

What I want to tell you is that we stepped out there and immediately found the perfect money people. But that is not true. Instead we spend a lot of time with people who clearly wanted to know everything there was to know about us without ever having the intention of investing.

This is apparently very common as investors look to whippersnapper startups for competition or complementaries to their existing portfolio companies. The challenge here is that by asking for money (which is of course really what you’re doing when raising) you are expected to put yourself in a relatively vulnerable position. Most of us would be mortified to share revenue figures or any components of their secret sauce. Expect to do so.

Your willingness to put yourself out there is, in my experience, directly related to how much selling you’ve been doing up to that point. Provided you have a product and customers paying for it, you’ve been through the tough conversations, the turndowns, and the general brutality that is sales. Hopefully you’ve been able to let go of your ego along the way, which will come in handy when raising a round.

Enemies with benefits

This is a source of almost infinite advantages. Perhaps most importantly, no one wants to be with someone that no one wants to be with. Read that again. The primary purpose of your competition in the context of raising capital is to provide irrefutable proof that there is, in fact, a market/trend/shift that will lift your business higher. A few visible competitors are more valuable than the shiniest of pitch decks. Of course, they also help focus your offering, improve your margins, and all that good stuff. But most of all it means that you’re not operating in a vacuum and need that capital infusion to strengthen your competitive advantages and claim the market. So learn about what your competition’s offering looks like and why yours is better.

Learn to run the numbers

This is a common one, with a twist. Certainly, VCs will hammer you on specific metrics and financials. That is incredibly confrontational. Here I was thinking that my smile would win them over. Not so much. Instead, you’re asked to squeeze your company’s financial figures through a variety of specific filters. But even if some of these investors never talk to you again, their models and metrics can be extremely helpful for the future. For one, it helps you find soft spots in your efforts. There are lot of generic business metrics out there. But having an overview of something tailored to your company or segment may open up new insights.

More so, although your offering may be unique and revolutionary, the way companies operate is not. It’s very helpful to know how firms in your category are generally run and valued. Exposing yourself to these conversations is an education in itself and will help better rationalize your efforts. Because making sure that your organization and its planning are built on relatable principles is going to be critical as you grow.

Data room with a view

Now that you’ve built the initial data room for your investors, keep it going. Probably for the first time in the history of your firm you have all of your documents/agreements/contracts/numbers in the same place in an organized fashion. Once established, keep it current! You may want to raise again. In our case that means that since we now have the first seven years of documents sorted out properly, the next time we need this the due dilligence will be much smoother.

But wait there’s more. If down the road someone looks to acquire you it will pay back double. Having your sh!t together lowers the chances of any potential acquirer negotiating your valuation down during their due diligence.

Ask

This cannot be understated and I strongly recommend you ask questions for two reasons. First, you’re not expected to know everything and no one cares if you don’t. For all the romantic notions we may have about it, there really is no ‘entrepreneur school’. Like most other careers, you learn it by doing it. So approach it as a learning process. Have people explain how they value companies or what they look for in a legal diligence. Ask what could kill a potential deal. Knowing this will help you grow as a business owner and entrepreneur.

Second, when vetting different suiters, look for the ones willing to mentor you. Who’s taking your calls even if your company is much smaller than their usual target? During this process you’ll (hopefully) meet a lot of people and they make the difference. If you find during the initial stages of conversation that an investor is willing to spend time on you in helping understand their process and market view, that is an excellent sign. How they treat you on those first few dates says a lot about what happens once you’re in a more committed relationship.

Alright, that’s enough talk for now. There’s more to add here at a later date. For now, I’m happy to welcome Makers Fund into the family and SuperData is proud to become one of their portfolio companies.

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