Trying to find financing for your startup can easily turn into a full-time job. From building a network of investors to connecting with other founders, financing is at the heart of any business's success, but it can turn into a serious time commitment.
However, by working with the right investors and taking the time to be purposeful in your pitch, you can take important steps toward funding your company. Make no mistake; it will be difficult, but by being precise in your search, you can position yourself for success.
"What I find is when people get lots and lots of rejection and little progress, oftentimes they're just talking to the wrong investors," said Mike Kisch, founder and CEO of sleep technology company Beddr. "If they had a better sense as to who the right investor was, they'd see their success rate go up fairly dramatically."
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The key to obtaining funding as a startup is the "warm introduction," according to Casey Berman, managing director of VC firm Camber Creek. Berman said startup founders can look to their immediate network to try and find opportunities. While this includes obvious connections – like friends and family or other startup owners – it's also important to consider professional services your company is using. If, for example, you work with a legal consultant or PR company, they may be able to help you find funding, he said.
The key, said Berman, is to partner with companies, whether it's an investment firm or a payroll processing service, that provide added value to your business.
"The warm introduction goes a lot further than really any other potential avenue," he said. "Any professionals that are surrounding the company should absolutely be the first stop and the first location a company goes to try to have access to venture capital and a warm introduction."
This is how startups can differentiate themselves from their peers. Building a network of individuals that help pull your company up is the best way to give your business the support it needs.
How to target a VC
Most startups begin with early seed funding from friends and family, angel investors or accelerators. If you're already through this step and are looking for longer-term funding, it's important to approach venture capitalist firms the right way. Kisch said it's crucial to find the right investor for the stage your business is in. There are thousands of VC firms out there, so think critically about your business and which investors make the most sense.
"Finding the right investor who is the right stage of where your company is, but also has some exposure to the environment that you're going to be in, I think that's the best way that you're going to have a productive relationship," he said.
Once you've developed a shortlist of VCs that invest in your space and can provide the level of guidance and added value you're looking for, it's time to set up a formal process. Once you have your list together, Berman recommends spending one to two weeks trying to make that initial contact with the company. Once you've made contact, keep the company up-to-date on business developments and quarterly information that is relevant to that investor. This ongoing conversation can help you build relationships with investors. When it's time to raise funding, you'll have to pitch the VC firms you've been in constant communication with.
"The CEO really needs to commit to raising money and doing what's called a road show to get in front of a large number of venture funds to find the right partner," Berman said.
Berman said the whole process, from initial meetings to closing a deal, can take anywhere from 60 to 90 days, or even longer, so make sure you plan accordingly. Berman also recommended looking for funding well before your business will need it.
How to stay motivated
One of the biggest variables throughout this process is motivation. As a startup, rejection comes as part of the journey. Staying motivated during trying times can be difficult, but it will be the backbone of your business's success. Kisch has been through five rounds of funding with various startups he's worked for. He said he has tried to maintain low expectations so consistent rejection doesn't mount into an idea of failure. In his mind, it's not failure, it's just a part of the process.
"If someone says no I just think, 'That's cool, I guess I'm just one step closer to a yes,'" he said.
The other takeaway from rejection is how you adapt and respond. Kisch said that a stream of critical feedback will allow you to better your product and hone your pitching skills.
He said a good way to think about it is you're not getting rejected because your idea or product is bad, it's because it can be minorly improved or you haven't developed the skills to pitch it in the most effective way. This keeps the responsibility in your hands without adding earth-shattering pressure. Everything is a work in progress, and even today's most successful companies had to deal with crushing challenges at one point.
"Raising money from people is a very difficult thing," he said. "You just have to sort of roll with it and be aware that there [were] a lot of companies that were initially rejected that became generation-defining companies."