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As an entrepreneur who started up companies in Miami before it was a tech darling, the odds of getting funding were against me. Yet my teams and I were able to get it done — and you can, too.
Before I share what has worked for me, it’s important to acknowledge that the odds are stacked against you. My principal advice is to leave nothing to chance as opportunity favors the prepared mind.
Data can intimidate or inspire.
In an analysis of PitchBook data, Techstars’ Ian Hathaway determined that 28% of venture capital (VC) firms are in the Bay Area and 42% of portfolio companies have their HQs there. That heavy concentration is also in New York City and Boston, where 23% of VC firms are based and 21% of portfolio companies are headquartered.
To emphasize how little things have changed over the past several years, Ross Baird’s 2017 book The Innovation Blindspot presented similar findings. He wrote more than three-quarters of U.S. VC funding went to startups in three states: California, New York, and Massachusetts.
Beyond these geographic barriers, there are matters of education you’ll have to overcome. A few years back, Harvard Business School’s Alison Wood Brooks discovered that Stanford, Harvard, Berkeley, MIT, NYU, and Penn grads received 10% of all the world’s startup financing. This is likely because investors are graduates of these schools as well.
Mathematically, if you aren’t a top-tier university graduate living in California, New York, or Massachusetts, your chances of securing investment aren’t great. It’s not impossible though, as my own experience proves. To help you achieve your goals, I’m sharing four strategies that were instrumental to getting my companies funded.
1. Participate in incubators and accelerators
In 2011 my second company participated in IBM’s Smart Camp, which was a free program at the time. At the camp, my team had access to advisors, investors, and business mentors from IBM. Participating illuminated some key focus areas for us and allowed us to successfully upend an industry that’s resistant to change. The exposure we received from winning the competition made it easier to raise a $20M Series A.
Money aside, the Smart Camp experience taught me there was so much I could learn from others. That’s why a few years into running my third and current company, I went through the Techstars Austin accelerator program. Outside of the mentorship Techstars offered, it gave me access to one of the top entrepreneurial networks in the world.
If you’re unable to participate in these types of programs, the wisdom you’ll need to build a successful company is also accessible to you on the Internet. If it isn’t available in a blog post somewhere, you can likely find it by connecting with the right person on LinkedIn. Silicon Valley-based Y-Combinator, which has done an extraordinary job of driving success for its cohort companies, has even democratized access to their best practices through its free Startup School and Startup Library.
2. Raise money in your backyard
When I started each of my companies, my general philosophy was that I would tap early-stage money in my community and then achieve enough success to eventually secure funds on the West Coast.
I got started by asking friends, family, and business contacts for investment and introductions to other investors. I secured enough to begin work and kept raising more as needed. I also worked hard to cultivate relationships with high-net-worth individuals in my area.
Sophisticated early-stage investors tend to invest close to their homes, so they can easily capture significant deal flow, remain close to their portfolio companies, and help them become successful. You see this most in Silicon Valley, but it can happen anywhere. That’s why you should get to know local investors first.
3. Be ready for investor discussions
No one wants to invest in a founder who “thinks” they can get it done. Early investors buy into you and your vision. As much as they like you, they like their money more. You must convince them an investment in you will multiply many times over. A big part of this is preparation.
For any company I’ve started, I’ve never spoken with investors until I had:
- A solid company name and URL
- Proper company formation and resulting documents, put together by attorneys with startup experience
- A comprehensive pitch deck I was proud of (having different forms of this can be helpful, including a one- or two-page teaser)
- A well-constructed financial model that includes the relevant metrics an investor is seeking
- Investment documents with defined terms
- A great brand design integrated into my pitch deck and product
- A basic, but professional-looking website
You’ll want everything “locked and loaded” so the time between the initial investor conversation and closing is minimized. “Time kills all deals,” as the adage goes, and it’s never been more true than in early-stage investing.
4. Don’t under-pitch
Raising money outside the Valley requires a relentless appetite for talking with investors. Even when you’re dejected, even when you don’t need the money.
Many entrepreneurs only talk to five investors — and if you’re doing the same, you’re making a mistake. I give this advice to every founder who asks, yet most of the time they think they can speak with 3-5 investors and get all of the money they need. They’ll then waste months in discussions and diligence only to receive a “no” or be ignored.
It’s a fact: You’re going to hear “no” way more than “yes.” Securing investment is like a sales process. As a salesperson, you can never rely on a single deal closing before the end of the quarter. Cultivating and managing a healthy pipeline is what winners do. That’s why I recommend you use an investor CRM to help you keep things organized, even if it’s a simple Google Sheet.
I’ve probably pitched each of my companies 500 times. It’s an exhausting and emotionally challenging process because you deal with a lot of rejection. What I’ve learned though is oftentimes that rejection has little to do with me — or the value of my venture — but it’s instead tied to personal reasons the investor has for passing on the deal. Each conversation offers you an opportunity to learn, so modify your pitch and keep going.
Believe in yourself — and what you’re doing
As the data shows, VCs aren’t betting on those outside of California, New York, or Massachusetts. I knew I’d have to work twice as hard just to get noticed. If you know of a weakness in your story, work to fill it and have strong objection-handling responses ready. Investors want a startup founder who can see around corners, not be surprised when bad things happen.
With the proper motivation — and lots of preparation — you can overcome almost any obstacle. The first time I tried to start a company I largely worked without a net. I had quit my job in the wake of the dot-com bust and had a wife, a mortgage, and four young kids. Failure was not an option. But because I worked both harder and smarter, I was able to raise enough money to catalyze our growth, pay salaries and eventually sell the company.