I meet founders regularly that have “bootstrapped” their startup, meaning they’ve built it with their own funds and sometimes money from “friends and family,” who have experienced a measure of success, and are wondering if they should pursue outside capital for further growth.
“If other businesses are raising outside capital successfully, shouldn’t I be?” they ask.
At the same time, the media loves writing stories about founders that get funded. They emphasize the stories where investors are betting that a good person can take a good idea and make it into a good business. These stories rarely include the rest of the detail about the incredibly high bar set by most investors for funding.
In reality, raising capital is a difficult journey. Here are fifteen (15) elements that determine investment-readiness across these four topics:
Is this a compelling business?
Can you capture a share of the market opportunity?
Does the business model work?
Is the investment offering designed to work?
Few businesses are able to nail the elements of investment-readiness. Those that do still need to find a funder who is excited about your business. The rule of thumb is that it takes 100 pitches to get 1 investor. By the way, founders ignore that, too, just as I did in my first efforts to raise capital.
For the startup founder, the type of investment we are talking about after the “bootstrapping” period and after the “friends and family” round would be the Angel round and/or the Series Seed round. In these rounds, the business is fully formed and starting to grow. Again: Ignore the media stories about the founders who get to skip these requirements – they are truly rare even in the investment hotbeds like Silicon Valley.
For other types of projects, like a community development project, funders can come from a surprisingly broad group across multiple capital types, like: Opportunity Zone Funds; Social Impact Loans or PRIs; Philanthropy; LIHTC Credits and Debt; New Market Tax Credits; Construction Loan to Perm; and Local/State/Federal Grants and tax incentives.
Even if there were more written about these challenges, founders would ignore it anyway. Founders are believers. We are optimists. We have a hard time hearing “no,” which is one of the reasons that many of us ultimately succeed, even if it takes a few startups to get there.
For founders experiencing success and wondering if they should go down the path of raising outside capital, we have these key questions:
Do you know (specifically) how much capital you need (and for what)?
Do you know what kind of capital you need and why?
Do you know the investment criteria of your likely funders?
If you have these answers, or have a plan to get these answers, you will be on track to be funded. If not, you’re not investment ready, but you can start now to ensure that you, as a good leader with a good idea, can get funded.
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