Venture capital broke all the records in 2021, with investors piling more than $329 billion into startups of all shapes and sizes last year, nearly double the already record-setting pace from 2020. Things have slowed considerably since then, but the fact remains that VC investors are actively looking for, and finding, promising companies to back and are sitting on billions in dry powder ready for the next big thing.
But, despite all of this available capital, there is a disconnect between many entrepreneurs and the investors who might potentially turn their ideas into viable businesses: Confidence in the ask.
You have your billion-dollar idea, now what? How do you fund the next Unicorn and make your idea a reality? It comes down to fundraising. Connecting with investors, selling them on your idea and bringing them onboard to help you scale. But, the fact is, too many founders approach fundraising as if they’re begging for money.
“Please, please invest in my startup so we can do this thing.”
It makes sense; it is common to feel insecure when pitching investors and asking for their money. That is just human nature. But this is, quite frankly, the wrong way to think about the startup fundraising process. Simply put, if you as a founder truly believe in the potential of your startup you should not feel insecure in the fundraising process at all. You are not asking for charity; you are sharing access to an amazing opportunity.
It’s not begging. Far from it.
When I talk about fundraising with founders I often use a metaphor of a black box that generates $100 dollar bills. All you have to do is take $1, feed it into this box, and it spits out $100 on the other side.
Pretty great idea, right? It is like magic.
The point is, if you had a box like that, what would you do with it? Most likely you would start by finding every dollar bill you could and stuffing it into the box to multiply them 100x. Now you have a new problem – you have a stack of $100s and need more $1 bills to feed into the box. Where can you find them? You reach out to some investors to supply you with more $1 bills.
How do those conversations go? You have a box that literally prints profits. You aren’t going to fall back on “please, please, please give me money so I can do this.” More likely, the sales pitch will be straightforward: “Check out this product I invented. It’s printing money. Do you want in?”
That is what startup fundraising should feel like for founders. You have created your own version of the black box – whatever your product is – and fully believe in the power of it to generate revenue. With that knowledge, fundraising is easy.
That is why it is so important to properly articulate your vision early on in the conversation. It builds trust and helps investors visualize the inevitability of your success. Founders can talk all day about their value proposition, the key problem that they are solving for their customer, how large and profitable their potential market is, but without a real, emotional connection it is often difficult to get to “yes.” You have the right product – the money-making box – and the right parts in place to take investors’ $1 bills and turn them into $100s, but do your investors trust you with their money?
The answer should be yes. When sharing an opportunity you believe in, you’re doing investors a favor, not the other way around.
Techstars Chief Capital Formation Officer