The cruel realities of fundraising.


Now that you have the idea and your first proof-of-concept, you decide to grow bigger and let everyone hear about your company. What do you need? Yes, money. And of course you think you might get this lovely piece of investor fundraising. Now, start licking your fingers and let's see the realities you might face in this challenge...

Funding does not mean success.

Not every successful company seeks funds and not every company that does becomes successful in the long term. Don’t look for outside dollars because you think it’s impressive or could get you press attention. Funds from VCs or angel investors often come with management strings and pressure to perform. Ask yourself if you need money at all and if you’ve exhausted bootstrapping, loans from banks, friends or family, or even funding through revenue.

Investors are not mentors.

It's true, some can provide valuable guidance, but be aware that many are merely looking for returns or to expand their portfolios. The decisions you make to create a great exit for your investors might be very different from the decisions you’d make to build your company if the money came without strings.

Everyone is not equal.

As much as the investors have styled themselves as a pure meritocracy, the reality is quite different. It does matter who you know. Your background and educational pedigree do matter. Not because there’s a deliberate effort to exclude certain groups categorically, but more because of carelessness.

Investors are overwhelmingly white, straight, cis-gendered men who came up through Ivy League schools. And like most of us, their networks skew heavily toward people who share their background. Not to mention the subconscious effect of familiarity bias when they’re listening to pitches. It all adds up to alarming statistics around women, people of color, and the LGBTQ community winning venture funding.

Investors will not blindly accept your product.

Paying customers are the ultimate measure of a company’s worth. If you don’t have customers willing to pay for your product, service or solution, you don’t have a business.

Customers are the ultimate judge of whether an innovation solves their problem or meets their needs at a price they are willing to pay. If you don’t have customers, investors are not likely to give you the time of day. And, make no mistake, you will still have to demonstrate why your idea is cool (i.e.“See, you touch a button on your phone and four minutes later, a car pulls up to take you to your destination”), but having lots of customers line up is the most important proof point.

As an example, Mark Zuckerberg’s original “FaceMash” site attracted 450 visitors and 22,000 photo views in its first four hours online! That’s when he knew he might have an investible idea.

Long business plan will not do the job.

Investors want to know the answers to five key questions: What problem are you solving? How BIG is it in dollars and customers? What makes your solution unique? What is your “go-to-market” strategy? How much profit and impact will you have? These questions are wrapped up in another major consideration, which is how credible you and your team are in delivering on this plan.

Investors, unlike your college professor, are not interested in how long your business plan document is, but rather the information that it contains.

Fundraising is not a hobby.

When an entrepreneur starts off his business, he finds it fun on searching just any investor that comes is a way. It turns out to be a hobby or a pass time to help the company grow.

The real scenario behind it is, fundraising is a really hectic and a labour intensive task. It needs a person to select such an entrepreneur who agrees to your business plan and stick by throughout the business growth. It is more of who fits into the business to make your company grow.

Investors can’t be anyone that you will find during a regular business day. You have to select and create a bond as though you are working along with them. They should understand your business and future growth just to build the relationship until the end.