Funding your startup: A primer for techies
Getting your new business venture funded is an essential, if daunting, task. If you’re like many tech startups, your strength lies in the design and development end of the business spectrum and the thought of asking investors to pump a lot of money into your enterprise makes you break out in a cold sweat.
The good news is that 2016 was on pace to hit $74 billion in funding, and 2017 is shaping up to be equally robust. The not-as-good news is that the odds are still steep for any startup: an average of only about 0.8% of companies that seek funding from a VC will actually win that funding.
But, you’ve got to go for it. Unless you have the savings and/or the backing of friends and family to help you bootstrap your startup, it’s a good idea to get yourself into the right mindset to go after the funding you’re going to need.
So, how can a tech-focused entrepreneur maximize their chances for funding?
Translating Your Tech Expertise Into A Business Investment Case
Preparation goes a long way toward taking the stress out of pitching to VCs. Always keep the investor in mind, and remember that their calculations boil down to a simple formula of market, product, and money:
Research—Don’t go into a meeting asking investors for money without first finding out some things about them. Look at the VC’s investment profile, the average level of their investments, the valuation they typically expect, what they look for in startup companies, etc. That way, you can tailor your ask appropriately and avoid being caught off-guard by something that could tank your prospects.
Focus, focus, focus—I can’t stress this enough. It seems so basic and so universal that I shouldn’t have to say it, but most entrepreneurs can’t distill their product and/or business model down to a few succinct and persuasive sentences. If you can’t get to the hook quickly, you’re probably going to lose an investor’s interest. So, put some work into this. Write it down in as few sentences as you can, and then edit it down some more. Then practice it. Say it out loud so you can hear what words might trip you up, match your natural cadences to the words you’ve written, and then edit it some more. By the time you meet with a VC, you should be able to give your pitch in your sleep.
Elevate the pitch—Make it short and sweet, check. But what should the pitch say? Put yourself in the shoes of your potential investors: they will want to hear the value proposition of your product in simple terms that anyone can understand. That means cut the tech jargon and cut the colorful and interesting (to you) history of its many iterations. Instead, cut directly to the problem that your solution solves in the market. Be sure to give investors a full picture, in terms of the market size, your product’s potential for driving substantial revenue, and your client acquisition model. If there are similar offerings already in production among competitors, clearly and – again – succinctly outline what makes yours better, more attractive to the target customer, and likely to capture a good chunk of the market.
Show off your team—You may be a design genius, but a business needs more than your gorgeous grey matter to succeed. Go ahead and dazzle investors with your brilliance, but also remember to shine the spotlight on your executives so investors are comfortable knowing that you have assembled a great team to help grow your enterprise—and their return on investment.
Highlight early successes—Use any metric you can muster to demonstrate your early successes. Use your beta tests. Use your beta customers. If you have sales prospects, especially in the form of contracted orders, be ready to go into the details. If you’re already selling your product, have those sales figures on hand – how many sales, in what period of time, and how much revenue/profit did those sales generate?
Be yourself—Don’t try to suddenly become some different version of yourself to impress the investors. A VC is investing in you, not just in your company, so don’t be afraid to be yourself. It’s important that you work well together, so it’s important that you both have a good understanding of how the other works from the very start.
Asking for money is nerve-wracking, and it’s not a strong suit for many tech entrepreneurs. Bolster yourself by maintaining focus on your core objective (to secure funding for your startup) and by thoroughly preparing so you can make your presentation with confidence. If your first pitch doesn’t open wallets, don’t be discouraged. Remember the stats at the start of this article, and keep pitching. If you don’t ask, you’ll never get.
Gregory Keough is CEO of Finova Financial, the industry’s first cloud-based platform for affordable and socially conscious emergency consumer loans. Finova earned one of the industry’s largest initial funding rounds in FinTech history. One of the few living recipients of the Central Intelligence Agency's (CIA's) Intelligence Star Medal for extraordinary courage in the line of duty, Keough has 25 years’ experience developing mobile financial solutions to accelerate financial inclusion for companies like MFS, a joint venture created by MasterCard and Telefonica.