My best fundraising advice? Don’t!

or at least, not so soon!
Reading Time: 3 minutes

The CEO of a startup has three critical jobs.  First, set direction.  Second, make sure the right people are in the right seats.  And third, don’t run out of money.

A company without direction is rudderless.  It chases random opportunities.  Its products lack both differentiation and focus.  It doesn’t know how to effectively allocate its time, attention, or resources.

But even with a clear vision, the company without the right people can’t execute.  There are critical mistakes, duplication of effort, and missed advantages.

And even with both strong direction and the right team, a company without resources is dead in the water.  It’s why I sometimes believe that this third responsibility – money – is the most important responsibility of all.

It’s so important that fully 1/3 of the calls that I get from podcast applicants revolve around fundraising.  It’s what comes up nearly every week in my Clubhouse Room.  It was important enough to me as a founder that I devoted numerous chapters in my book to raising money – including the story of approaching my own mother to invest $25,000 into Netflix.  And if I had any other content I wanted to shill for, I could probably use them as an example too.

But ironically, the most frequent fundraising advice I find myself dispensing is simply: don’t!

People think that fundraising is some indispensable component to proving out your idea, but as I explained in episode 9 of the podcast, the real skill of an entrepreneur is figuring out how to validate an idea without spending money on it.  The longer you can rely on friends and family, stay small, or bootstrap yourself, the better.  Raising money to scale an idea you’ve proven out, will always be a better outcome than raising money to do that proving.

One of the reasons that fundraising weighs so heavily on the entrepreneur is that while strategic direction and staffing are responsibilities shared with a broader team, the pressures of fundraising fall squarely on your shoulders.  It’s unrelenting.  like a modern political campaign, just as soon as you’ve successfully raised one round of financing, you’ll find yourself wondering where your next round is going to be coming from.

And not just where, but how?  Do you self-fund your early iterations and go-slow in stealth mode, or do you raise a war chest to make a more sustained effort?  Do you boot-strap and maintain control and ownership, or do you venture fund to enable you to capitalize on a market opportunity more aggressively?  Debt or Equity?  How big a round?  Valuation?  The questions are endless.

All those questions are reasons I think you’ll enjoy listening to episode seventeen of the That Will Never Work podcast which released this week.  My guest is Claudia, who’s business idea (like many a successful entrepreneur) was inspired by personal experience.  Blind since childhood – in fact, the first-ever blind woman elected to public office in Colorado – Claudia has experienced first-hand the deficiencies in her community’s public transportation system and she’s built a company to address them.  Walking down the CEO checklist: She has a vision, she’s built a team, and now it’s time to find the resources to make her dream a reality.

Unfortunately, for founders (like Claudia) shows like Shark Tank have cemented the impression that fund-raising from professional investors is your only choice.  It’s certainly an option, but as I advise Claudia, especially when it comes to a venture that seeks to change the world, it’s a choice that must be made carefully.  

Because no matter how aligned a venture firm may be with your mission, they are not going to invest millions of dollars just because they like you. Or because your company will make the world a better place.  No, if they are going to invest money in your company, they are going to want that money back.  Ideally multiplied by 10 or 100.  If that isn’t your objective as well, the relationship is going to be doomed before it starts.

In a future post, I’ll share some additional thoughts on the fundraising process, but in the meantime, don’t forget that unlike what you see glorified on TV, in the movies, or in the pages of Tech Crunch, fundraising is just putting gas in your tank.  It’s where you choose to go from there that will truly determine your success,

Good luck,

M

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