Most advice when it comes to raising seed capital focuses on the pitch, the slides and the business plan. What to say and how to say it.
But fundraising is not only a pitch - it’s also a process.
"Secret" 1: Raising seed capital is a sales process.
Accept that raising capital is a sales process. You are selling yourself, the team, your idea, your vision, business concept and prototype. You are selling your stock in return for cash, network and advice. You are selling an option to future value. In short: You are selling.
If you approach it as a sales process - what are the consequences?
Sales is to an extent a numbers game. You should use the classic sales funnel when you are about to start raising seed capital: The more good "prospects" (potential investors) you put into the funnel, the more "sales" (investments) you get out in the other end.
- The cold prospect list. This is the key to success. Without it your reach will be too limited and you won’t get to dance with the investor of your dream.
- At the top you put your dream investors. Then you add another 20 angel or VC’s. Don’t write only their company names. You will have to identify the individual person and his or her email address.
- Craft and send the pitch email to the first ten. In Europe most of the potential angels and VC’s will read your email even if you are not referred.
- Don’t bother calling them before they have read your email.
- Existing contacts. Your existing contacts are your best shots, but they are probably very limited in the angel and VC community. So make the most out of these contacts:
- Walk through your list of contacts and ask yourself: “Who does he/she know in the angel/VC community?” (LinkedIn if possible)
- Take meetings with your contacts even when you think the chance is small that they can help you.
- Generate new contacts. Network as much as you can and as early as possible to gain more contacts.
- Attend start-up contests, conferences, international and local events for entrepreneurs.
- Ask every one you meet and talk to: “Who do you think I should talk to? Can you refer me?”
- With this sales approach you add a quantity focus, which I believe is important at least in Europe where the VC and angel market is less mature than in the US.
If this is your first professional "sales tour", there are another two positive consequences of regarding fundraising as a sales process:
- You demystify the topic. A lot of entrepreneurs get scared by the fundraising; they don’t think they understand it and they see it as a major obstacle. But selling is easier to relate to and feel confident about.
- You are about to get a crash course in high level sales. Fundraising takes a lot of time, so instead of “wasting” the time, look at it as some serious sales training.
Can a first time entrepreneur really give any advice regarding fundraising? Well, that’s just it: I believe raising money the first time is a very different experience than doing it a second time. The second time you have your own experience, you have a track record and you have more contacts. The first time you usually don’t have much. Since we just succeeded with our first round of financing, I thought I’d share some of my experiences.
There is so much good advice out there so instead of repeating what others have said much better, I will just point you to some very good sources:
Chris Dixon http://cdixon.org/contents/,
Fred Wilson http://www.avc.com/a_vc/archives.html
Steve Blank http://steveblank.com/.
Great link collection: http://tappen.posterous.com/nice-summary-stanleytang-256-must-read-conten#comment
And of course a lot of great answers on Quora.com