Startups should develop a fundraising capability

I was in a board meeting last summer where we faced a curious situation. The company was performing well, revenues were rising, engagement was on the up, and every month the path to becoming a very big business was getting clearer, but fundraising discussions were slower than planned. One of the Directors asked why we insiders were sure that the prospects were strong but new investors weren’t biting.

When it came down to it, a big part of the problem was that we hadn’t put enough time into making our proposition into a story that was easy to understand and share within partnerships. To make a positive decision new investors have to understand lots of complicated data and buy into a detailed market vision. In our case there was buy-in to the broad market vision, but lots of other startups were making alternative claims about how the details would pan out.

The opportunity was to make our proposition easier to understand by using stories to illustrate how our data provided early evidence that our vision was the one to get behind. Telling stories means starting with real names and real (potential) results and then going back to the abstract and theoretical later. With our help customer X can do Y and achieve amazing result Z.

The interesting question was why we were executing well on sales to customers, but not well on selling shares in our business to investors. We were telling stories and selling effectively to one community but not the other.

The reason was that we thought of fundraising as a necessary evil rather than as a capability that we needed to develop. Hence we’d spent insufficient time into becoming excellent at it.

Perhaps unsurprisingly many startups suffer from this problem. There are multiple reasons:

  • Fundraising only comes round every 12-24 months so it fades from mind
  • Fundraising is a CEO level activity and there are lots of pulls on a CEOs time
  • Founders believe strongly in the strength of their companies and think it should be easy for investors to buy-in (particularly when there’s been a lot of progress)
  • Investors always project high levels of enthusiasm making it hard to gauge whether extra fundraising effort is necessary
  • The market is awash with stories of founders who seemingly raised huge rounds with little effort, again making it hard to estimate how much effort is necessary

However, it’s true that most successful companies raise multiple rounds of finance and it makes sense to invest time into becoming good at fundraising. Thinking of fundraising as a capability that the best companies have in spades rather than an unpleasant task to be ticked off is a mindshift that helps with preparation and gives processes the best chance of going smoothly.

Companies with a strong fundraising capability:

  • Pitch well
  • Have good hustle
  • Are disciplined about follow-up
  • Have good investor networks