This week we were pleased to have Karl, an entrepreneur who has worked on financing a number of ventures around the world, speak with us about the ugly truth of raising money. What I really enjoyed about his talk was his honesty and openness. Drawn from his years of experience in raising finance and working with early stage companies, Karl has given our entrepreneurs some great advice:
1. Choose the right investor for your company
“A greedy investor is a good thing. Way better than an apathetic investor” said Karl. Investors are more than just people who give you money. They’re also your advisers, mentors and connectors. They have more than just money to offer. So do your due diligence on your investor. Know which companies they have invested in and which type of companies they’re interested in investing in. Find out who the associates, partners, and LPs of the firm are and what their backgrounds are. Like any long-term relationship in life, the fit between the investor and entrepreneur is critical, probably as important as the fit between a wife and husband.
Seriously. Relax. Pitching can only be nerve racking if you think you have everything to lose. Remember, investors invest in leaders, not just ideas and products. If you screw up your pitch, it’s unlikely that someone will smack your teeth out with the butt of a gun. So go into an investor meeting with confidence and humility and just relax, things will go much better that way. And if you do make a mistake, correct it and move on, don’t make it into something bigger than it is.
3. Be prepared for the fact that investors are going to research your past; so if needed, be prepared to defend those stupid photos of yourself
Nine out of ten times, an investor is going to google your name and do some intensive research about you and your team before investing. Be prepared for the fact that they will find those photos of you doing something stupid in your earlier years. Don’t try to hide things, just have the confidence to defend yourself even if you have to say, “Yes in college I was a keg stand champion. That’s just the way it worked”
4. When you land a term sheet, understand the whole picture, don’t just focus on one part, like the valuation.
Sometimes the terms of a deal are as or more important than the valuation. Look at the terms and the valuation in context, and understand how much of the company the founders will actually keep once the deal is completed. Look carefully at the whole deal, and make sure that there are not any vetos or provisions that might hinder your ability to grow or raise capital in the future. Another thing to watch for is an unallocated option pool, which often comes from the founder’s equity later on. If you take your time to really understand the deal on the table and calculate your promote, you will be much happier in the long run.
5. Don’t bring a tiger and a monkey to your launch party with your investor’s money
Landing investment is easy compared to using it intelligently and making a successful business. Remember, once that cheque is written to you, you are obligated to work 10 times harder to maximize the chance that your business makes it and provides a return for your investors. Take investors money only if you have to because once you go down that road, it’s a serious commitment and there is no return.
Karl’s talk was 90 minutes long and I have never seen the members of Launch Academy so engaged. Karl was kind enough to stay longer to connect with our members on a one-on-one basis.
Let us know your thoughts on this advice in the comments below!
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