An Entrepreneur's Guide To Raising Money

Many startups I work with are in the process of raising money. I have also been through the journey myself (I have started 2 companies and worked at 2 more startups), so I understand what it is like. From these experiences, I've come up with 3 pieces of practical advice to share with entrepreneurs at this stage.

An often over-looked idea is that not all investor money is equal -- some money is better than other money. Entrepreneurs should ask themselves, "What comes attached to the dollars?" Ryan Smith, co-founder & CEO of Qualtrics, recognized this principle. Early in the company life, he had investors knocking on his door wanting to invest. He told more than one investor "No". As he explained, he didn't just want money, he wanted partners. On the flip side, there were certain investors Qualtrics wanted so much as advisors that they took the funds even though they didn't need the money. In retrospect, this looks like a wise move--- Qualtrics is now valued at over $1 billion. A few factors to consider when comparing various investor options: Network. Does the investor have a relevant network and the ability to open doors that will help your company grow? Expertise. Does the investor have expertise that will bring powerful insights and useful advice to your company? Time. Does this investor have enough time to effectively advise and help your business? Where will that time come from? Involvement. What level of involvement do they want? Do you want? Do they match up? Sometimes an investor may be too involved and try living vicariously through the startup. This time drain can negatively impact a young company. Brand / Reputation. Does associating your brand with the investor's brand bring any positive effects? Just as investors perform due diligence on companies, entrepreneurs should perform due diligence on investors. Find out their expectations, past performance, and talk to references.

Treat your investors like you treat customer deals in your sales pipeline. Individual investors are often at varying phases (for example: Prospect, Qualified Lead, Closed). Like the sales funnel, the investor funnel has different conversion rates between stages. Track each investor meticulously, document all interactions, and set reminders and follow-up items so nothing falls through the cracks. It might even require using a CRM. Matt Behrend, co-founder & CSO of DemoChimp as well as a personal friend, taught me this concept. He has been an integral part of fundraising for 4 startups. Using this technique, he has secured millions of dollars cumulatively from investors.

Raising money is like having another full-time job on top of your already full-time job of operating a company. The process can consume a lot of energy and time. Be prepared for this going into it. You may have to clear your calendar of outside activities during this weeks-long journey so you can be devoted to raising funds. If you are fortunate to have talented people working with you, delegate some work to them so the business doesn't suffer.