First-time founders: here’s how to select the best fundraising strategy for your startup
Fundraising is hard. Full stop. What can make it even harder is not knowing the capital options your business is best suited for and chasing after money that may not be in your best interest.
Why can this cause hardship? Because choosing the wrong type of fundraising strategy is likely to cause emotional and time depletion, in addition to a failed fundraise. So to increase your chances in fundraising successfully, you’ve got to pick the right fundraising strategy for you and your company.
Below I share 5 steps on how to select the best fundraising strategy for you and your company, as well as where and how to access capital.
PS This is a live post. If I’m missing resources or if you have suggestions, DM me on Twitter @lolitataub.
1. Ask yourself: why am I fundraising?
- Good answers will include a phrase like “I’m fundraising because $X capital will help my company achieve Y milestone and provide Z months runway.” X is the dollar amount you’re raising, Y is the milestone you’re trying to achieve, and Z is the number of months of runway you’ll have after obtaining $X capital.
- Bad answers will include phrases like “I’m fundraising because I think I should” or “for marketing” and no connection with business growth milestones.
If you have a good answer to question number 1, then move to step 2.
2. Figure out the kind of business you have in the spectrum of small/medium business to rocket ship.
- Small/Medium Business: founders want to grow organically, with a small team, don’t care to exit, have a total addressable market of less than $1 billion, with low scalability and will likely never produce more than $100 million in annual recurring revenue.
- Rocket Ship: founders want to blitzscale and build a billion dollar business in 5–7 years, with a large team (typically), want to exit, have a total addressable market that’s greater than $1 billion, have high scalability, and have the ability to generate over $100 million in annual recurring revenue.
Once you know the kind of business you have, you can explore options that fit you and your type of business.
Note: You can start off as a small/medium business and turn into a rocket ship. Calendly is a great example of this. Read Calendly’s story here and the excerpt below.
“I had a working product, and customers using it, and [every VC] said no.
The whole experience made me hate raising money. But it forced me to become resourceful, scrappy, and maniacally focused. I learned how to stretch each dollar.
Today, I’m very grateful. The business is approaching $30 million in recurring revenue, and growing more than 100 percent year-over-year. It’s been profitable since 2016. And I’m the majority owner.”
— Tope Awotana, Founder of Calendly
3. Understand your capital options
If you’re a…
- Small/Medium Business: founders will usually benefit most from bootstrapping, grants, and debt.
- Rocket Ships: founders will usually benefit most from angels and venture capital.
Equity crowdfunding and pitch competitions may apply to both small/medium businesses and rocket ships.
4. Understand the equity and control implications of the capital you take on
As you consider your capital options, you’ve got to keep in mind how much each option will cost you in terms of equity and control of your company.
*Why the amount of equity and control you have matter: if you give up most or all of your company and your company succeeds, you will make very little to no return on all your hard work.
The capital you obtain through bootstrapping, grants, and debt will cost you little to no equity and control. The capital that will cost you the most equity and control is venture capital.
5. Prep and go fundraise
After you understand 1) the kind of business you have in the spectrum of small/medium business or rocket ship, 2) your capital options, and 3) the equity and control implications of capital you take on, you’re ready to prep for and go fundraise.
Below I share resources to get you started on your fundraise journey. Scroll to your capital of choice and you’ll find quick notes on how to prep, advice on how to fundraise, and where to go next.
Bootstrapping
- prep: take stock of your ability to generate capital through your business, credit cards, savings, checking, family and friends
- fundraise: prioritize your options and leverage customer revenue first
- where to go: your customers, bank account, family and friends (check your facebook, linkedin, instagram, phone contacts, etc)
Grants
- prep: research grants based on criteria and timeline requirements
- fundraise: apply to grant programs
- where to go: google, foundergrants.com
Debt
- prep: research debt options on google and go through INTROs Funding Options page here (covers: mobile app and gaming financing, hardware finance, SaaS subscription financing, factoring, recurring-rev lending, rev-based financing, venture debt term loans, equipment financing, inventory financing, accounts receivable financing, business term loans, mezzanine capital, and e-commerce financing)
- fundraise: apply to debt programs
- where to go: google, INTRO
Equity Crowdfunding
- prep: research equity crowdfunding platforms, read Dawn Dickson’s post, and prepare to both fundraise and drive a marketing campaign
- fundraise: apply to equity crowdfunding platforms
- where to go: Republic, Wefunder, Start Engine, ifundwomen, Fund Black Founders, SeedInvest, NetCapital
Pitch Competitions
- prep: research pitch competitions, pay close attention to whether the money prize is non-dilutive or not
- fundraise: apply to pitch
- where to go: my twitter/newsletter (I share pitch competitions when I see them pop up), Denisha’s, and Cheryl’s newsletter.
Angels
- prep: learn about angels here, find angel lists, and create a target list
- fundraise: build relationships, ask for feedback, pitch and ask for money
- where to go: accredited investors, you can connect with angels on Twitter, Crunchbase, LinkedIn, AngelList
Alternative VC
- prep: research alt VC options on google
- fundraise: apply and pitch alt vcs, like Earnest Capital + Indie.VC
- where to go: Earnest Capital, Indie.VC
Venture Capital
- prep: read this post
- fundraise: build relationships, ask for feedback, build a winning pitch deck, pitch and ask for money
- where to go: Signal, Crunchbase, Angel List, Twitter, the Startup-Investor Matching Tool
Additional Resources
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Thanks to those who provided feedback and resources: Cheryl Campos (Republic), Jason Garcia (INTRO), Raoul Encinas (SeeThinkShift).
Disclaimers: This post is a primer and not an all exhaustive or in-depth post with all resources in the world. I am a VP at Republic, Scout at Indie.vc, and co-founder of the Startup-Investor Matching Tool, and not a lawyer or financial advisor.
About author: Lolita Taub is a first-generation Latinx operator and investor pushing for diversity in tech. With 14 years of tech experience, she has accomplished +$50M of sales and has made 38 investments as an angel and VC. She’s co-founder to the Startup-Investor Matching Tool, acting interim head of sales at Catalyte, a scout at Indie.vc, Venture Partner at NextGen Venture Partners, an LP at Operators Collective and Portfolia’s Enterprise Fund, and mom to the cutest Dachshund mix, Choco.
