Fundraising is a Work of Art - Part I
Almost all young entrepreneurs we speak to tell us that they struggle with fundraising. Yes, fundraising is hard, but is also a work of art. Mastering some fundraising techniques can increase your chance of success when pitching your startup to investors or closing a deal.
We’ve gathered some of the best articles around startup fundraising. These contain insights and great advice from experienced VCs, and experiences of entrepreneurs who successfully raised funds. We’ll be updating this gallery at least on a weekly basis. So if you like it, don’t forget to come back or simply ask us to send the updates straight to your email.
Some basics …
So what does fundraising mean? We often read in the news that this startup and that startup raised their Series A,B,C,D,E,F,G round of funding. What is that? If you still have some doubts about these terms, these articles might help you:
Startup funding stages explained
This infographic by Funders and Founders illustrates nicely the various stages of startup funding cycle: Idea Stage - Co-Founder stage - Family and Friends Round - Seed Round - Series A (and goes on) Round - IPO (Initial Public Offering).
Feeling like exploring a bit more? This piece on Investopedia goes further to explain Series A, B, C Funding: What it all means and how it works. We like their simple rules of thumb: Series A - Optimize, B Is For Build, and Series C is Let’s Scale.
You might have heard about a trendy term called the “Pre-seed Round”. In our opinion, if your startup is not a tech company, you don’t really need to bother with this term. In case you do, here’s an article explaining the distinctions between pre-seed and seed funding. In simple words, you can raise pre-seed funding to build a MVP (Minimum Viable Product) and small tractions while at seed stage, investors expect you to already have a MVP which you will further define the product-market fit.
Startup funding options explained
Just starting out as entrepreneur? This article provides good explanations of the different funding options for startups and for whom they can be suitable. Simply put, to fund your startup, you can 1) invest your own money (savings, bootstrapping), 2) borrow money - Debt (from family, friends, banks or others); 3) find free money (grants, competition rewards); 4) sell part of your company - Equity (angel investment, venture capital).
* If you’re looking for funding resources in your country, you can check if there’s a funding guide available on Ye! for your country (browse your country here).
In A Guide to Seed Fundraising, Partner of Y Combinator Geoff Ralston writes about the basic knowledge that startup founders need to understand fundraising. Go through the section on financing options, which explains the concepts of convertible debt (or convertible loans, convertible notes), equity and the difference between angels and venture capitalists.
Many startups use convertible debts in their early stage of financing, which means that you borrow money from the investors and you agree that the value of the debt can be converted into equities of your startup at a later stage based on pre-defined terms. If you want to understand better how convertibles work, these two pieces should do the work: How does Convertible Debt work? and Financing Options: Convertible Debt.
Crowdfunding is gaining popularity among startups in the past few years. You can raise (usually) small amounts of money from a large number of people through crowdfunding websites, which can be categorized into two types: donation (rewards, charity) crowdfunding and investment (debt, equity) crowdfunding . This article explains to you the types of crowdfunding.
The frequency that the word “Venture Capital” appears in entrepreneurship news, articles might lead you to think that all startups need VC money to grow. This article talks about the Six Myths About Venture Capitalists. It points out that Venture capital financing is not the norm among startups. On the contrary, it’s the exception. It’s worth a read to break your false assumptions about VC.
Hope this can help you know (or refresh :) some basic concepts about startup fundraising. Feeling that your learning mood is on the rise? We’ve selected more high-quality articles to help you learn more. Check it out!
Great Resources (Update on a regular basis)
A Fundraising Survival Guide lists 9 techniques entrepreneurs can apply to survive cruel process of fundraising. They are sharp and realistic. Besides “Have low expectations” “Be conservative” , Paul Graham advises founders to “Keep working on your startup” - something obvious but easy to be ignored and hard to do in practice. Some of his lines can truly be your quote of the day. Check it out:
“ There is nothing investors like more than a startup that seems like it's going to succeed even without them.”
“ Startups don't win by getting great funding rounds, but by making great products. So finish raising money and get back to work.”
“Investors evaluate startups the way customers evaluate products, not the way bosses evaluate employees. If you're making a valiant effort and failing, maybe they'll invest in your next startup, but not this one.”
Coming soon on our Fundraising is a Work of Art Series
Part II: Pitch your startup
Part III: Entering and closing a deal
Do you have questions? Would you like to us to write about a specific topic? Email us at firstname.lastname@example.org
Photo credit: tech.co / Flickr