Capital raising isn't about pitching investors, it's about getting in front of them to begin with. But how do we get introductions from investors if we don't know any?
We start with forming an Advisory Board.
The suggestion here isn't to form an Advisory Board specifically for raising capital — since there are a ton of benefits to having an Advisory Board. However, as a first step toward raising capital, it makes a ton of sense to surround ourselves with smart, well-connected people who believe in our product but also have been through the very gauntlet we're entering into. In the same way we'd hire a dev team to build an app, why wouldn't we round up a team of smart, well-connected Advisors to build our capital raise?
We don't need to be shy about the ask, either. Good Advisors, many of whom were Founders themselves, can fully appreciate the fact that signing on board means providing meaningful help throughout the capital-raising process.
Our advisors establish a certain amount of credibility and validation about not just our company, but to us as Founders. It's generally understood that if a well-known and respected member joins our Board, they are willing to invest their name and social capital to our cause.
That's incredibly important in the formative stages of raising capital, where we're getting introductions to people who have never met us before but need to trust a ton of money with us on very little history. The assumption from investors is that if this person thinks we're legit, there must be a reason, and at the very least it's worth looking into. We simply can't replicate that social proof ourselves - we need others to provide the testimony.
We're all inherently limited with our networks, and for many newly minted Founders, our networks simply don't involve investors (why would they?). That's where our Advisors become invaluable. Well-picked Advisors tend to have a deep network of existing investors who have likely worked with them in the past and will trust their recommendations.
Any experienced Advisor understands that joining an Advisory Board implies making introductions, and most will willingly do so. Therefore each Advisor we add exponentially increases the number of potential investors we can be properly introduced to, with the added bonus that the Advisor can give us valuable insight as to what their hot buttons might be.
Not surprisingly, early Advisors often become investors in our startups themselves. If they are going to take the time and energy to help us grow (if they really believe in the concept) why not also invest?
In my experience, it's best to leave that decision to the Advisors, and not make it a "pay to play" type option since that doesn't always ensure we're getting the best Advisors (anyone can write a check, it doesn't make them a great Advisor).
But if we're going to take a first step toward raising capital, the best bet is always going to be to surround ourselves with the types of people who can increase our odds of success.
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Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.
Every entrepreneurs struggles. Yes, even Elon Musk. Heading both Tesla and SpaceX was never the original plan, and unsustainable at that. But, by building a stronger team and selectively adding talent and expertise through levels at both companies, Musk was able to maximize his productivity and have some semblance of work/life balance.