A Few Thoughts on the Funding Process

I sat on a panel a few weeks ago at SD Forum about term sheets – it was called “Term Sheet Negotiations – Do’s and Don’ts.”

I was the sole entrepreneur on the panel.  I was joined by David Rolf from VantagePoint Ventures, and two attorneys – Kerry Smith from DLA Piper, and Mark Fumia from Davis Wright Tremaine.  The panel was moderated by Shai Goldman from Silicon Valley Bank.

Just about all of the attendees were entrepreneurs.  Ostensibly, they were there to learn the finer points of term sheet negotiation.  What the terms meant, which terms were the most important, and what were some tactics in securing the best deal for your company.

But in speaking with some of the entrepreneurs afterwards, it seemed that the elephant in the room was “How do I get my company funded?”

I don’t claim to be an expert in getting funded.  I’ve gone through three financings, and I feel that each one was a struggle.

But I can pass on what I know.  If you flash back six months to my situation, my company RateItAll was a bootstrapped, one man band with no active advisors.  We did have a product though, we did have revenue, and we did have some traction.  However, even with those three things, we were still unfundable.

So what I did was to talk to folks more knowledgeable than me and come up with a list of things that would reduce the obstacles to funding.  My plan was to go down the list, check the boxes, and see where it got me.

So here’s my funding checklist in no particular order.  Obviously, some folks, based on reputation, history, or luck won’t need to fill all these boxes.  But if you’re like me, you will.

Team – one man bands are unfundable.  Not only is there is too much risk to the investor, but it also raises questions as to why the entrepreneur has been unable to sell his idea to anyone else.  How do you expect to sell investors if you can’t sell well enough to build a team?  You have to be prepared to give out a big chunk of equity to find the right folks and skills to round out your team.  In my case, a two person founding team enough, but you’re probably not going to go wrong with a founding team of three or four.  Obviously, a team made up of folks who have successfully launched and sold startups before helps a lot.

Get known – Make yourself findable, public, and transparent.  Write a blog.  Hit the networking events.  Help other entrepreneurs out.  Get involved with the local meetups.  Help out at conferences if you can’t get speaking gigs.  Get the name out there.  This is where living in the SF Bay Area is such an advantage.

Advisors – If you don’t know a lot of investors personally, having an advisor who does is the next best thing.  Finding the right advisors was critically important to our funding, as all of our investors came via advisor introductions.

Product – There’s a handful of folks out there who can get funded on an idea and a few slides.  I don’t know any of them personally, and I’m not one of them.

Traction – See my comment on product.

Other Signals of Quality – your law firm, your company collateral, mentions in the tech blogs, well known people / companies that user your product / service

Some of these boxes will be easier to check than others, but my sense is that working methodically through this list will reduce the barriers to getting funding. 

Good luck out there – despite what you hear about bubbles and the abundance of “dumb money,” raising funding is never easy from my experience.