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types of rounds would have normally meant spending at least eight months out of the office, attending conferences and meetings to gather investor interest.

      Unfortunately the company announcements of successfully closed rounds of financing that you see and hear about are not the reality. They come from only a few companies out of the many, many ventures that launch each year. Raising capital is an art. Every single ingredient needs to be perfectly balanced in the process in order to secure capital successfully. This book aims to be the guide that will help you get there in a process that, many times, can be a rollercoaster ride, full of emotions.

      Fasten your seat belt and embrace the process. Be optimistic and have fun with it. Remember, you will never fail – you will either succeed or learn.

      2

      RAISING CAPITAL FOR YOUR STARTUP

      Before rushing into preparing pitching materials, meeting investors, and hammering out funding terms, it is critical to get your mindset, expectations, math, and strategy right.

      Speeding Up the Machine

      Some opportunists and entrepreneurs see the promise of funding or financing as the chance to get someone else to put money on the line to build their dream into reality, especially when it is a product or tool that can only be brought to life with major money. (Space exploration and revolutionary health-care progress are great examples of this.) But these types of fundraising missions represent big risks for investors. And if you've tried walking into a bank for a startup loan, you already know that it's going to be a challenge.

      There is another way to approach raising capital for your startup. It's meant to speed up the machine, not build it. This can really present the best opportunity for both fundraisers and funders. By building the product first, entrepreneurs establish that ownership, control, and lead. They also have the opportunity to build and hone a business model that works regardless of additional funds. That's a much more powerful fundraising and negotiating position to be in. On the other side of the table investors are able to put their money to work with confidence, in a startup that has a product, and one which is proven to work. More money just helps to speed up the achievement of various milestones, and to magnify the successes and strengths.

      When you are raising money from outsiders, there will be expectations to deliver certain types of milestones in a given timeline. For that reason, it not only helps to have a product on the market with some historical data when negotiating your financing terms, it also helps to avoid a significant dilution that comes with raising money as you're working to figure things out, assembling the machine.

      Most startups eventually pivot to adjust to what the market is telling them. I have yet to see a bulletproof business plan, so it's important to have proof of concept and validation before taking the risk of bringing outsiders into the mix.

      Take a moment to think and reclarify why you are raising capital. Consider what it will do for you, and what the opportunity offers to potential investors.

      It's Not as Easy as Reading an Article on TechCrunch

      If people read the weekly headlines on TechCrunch or various startup and fundraising blogs, it sounds as if anyone who can fog up a mirror can land several seven-figure-plus rounds of funding. Some people have the impression that if you throw up a crowdfunding page, you can land a million dollars to play with as you like. This is one of the biggest pitfalls facing startups today. It's not that easy – at least not for most startups. The truth is that it takes work. It takes effort, time, and an investment in thinking and taking the small actions that can create big results. Aside from the right mindset and expectations, successful fundraising takes making connections, marketing, and proving yourself and the product. It takes strategically rolling out and executing a plan. Often, that requires help.

      According to data from Forbes and the SBA (Small Business Administration), venture capitalists fund only about 2 percent of the opportunities they review.1 While not all new businesses need or seek funding, consider that there are around 600,000 new business entities that file each year. In the first quarter of 2012, only 3 percent of venture capital (VC) funds went to brand-new startups, while 97 percent went to ventures that were already running. This information is not to discourage you from your startup, or from raising capital, but rather it is meant to better prepare you for what you need to do to effectively and efficiently score the capital you want. While it's important to build the product first, whenever possible, and prove the concept, you can choose to create a starter version, or MVP (minimum viable product), or provide other proof of testing and demand. Define what makes you convinced that this venture is a go, and that it is a good opportunity for investors.

      The 18- to 24-Month Plan

      The savviest founders give themselves plenty of time and cushion to raise the capital they are aiming for, and 18 to 24 months is a good timeframe.

      Don't worry, this doesn't mean putting everything else on pause, or slowing down your startup. In fact, continuing to clock progress in development, branding, your client base, and sales can help in the fundraising process.

      Perhaps you already have a business plan, and have even started selling and building great relationships and establishing distribution channels. That's fantastic. But you will need to meld your business plan and your fundraising plan together, if they aren't already a part of the same document. Perhaps you initially thought you wouldn't need outside funding, but now you see the advantages, or you thought you could land a bank loan, but it didn't happen. Or, you are just now realizing that raising substantial amounts of capital in the best way is going to take a little longer than you think. Just take the time to recalibrate and ensure synergy as you progress.

      Whatever your number is, break it down by funding rounds and by business milestones. Divide your needs into easily actionable steps that will take you where you want to go in the next 18 to 24 months.

      Milestones

      Notable milestones to be achieved during your startup and fundraising process include:

      ■ Idea conceptualization

      ■ Market research

      ■ Business plan creation

      ■ Testing the waters

      ■ Finding your cofounders

      ■ Making key hires

      ■ Building a board

      ■ Prototypes and beta testing

      ■ Launch of a minimum viable product

      ■ Expanding early adopters and users

      ■ Gaining revenues

      ■ Proof of demand and potential for scale

      ■ Breakeven point

      Entrepreneurs should be focused on raising the capital to make it to the next milestone and round of funding. This amount should include a cushion for overages, and a budget for marketing for more funds. Work toward each milestone and give it the proper attention, even if you have the long goal of an IPO, buyout, or putting a legacy business on autopilot.

      Breaking Even

      While there are many milestones in the process of launching, nurturing, and growing a startup, the breakeven point cannot be overlooked. Let's be honest – until the breakeven point is reached, all income is burned cash. (And that even applies when the numbers are in the tens of billions of dollars.) But once the breakeven point is reached, startup founders can then negotiate from a place of power, and they technically don't need another outside dollar. However, additional funding can certainly help. That money can be funneled into real growth, and maximized.

      It is important to note that many of the biggest companies, and those that have attracted major investment, still haven't achieved the breakeven point. It isn't a prerequisite for raising capital. Peter Thiel tackles this issue in his book Zero to One. He reminds us that the real value of a company, and how savvy investors view opportunities, is the future value of cash flow. If you aren't breaking even today, when will you be? How much future cash flow can investors

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