Chapters

Chapters
What’s in it for me? Learn how to obtain seed funding for your start-up,
even if you’re not in Silicon Valley.
1
To attract investors, you need to prove your business is viable.
2
An effective pitch is relatable and emotionally engaging.
3
Don’t make assumptions when writing your business model.
4
Investors are drawn to leaders.
5
Choose your founding team wisely.
6
Prepare thoroughly before pitching.
7
Create your own investor connections.
8
Your most important investment isn’t the biggest; it’s the first.
9
Final summary
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Startup Seed Funding for the Rest of Us

00:00
Introduction
What’s in it for me? Learn how to obtain seed funding for your start-up,
even if you’re not in Silicon Valley.
If you’re a company founder located outside a major start-up community, you may
feel you’re at a disadvantage when it comes to securing seed funding. Odds are you
won’t bump into a potential investor while you’re grabbing your morning coffee or
mingling at a local tech event. But that doesn’t mean you can’t get the start-up
capital you need. You just need to approach fundraising more strategically. In these
blinks, you’ll discover how to maximize your business’s appeal to potential
investors. You’ll then learn how to identify and approach investors, even if you have
no existing connections to them, so you can obtain the funding you need. In these
blinks, you’ll learn the red flags that will immediately lose an investor’s interest;
which element of your business investors rate as the most important; and what
farmyard animal investors are like.
01:00
Chapter 1 of 8
To attract investors, you need to prove your business is viable.
A-listers like Lady Gaga and Ashton Kutcher have given venture capitalism a certain
glamor. If you’re a business founder looking for seed funding, it’s easy to get caught
up in fantasies about which celebrity will invest in your business. But what you
should be focusing on is your business plan. After all, investors back businesses, not
ideas. Even in Silicon Valley, where investors are on the lookout for the hottest new
company, a start-up will only get funding if it can prove it’s a viable business.
Outside Silicon Valley, the challenge is even harder. Investors beyond the Bay Area
tend to be more conservative. So, unless you can demonstrate that your start-up is
more than just a brilliant idea, you won’t get the seed funding you need. Here’s the
key message: To attract investors, you need to prove your business is viable.
Demonstrating your business’s viability at the start-up stage may sound impossible.
After all, how can you show an investor your business is viable before you have
funding to actually make it viable? But there is a way to do just that. It’s called
traction. Traction is a method to show your business model will generate a return on
investment. It will prove that your model is based on actual data and not just
assumptions about how much money you’ll make. Start by creating a financial plan
that shows how every dollar of funding will result in three dollars of revenue. This
will demonstrate to investors that your model is financially viable. Next, create a
prototype to show investors what your idea will look like as a product. Your
prototype doesn’t need to be fully functional. You can create a mock-up or a cheap
sample using a 3D printer. Or make a video that can be shared online. Entrepreneur
Drew Houston used a video demo to show how file-sharing product Dropbox would
work long before he created it. Finally, line customers up by promoting your product
before you launch it. Use a service like Launchrock to collect the details of people
who may want to buy your creation. Tens of thousands of potential customers were
on Houston’s mailing list before Dropbox was released, proving there was a market
for his brilliant idea. This type of traction confirms there’s a market for your
business concept. And a market is what attracts investors.
03:29
Chapter 2 of 8
An effective pitch is relatable and emotionally engaging.
Imagine you’re an investor listening to a founder pitch their start-up. You’ve heard
dozens of pitches before, and you’ll hear dozens of them again. Not many founders
take the time to make their pitch stand out. They all follow the same boring pattern
of making a bland statement about what the start-up does. This is a sure way of
making your eyes glaze over. To get an investor’s attention, it’s crucial to focus less
on what your business does and more on why it does it. The “why” is powerful. It
helps investors understand the motivation behind your business and the gap in the
market that your business fills. It’s the “why” that brings your business to life and
captures investor interest. This is the key message: An effective pitch is relatable
and emotionally engaging. The problem with many pitches is that they don’t
articulate the problem a start-up will solve. For instance, author Mike Belsito’s initial
pitch for his business, eFuneral, simply stated that it was an online platform
connecting families with local funeral homes. While this may sound useful, it’s hard
to identify why there’s more value in this than just running an internet search. So,
after reflecting on the why, Belsito and his cofounder described eFuneral as a
company that brings some much-needed transparency to the funeral industry. This
pitch doesn’t give much information about what the company actually is. But it
offers something far more powerful – a solution to a problem. Anyone who’s planned
a funeral knows how overwhelming it is, so creating transparency becomes
valuable. If you phrase your pitch as a solution to a problem, and that problem
resonates with an investor, you’ll get their attention. Focusing your pitch on “why”
also shows investors that you’re emotionally committed to your start-up’s mission.
It’s inevitable that you’ll hit obstacles along the way. You’ll lose that key client. You’ll
run low on cash. You’ll have a major technical glitch. Commitment makes you a less
risky investment because you won’t give up when things get tough. Similarly, the
“why” fosters team loyalty. Investors know that recruiting in the start-up scene is
competitive. If an employee believes in your mission, they’re less likely to be
tempted by other job opportunities. This will make investors feel confident that you
can retain the talent you need to innovate and deliver your product.
06:05
Chapter 3 of 8
Don’t make assumptions when writing your business model.
What do you think an investor is looking for when they’re deciding which start-up to
back? A solid five-year business plan, perhaps, or huge profit margins? The answer
might surprise you. It’s assumptions. When an investor reviews your financial plan,
they’ll look for signs that you’re inexperienced, immature, or deliberately
misleading. These red flags occur when you haven’t spent time getting hard data to
estimate your costs and market potential. To show investors that you’ve done your
homework, you don’t need to produce a detailed financial plan. But you do need to
demonstrate that you fully understand your future customers and know how to use
your resources to leverage market opportunity. The key message is: Don’t make
assumptions when writing your business model. There are a number of typical red
flags that will turn investors off immediately. The first is inflated revenue forecasts
that are based on assumptions about market potential. Overly rounded figures in
your financial plan – like 300 percent – are telltale signs that your forecasts are just
guesses. Your total market size should be based on actual data, which means you’ll
need to do some research. For instance, when Belsito was researching the market
size for eFuneral, he obtained data about the death rate and burial services from
the US census, as well as industry reports. The second red flag is an unrealistic
marketing plan. Investors want to know that you’ve considered how potential
customers will learn about your product and developed an effective marketing
strategy to reach them. Even if your product has viral appeal, don’t assume it will
go viral. On the other hand, investors will find it alarming if you plan to spend
millions on advertising before you generate any revenue. You need to be able to
show that whatever you invest in advertising will result in growth. Don’t assume
that you’ll win customers just because you’re spending big on marketing. To show
investors that your financial plan is solid, create a one-page spreadsheet outlining
how you’ll generate revenue and how you’ll spend funds to make sales. This will
force you to track down the relevant data so you can identify the amount of money
you’ll make and spend. Take a “bottom-up” approach, focusing on the cost of a
single sale and how you can scale revenue from that one sale to achieve many
more.
08:37
Chapter 4 of 8
Investors are drawn to leaders.
It’s easy to feel disgruntled if you’re an entrepreneur in a small start-up community.
You might dream of those vibrant cafés in Silicon Valley, Austin, and New York,
certain that if only you were there, you’d easily find an investor while ordering your
espresso. But being part of a newer start-up community has an important benefit.
It’s much easier to position yourself as a leader if you’re not in an overcrowded
scene. Being a leader means being able to inspire a team, tackle competition, and
convince customers your product is the best. These kinds of qualities win investor
confidence. Here’s the key message: Investors are drawn to leaders. Positioning
yourself as a leader isn’t difficult. It just takes time, initiative, and goodwill. Start by
getting to know the other entrepreneurs in your community. Who are your fellow
thought leaders and founders? Who’s hosting events that attract potential
investors? Identify these people and organize a coffee meeting with them. You’ll
need a specific purpose for your meeting; otherwise, there’s less incentive for them
to accept your invitation. For instance, if a founder is an expert in a particular area,
you could ask for their feedback on that aspect of your business plan. Or you could
offer to assist them in an area in which you’re an expert. That way, there’s value in
meeting. Don’t underestimate the power of helping others. Think of the skills you
have, then offer to mentor fellow start-ups. If you’re an SEO specialist, for example,
give some of your new contacts a crash course. This not only positions you as a
leader; it also builds goodwill. Reciprocity is a currency in start-up communities. If
you give, you’ll most certainly receive. Finally, create opportunities for serendipitous
meetings. Silicon Valley is filled with stories of founders who randomly met investors
walking down the street or entrepreneurs discovering ideal employees at a
hackathon. If you’re outside a major start-up hub, you’ll need to be proactive about
creating opportunities like these. Organize a regular meeting for start-ups at a local
bar, or a tech event that’ll bring the community together, or even a private
Facebook group where you can exchange ideas. By taking the initiative to build
connections, you position yourself as a leader at the center of your community.
11:06
Chapter 5 of 8
Choose your founding team wisely.
If you’re like most entrepreneurs, you likely think that the concept behind your
start-up is what investors care about most. But what’s actually more important is
your team. After all, if you don’t have a solid team behind an idea, it’ll never come
to fruition, even if it’s brilliant. If you want an investor to believe in your start-up,
you need a team that can execute your vision. Building an effective team can be a
challenge, especially if your start-up began with you and a few friends tossing
around ideas in a local bar. You and your friends probably share similar interests and
experiences, which means you’ll likely end up with a team of cofounders who think
in the same way. To avoid getting trapped in homogenized thinking, you’ll need to
carefully plan who else comes on board. The key message here is: Choose your
founding team wisely. Before you build your team, sit down and do a skills audit.
Work out what knowledge bases and expertise you’ll need to get your start-up off
the ground. If you possess all these skills yourself, you may be able to convince an
investor that you can create a viable business alone. If not, you’ll need to recruit
people who can fill the gaps. Don’t fall into the trap of mirror syndrome – where
everyone you recruit looks and thinks like you. Diversity ensures that your team
approaches problem-solving in different ways. Even if you’re making a product for a
white male, having a team of white men won’t help you when it comes to critical
thinking because everyone in the team will arrive at a similar conclusion. And it
won’t necessarily be the best one. View building your team as seriously as
marriage, getting to know your potential recruits before inviting them to join you.
After all, you wouldn’t propose to someone you’d only just met at a speed-dating
event. You’re going to be spending a lot of time with these people. There’ll be highs
and lows to weather, and your success will be tied to your team. You’ll want to find
out the level of commitment potential recruits have, too. Like marriage, you want
team members who are prepared to go the distance. That way, investors can be
confident that your team is committed to your business goals.
13:22
Chapter 6 of 8
Prepare thoroughly before pitching.
Congratulations! You have a brilliant idea, a well-researched financial model, and a
fabulous team. So, it’s time to start pitching, right? Well, not quite. Pitching to
investors is much like a football team preparing for their weekly game. Before the
team steps out onto the field, they study the playbook their coach put together. As
founder, it’s your responsibility to create this playbook. Your pitching playbook will
contain everything you could possibly need to provide to a potential investor, no
matter what they ask for. It’s the best way to ensure you ace every pitch. This is the
key message: Prepare thoroughly before pitching. To make your playbook, you’ll
need to create a number of items. The first is a single-page start-up canvas. This is
your business plan at a glance. Odds are, no investor will ask to see it. But it’s still
crucial that you prepare this document so you have a clear snapshot of your
business. To create your single-page start-up canvas, look online for templates. You
might like to use Alexander Osterwalder’s Business Model Canvas or Ash Maurya’s
Lean Canvas version. Regardless of which template you use, this exercise will force
you to reflect on important aspects of your business model so you can be confident
that it’s well thought out. Next, prepare your executive summary – which outlines
the essence of your business. Your executive summary should cover the problem
you’ve identified and your solution to that problem, the market size, your revenue
model, information about your team, and a financial overview. Aim to provide all
this information in two pages. Finally, prepare a pitch deck. Typically, this is a
PowerPoint or Keynote presentation that can be delivered in 20 minutes. Cover each
critical component of the business in two slides, with around ten slides in total.
Create two versions of your pitch deck – one that stands alone without explanation
and a more visual version to present in person. For your in-person version, include
addendum slides to address any specific questions an investor might have. You may
not end up using these slides, but you can always jump ahead to them while you’re
presenting if a question comes up. These materials, along with your financial model,
come together to form your playbook. Once they’re prepared and you’ve practiced,
you’re ready for the field.
15:57
Chapter 7 of 8
Create your own investor connections.
If you’re located outside a major start-up community, finding an investor might feel
like an impossible task. You can fall into the trap of thinking that you don’t have the
right connections to get seed funding. While it’s true that it is easier to make
connections in places like Silicon Valley, it doesn’t mean you have to know lots of
investors when you begin to look for start-up capital. Regardless of where you’re
located, you can form the connections you need. Of the initial $1 million that Belsito
raised to kickstart eFuneral, two-thirds came from investors he didn’t know. Here’s
the key message: Create your own investor connections. So, how do you go about
making those important connections? The first step is to stay in close contact with
any mentors or other champions of your business. Even if these people aren’t in a
position to invest themselves, they’ll probably have colleagues who are. You just
need to research their network to identify those potential investors. Start by
exploring investor profiles on databases like AngelList and Crunchbase. Make a list
of all the investors you consider a good match for your start-up. Then, look them up
on LinkedIn to see if they’re connected to anyone you know. If they are, ask your
mutual contact to introduce you. If that shared connection happens to be one of
your mentors, their enthusiasm will no doubt pique your potential investor’s
interest. If you’re part of a newer or smaller start-up community, you may not have
any mutual connections with your target investors. This means you’ll have to cold
call. The phrase cold call fills most people with dread. But thanks to social media,
reaching out to someone who doesn’t know you is far less intimidating than it used
to be. Initiate contact with your target investor by following them on Twitter. Join in
the conversations they’re having by answering questions. If they have a blog, read
their posts and leave thoughtful comments. This develops a rapport. Once your
target investor knows who you are, send them a carefully crafted email. Provide
some information about your start-up and ask them if they’re interested in
discussing it further. Because you’ve already created a personal connection with
them, they’re more likely to take a personal interest in your business.
18:21
Chapter 8 of 8
Your most important investment isn’t the biggest; it’s the first.
Investors are a bit like sheep. Very few of them want to take the lead, and they feel
most comfortable in a herd. This means that most of them don’t like being the first
investor in a new company. They want to feel confident that a start-up is worth
investing in, and that confidence typically comes from seeing that other people
have invested. If you’re a first-time founder, this makes it very difficult to get that
first investment check. If no one else has contributed to your seed funding, other
potential investors will wonder if there’s something wrong with your business. On
the other hand, if you have a few investors, they’ll view your start-up as
trustworthy. That’s why you need to do whatever you can to secure that first
investment. This is the key message: Your most important investment isn’t the
biggest; it’s the first. As intimidating as it can be to ask for money, there are a few
strategies you can use to secure that crucial first investment. Start by becoming
your first investor. Show investors you’re fully committed to your business by
making an investment that’s significant in relation to your circumstances. That
might be a check for just $500. Or you could invest in other ways, like being
prepared to live on a reduced salary until your business generates decent revenue.
Next, reach out to your family, friends, and mentors. Some of them may be able to
make a small investment. Before accepting their money, ensure that they
understand the high-risk nature of investing in a start-up to manage their
expectations and protect your relationship. If an investor is interested in your start-
up but hesitant to be the first to put money down, propose that they invest on the
basis that you find another investor who’ll match their contribution. That way, you
get their commitment without them needing to hand over a check straight away.
When you speak to other potential investors, explain that your first investor is
standing by with their checkbook. Belsito took this approach with eFuneral and
ended up with a respectable $60,000 from two mentors and a government grant.
Receiving that first investment is a huge thrill. It’ll give you the confidence to reach
out to more investors and secure the seed funding you need to make your dream
business a reality.
20:45
Conclusion
Final summary
The key message in these blinks: Being located outside an established start-up
community doesn’t need to be a disadvantage. If you do your research and carefully
construct your team and pitch, you can obtain the seed funding you need,
regardless of where you are. By understanding that investors are looking for viable
businesses, you can distinguish yourself from other founders who merely have good
ideas. You can then connect with investors through social media to develop a
rapport. That first investment will create a domino effect, and before you know it,
you’ll have the start-up capital you need. Actionable advice: Keep your investors
informed. Your investors are not only the champions of your start-up; you’re also
answerable to them, so it’s important to keep them updated about your business
developments. To do this, set up a private blog using WordPress. A private blog is
one that can only be accessed with a username and password. Give your investors
access to the blog and then post updates regularly. Your investors will be notified via
email every time there’s a new post, so they’ll easily be able to stay up to date and
hear your latest news. Got feedback? We’d love to hear what you think about our
content! Just drop an email to [email protected] with Startup Seed Funding
for the Rest of Us as the subject line and share your thoughts!
Mark as finished
00:00
-22:27
Startup Seed Funding for the Rest of Us
Mike Belsito
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