Fundraising is like selling ketchup
Raising money for your startup is like selling any other product, including ketchup.
Your startup is a product and people buy pieces of your startup through equity sales, or options to take equity later such as SAFEs or convertible notes.
Fundraising is really the activity of selling your equity to a willing buyer. And the following three rules apply to selling your equity, just as much as they apply to selling any other product:
Product: Is this a quality product? For an early-stage startup this is often judged by investors by looking at the team, the opportunity/problem, the business model and any traction and fundraising to date among other things.
Marketing and PR: How are the founders communicating the quality of the product to potential investors? Is the website professional? Do the founders know what they are talking about and do they come across as credible winners in this market?
Price: What are the investment terms and are they at a level set to attract buyers? You can try for a valuation at the top of the range for your startup’s maturity, but that will likely mean it will be harder to find a buyer and you’ll take more time to close the round.
At Accelerating Asia we work with founders on all of these factors and the majority of our teams close their rounds during our program and almost all (~90%) of them raise external capital during our program. Sidenote, we’ve just closed applications for our flagship program, but you can join Amplify our 6-module online startup program.
Going back to the ketchup analogy.
Imagine you’re at the grocery store looking for some ketchup, you see a good brand, one that you’ve seen on TV before with some good marketing.
You look at the price and it’s $25.
Would you buy it?
Probably not unless this ketchup was infused with gold flakes or something.
A more appropriate price would be something like $2, especially if it’s “on sale”. At that stage you feel a good match between the product and the price and you’ve gained confidence through the marketing. You decide to make the purchase. A similar set of calculations is going through investors’ heads when they consider investing in your startup.
Especially in the early stages where you really need to source capital to scale quickly, you may want to consider putting your equity “on sale” to speed up your fundraising process, get money in the bank to purchase resources and scale up your metrics. You only have so much time in the day. Do you want to spend it selling equity or selling product? Every hour you spend meeting with investors, putting together materials for them, attending pitch events, etc., is an hour that you are not spending on product development or scaling your business. Maybe it’s best to take a bit of a lower valuation and focus on growing the business for a while. In my experience, this often results in less equity given away anyway, as the growth results in higher future valuations than you may not otherwise attain if you’re trying to grow your business while distracted with an ongoing fundraising process.
In summary, make sure your product is attractive, your communications and marketing are professional and that you’ve set a good price for your round. This will get you money in the bank sooner, let you focus on growth and all-in-all derisk and accelerate the growth of your business.
Do you want to spend time selling product or spend time selling equity?
Now I want some french fries (with ketchup).
Want to learn more about fundraising from our Co-Founder and General Partner Craig Bristol Dixon who has helped 70+ startups close rounds and has raised capital himself from Wavemaker and 500 Startups? Join Amplify, our 6 module online program designed to 10X your capital raising and help you scale your startup.
Disclaimer
In making an investment decision, investors must rely on their own examination of startups and the terms of the investment including the merits and risks involved. Prospective investors should not construe this content as legal, tax, investment, financial or accounting advice.