September 22, 2014
Raising capital is one of the hardest jobs an entrepreneur has to do. Not only does it take time away from your company, but you also have to hear every reason about why your company will fail.
“Your business model is garbage.”
“I still have no idea what your company does.”
“Yeah, that will never work.”
While fundraising can be a long process and a confidence killer, the lessons you’ll learn will be priceless.
Below are some of the lessons you’ll learn raising money for your startup. If you can hang in there and not take criticism too personally, you’ll come out a better entrepreneur afterwards.
1. You’ll Develop Tough Skin
When you pitch to investors, usually they are looking for a reason not to invest. In most cases, they aren’t scared to tell you exactly what they think is wrong with your company. This is especially true when you pitch to a group of investors. When investors are together in a fund, they are much more confident because they have the support of their comrades.
Besides looking at the strength of the business, the other reason investors will criticize you is to see how you will respond. Many investors want to back entrepreneurs who are coachable and open to harsh feedback. If you want to raise capital you’ll have to learn how to bite your tongue sometimes and just take the criticism they give you. Even if you think an investor’s advice is ridiculous and makes no sense, be careful how you come across if you argue. Proving your point is not always what your potential investors want to see.
Once you get this nailed down, you’ll become a pro at handling feedback for your startup. In time, you’ll be able to respond without feeling upset, and you’ll be a more coachable entrepreneur. Also, you’ll learn to be confident enough to keep driving forward no matter the hurdle. After hearing all the reasons that you’ll fail, when you still make progress it’s a huge motivation booster.
2. You’ll Become More Patient
Investors put their money in lines not dots. That means that it’s rare that an early-stage investor will cut you a check right when they meet you. In most cases, this process takes time for the investor to see how you act as an entrepreneur when times are good and when times are bad.
Because of this, you’ll learn how essential it is to stay in touch and update others on your progress. One of the best ways to do this is to keep a spreadsheet of all the investors you’ve met. Then, just send them a quick email update every 4-6 weeks about your progress. We did this for Alumnify, and our lead investor put in money after a year of those updates. It takes a while, but it’s better to develop those bonds now rather than waiting until you’re almost out of money.
When you start tracking your relationships, you’ll begin to realize the importance of patience. Early-stage investing is built a lot more on getting to know you as an entrepreneur. Having the patience to develop these connections is a skill that will serve you well in all aspects of being a business owner.
3. You’ll Understand Your Business Like Never Before
As you’re fundraising, you’ll have to nail down all types of pitches, depending on the time you’re given. After doing these pitches over and over again, you’ll start picking up more on your business than you thought. Maybe if you could say you had x or y feature, your pitch would sound stronger. Perhaps if you had that CTO role filled, your company would be much more investment-ready.
I’m not saying you should build your business around what potential investors tell you. I’m saying that you will learn a great deal by picking the best advice they have for you and implementing it. In most cases, pitching your company is free. Even if the group you’re pitching to doesn’t invest, at least you get free advice on how to improve your startup.
This is extremely helpful if you’re a founder, because you’ll be hearing from people who don’t have a stake in your company. Listen to the advice, see what you can improve on, and keep moving. Once you’re done fundraising, you’ll have a whole new set of ideas and strategies to install into your business.
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