Ask HN: I don't know how to raise money. How should I?

https://news.ycombinator.com/item?id=7062076

by zmkahn • 13 years ago

15 12 13 years ago

news.ycombinator.com

Throwaway.

I don't know how to raise money.

What's a first time entrepreneur with a solid technical & business background, tons of experience, a working product in the hands of soon-to-be-paying B2B customers supposed to do to get started raising money?

I have a MVP plus product, a handful of beta B2B customers--some decent brand names--and some that will probably convert to paying customers in the next few month--talking about a few hundred to a couple thousand dollars a month per customer.

I've read Paul Graham's "How to Raise Money" [0]. I read the same from others' blogs: Don't raise unless you know you need the money. I know I need it to scale and grow quickly. Still, I don't know how to go about raising it!

I've spent years as a developer and product manager. I have a solid MBA. Something a little different? I'm in my late 30's, have a spouse and kids and am leaving a cushy corporate job.

How do I go about raising money? Cold-call angles/VC's and ask to meet over a coffee? Go to start-up competitions? Apply to an incubator? I thought about applying to YC but think I don't fit the demographic (age and family) and I don't have a co-founder.

How do I start? Are there specific advisers out there that help with this? Some book or blog post I haven't come across yet?

When should I start raising money? I've heard I should give myself a 6-month run-way, but I can't put my business on hold while I do that. BTW, having a co-founder is starting to make sense for this one reason now.

How much should I raise? I've heard an estimate of (monthly need x 18 months) and I've also read that I should just guess [1].

How do I start? And then what do I do next?

0 - bit.ly/1iSAUvB

1 - http://read.bi/1dqtJcD

EDIT: Fixed formatting

pedalpete2• 13 years ago

Where are you based? This will have a large impact on your next steps. Don't cold call VCs, that isn't the way to go. Go through your network. Maybe even leveraging the network of your clients, if you have a good enough relationship with them.

Do a bit of research into the VCs/Angels in your area. Find out who they are, what sorts of businesses they like. Get on angellist. Build a network there. Talk to people. Keep working. If you've got B2B customers and money coming in, focus on that. For most companies, that is more important than raising a first round of funding, assuming you can continue to bootstrap. The more money you have coming in and the longer you go without, the better leverage you'll have with investors, and possibly an easier conversation.

You say you need the money to scale and grow quickly, but are you sure you need to scale and grow quickly? There are definitely some businesses that do need this, but not all. It's easy to get caught up in the excitement and think 'I need money to scale', but what specifically do you need the money to do? Hardware is so cheap at the moment, and you're a developer, so those costs are minor. If you think you need money to scale with marketing, you don't at this stage. Wait a month, or two.

I've started the fundraising dance, and worked for a VC on a few of their start-ups, and I can tell you that it is very time consuming.

As far as getting a co-founder, everybody says to do it, but that isn't so easy either. Start looking.

Basically, my advice would be to network as much as possible, and get as much advice and help as you can. See what you can do with favours and such, without going for funding right away.

See if you can build your business to 10,000 a month. That may mean getting somebody to help you out, and that may mean sharing equity with that person. It doesn't necessarily mean they are a co-founder. Co-founders and employees are very different animals.

Congrats on taking the first promising steps with your new venture. Best of luck.

soneca• 13 years ago

Great advice!

What worked for me is to contact friends who are now in a very good finantial position. I have a high school friend and 3 years ago, when I was starting with this startup thing, he told me that he would like to listen to my ideas if one day I needed investment. So, now I need, I am ready to make an investment worthy, so I went to him, he liked the idea and he said yes!

He is not "smart money", and not connected at all with the rest of the market or the VCs. But is someone I can trust, smart and have the money (he is investment banking). Good enough for me.

But even if this works, by all means keep creating this network with VCs, successfull founders and mentors.

Also, you didn't apply to YC because you thought you didn't fit the demographics?!?! WTF?!?! You are quiting a job to do something with very low chances of success and is influenced by stupid myth? C'mon! Apply first, raise doubts later!

zmkahn4• 13 years ago

Great advice. Thx. I'm in the SF East Bay.

rms• 13 years ago

Move to the Bay Area. The actual financial EVs are strongly in your favor starting here over anywhere else. Your family might be far more open to the idea of moving here than you think. Ask them. A lot of people, including kids, have been properly convinced by the media that California is kind of awesome.

I think Oakland is the best place to actually build a company while raising a family here right now, by a long shot. The Oakland hills are fantastically livable, and the city of Oakland desperately wants you to start a successful company that will eventually want a waterfront corporate campus in the redeveloped area around 5th Avenue east of Jack London Square. However, your initial fundraising will happen in San Francisco and Mountain View, so San Mateo is the cheap, nice, developed, delicious, urban core halfway between San Francisco and Mountain View.

Befriend the leaders of companies that are leading angel and venture funded companies. Instead of asking for money, ask for advice.

Apply to incubators, including YC, for the experience of getting rejected from incubators while psyching yourself up for the experience of getting rejected by angel investors and honing your short form pitch.

Does your business school ever invest directly in companies founded by startups, or is there a group of alumni investors? Ask.

Do any of your well-paid coworkers and bosses from your previous job want to invest and live vicariously through you?

I like 1.5 million as a totally arbitrary amount you should raise.

pedalpete2• 13 years ago

You're assuming he is even American. Not everybody can move to California.

Also, 'liking' 1.5 million isn't the way to go about raising funds. you need to know what the money is for and how it will be used. I suspect anybody who went to an angel/vc and said '1.5 million will do as an arbitrary amount' would get laughed out of the room.

zmkahn4• 13 years ago

I left that bit out on accident: I'm in the SF East Bay already.

GFischer2• 13 years ago

You have an MBA, can't you leverage that network? maybe some of your classmates has some insight, or maybe there's a university service that helps new companies (there is one at the university where I did mine).

I would definitely try to network as much as I could, go to startup events, meetups, demos, etc. though your product isn't at the demo stage.

I think pedalpete's advice is good as well.

zmkahn4• 13 years ago

"...though your product isn't at the demo stage"

You mean demo even though it's in advanced stage?

GFischer2• 13 years ago

To be honest, I don't know if you should. But it seems that to raise money you have to put yourself out there and get contacts. I think PG mentioned referrals are a good thing.

Here's Steve Blank's (tongue-in-cheek) flowchart on how to get a VC meeting:

http://steveblank.com/2012/10/17/how-to-get-a-vc-meeting-the...

I've never been in your place so I don't know if my advice is applicable and I live outside the U.S.

The other advice posted seems good.

Edit: other links, from Fred Wilson on how to pitch them

http://www.inc.com/eric-markowitz/fred-wilson-on-pitching-un...

From Wired, how to get a meeting with a VC:

www.wired.com/business/2007/07/how-to-get-a-me/

Another interesting link (european-centric):

http://venturevillage.eu/12-things-you-need-to-know-to-get-v...

hope they help :) and good luck !!! Do tell us if you succeed! (or not, but let's think you will :) ).

brudgers2• 13 years ago

Why do you need to raise money if you already have customers lining up to pay?

It sounds a bit like you are on the verge of making money from what you know how to do and instead of just doing that, you're trying to do something you don't know how to do first.

What is wrong with bootstrapping for now, focusing on delivery, and fundraising (or not) later?

The end goal of any business is not fundraising, but cashflow.

zmkahn4• 13 years ago

I need to raise money for a few different reasons.

Right now, though I have an MVP-plus, a lot of the work that's being done is being done manually (e.g, analysis, report creation/generation, etc.). If I want to scale and get beyond a handful of beta-customers, I need to automate those processes. I've analyzed what it would take, and it's something that's out of my range to boot-strap. If I don't automate, or even partially automate, I'm going to be stuck with a handful of customers. With automation, I can add dozens, if not hundreds of customers.

Secondly, not only are some of my customers asking for a whole new incremental feature set, but I see the market ripe for the picking. In order to develop these new features, it'll require a new wave of development (for mobile) that I also can't self-fund.

Outside money would help in both of these, allowing me to move beyond perpetually having a few customers to growing this venture into a growing business.

brudgers2• 13 years ago

All that makes sense over the medium term.

I still don't see a clear short term advantage in chasing funding right now rather than converting a handful of potential customers into actual customers. That's not to say that there isn't one.

A potential customer who says "I would buy this if you added mobile" is a poor prospect at this point. They are a poor fit for your product [and in many cultures "maybe" is a less confrontational way of saying "no."].

Focusing on your strengths - design and delivery lead to validating or failing to validate your ideas more quickly and should your ideas validate, then attracting funding will be easier and it is more likely that you will do so on favorable terms.

If your ideas validate, then it will probably only be partially, and having that information before spending capital will allow you to spend capital more efficiently. For some people raising capital in your circumstances makes sense - particularly if they are good at it. By your admission, you are not.

Bootstrapping into perpetuity is one extreme. Slowing down right now to raise capital is the other. It is not an either or. There is a middle way, wherein you do not have to jump an additional hurdle before validating. All I've got to go on, is what you have said. It seems pretty well thought out, and my $0.02 investment in your business is based on your description and my gut feeling about human nature.

Good luck.

Ask HN: I don't know how to raise money. How should I?

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