by Donna Griffit, author of “STICKING TO MY STORY: The Alchemy Of Storytelling For Startups“
I wrote Sticking To My Story as the ultimate guide for creating winning pitch decks. But before I gave my winning recipe, I did something that had my editors balking – I told founders to ask you themselves a very serious question. Are they truly ready to raise?
Now, if you’re a startup raising funding, I want you to ask yourself the same. This is not an easy question to answer, but if you aren’t ready, stopping now and getting the traction needed to be ready can be the make or break of your fundraise – and your company. If you are not ready to raise, even the best story or storyteller will not be able to tell a story that gets you funded. It would be a bit like trying to cook a gourmet meal when all you have in your fridge is some ketchup, a half-eaten yogurt and some leftover Chinese takeout. No matter how hard you try, a gourmet meal will not be cooked.
Over the years, I’ve had to stop working with founders on their pitches not because their idea didn’t have potential or they weren’t great founders. It was because it was obvious to me that their startup was simply not ready for funding.
Too many entrepreneurs are focusing on raising capital as the end goal, forgetting that it’s only a means to a greater end. You should be driven by what your startup can achieve with the funding rather than the funding itself. Think of it as a pit stop on a very long road trip, and you better buckle up because it’s a bumpy road ahead.
Television can make fundraising look so easy. You might have seen an exciting deal close on Shark Tank. You may have thought that fundraising is as simple as going into a room for twenty minutes and coming away with a new business partner and a sizable check. The truth is, fundraising becomes a full-time job for founders and takes over their entire lives.
With the funding frenzy in 2021, some founders began to think that investors hand out money like hotcakes. In the bleak reality of these starkly different times, investors will only fund you if you can prove you’re ready. If you try to fundraise too early, your business will be ripped apart, and you’ll burn a future bridge for not respecting the investor’s time.
How do you know when you’re truly ready? There are three critical aspects you need to have nailed:
You satisfy a real need.
When a startup tries to raise too early, the product still needs to be at the stage where it can afford the lack of attention it receives during the fundraising phase. It’s not uncommon for a company to backpedal while the founders are busy trying to raise the funding to grow. A bit of a catch 22 that makes it even harder for the startup to raise money and makes he founders more desperate.
And you have to be doing the actual work and getting out there to talk to potential customers and if you don’t have them yet, you’re missing a major piece. You need to talk to as many potential customers as possible about this pain point. You need to validate that it is a pain — that they either lack a solution or the solution they are currently using is missing the mark, and they need something much better. Don’t be obsessed with your solution — be obsessed with solving their problem.
Investors will not be impressed if you turn up to a pitch and haven’t done as much research as possible. You can’t expect them to validate your market for you. Investors might ask you some questions that take you by surprise about other companies that are attempting to solve the same issue. They may ask you what sets you apart. Do not be caught off guard. Find every single company working on this pain – enterprise solution or even early-stage startups, know what they’re doing and identify how your approach is truly different.
You can only explain how your product is differentiated if you have a deep understanding of your customers’ struggles and the gaps in the existing products. And for this, you need customers, or at least, design partners, meaning a pilot customer who are involved in the actual building of the product, giving you direct insight into their needs and wants. Get them BEFORE you try to raise.
Have an MVP or beyond.
Many founders dream of the “idea on a napkin” funding story, when in truth, they should be sketching on fewer napkins and putting in more sweat equity before seeking investment from external investors. Instead of spending the bulk of your precious time fundraising, roll up your sleeves, dig deep, and work on creating an MVP — or minimum viable product. Have something that works on a basic level or beyond to show investors.
Remember the conversations you had with potential customers about the pain? Now, come back to them and see what kind of product they fantasize about. Build your product with them in mind, and have them come on as design partners. Hopefully, they will become early adopters who will fall in love with your product and convert to paying users. And having lots of paying users is the best way to persuade investors that you are a great investment opportunity.
Your plan is executable.
The final piece of the puzzle is whether your idea can realistically give investors the ROI they expect. You need to remember that most startups will fail, so the potential upside must be massive for it to be worth taking the risk.
I turn down working with many founders because their ideas are simply not venture-scale businesses. Not to say that they can’t become very nice lifestyle businesses and make their founders a significant income. But if they can’t scale to a venture-level businesses, there’s no point in spending time and money on creating a great pitch deck and talking to investors. You can’t use a small sample and then extrapolate to say you’ll be a hit worldwide. This is especially true if your home country or market is tiny. Even if you’ve got customers who love you and pay you on your home turf, you must have a plan of how you will then penetrate major markets and compete with big players.
Don’t go into a pitch meeting with the vague idea of wanting to expand overseas. Come armed with clear next steps to which markets you will target first and why. Then, explain to them how their funds will help get you to your next milestone/s.
Also, before you even toy with the idea of fundraising, have the right team in place to manage the company effectively, especially when you’re out fundraising. You need to trust these people with all your heart and soul. It’s one of the most important partnerships you will ever have. In your pitches, it’s not just you being scrutinized, but your team and your team dynamics too. Startups close due to bad relationships between founders. If you can pull together a group of truly great people who respect each other and have healthy working relationships, everything becomes more manageable.
VCs know that you’ll likely need multiple rounds to reach your big end goal. One Silicon Valley venture partner said to me, “Once I write a check, I’m on the hook to help them raise their next round. Having clarity on what they will achieve in the next 18 months is super important for me to see how they’ll raise their next round and how I’ll onboard the best investors for them.”
If you can tell them what you hope to achieve in this round and where you’ll be positioned after, you prove to them that you’re ready for funding. If you don’t meet these criteria yet — that’s okay! Just get to work and accomplish as much as you can before you hit the roadshow.
Donna Griffit, author of “STICKING TO MY STORY: The Alchemy Of Storytelling For Startups“, is a world-renowned Corporate Storyteller and Pitch Alchemist. She has helped over 1000 startups, corporates and investors raise over one billion dollars and accelerate their sales with a personal touch and unmatched messaging savvy, in any industry, at any phase.
