The following answers are provided by the Young Entrepreneur Council (YEC), an invite-only organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.
1. Prioritize Your Time
Prescreening potential investors who couldn't invest would have helped me spend my time with only investors who could. Before taking a time-consuming meeting, try to make sure that your potential investor 1) has capital 2) is the decision maker and 3) regularly and recently invests at your stage and in your market. Your time is your most valuable resource when fundraising.
2. Use Milestone Funding
Before raising funds, calculate exactly what you need. Establish your objectives, then set out to raise only as much capital as you need to hit your milestones. Once you’ve achieved your milestones, then you can go out to raise more funds. This prevents unnecessary dilution and allows you to get the highest possible value for each round.
3. Know That Introductions Matter
Too many entrepreneurs waste time hustling investors at networking events. I wish I would have known that most of my investors would come from my existing network, often through introductions from friends. Ask fellow founders if they know of any investors who might like what you're doing, and you'd be surprised how many are willing to introduce you. Warm intros are the key to getting a meeting.
4. Use 'Unit Metrics'
We wasted one month in investor meetings discussing our big story and highlighting some of our accomplishments to date. What eventually started to garner serious interest — and investment — was having great insights into our unit metrics. We did well when we knew the cost of acquisition per customer, the lifetime value per customer and the repeat purchase rate per customer.
5. Realize the Difficulty of the Process
I wish I had realized that the process of locating and pitching to angel investors and venture capitalists is not as easy as it seems. You must have a detailed business plan in place, a budget and a compelling story behind your startup. Also, knowing how to deal with rejection is a must if you want to get through the process unscathed.
6. Prove Traction First
After we landed some major clients and demonstrated our ability to bring in revenue, we had a much easier time raising money. In retrospect, I would have spent more time on business development before starting to raise outside investment.
7. Don't Emphasize Financial Forecasts
For an early stage Internet/software startup looking to raise seed-stage financing, financial forecasts are not an overly important part of the pitch. Many companies invest a lot of time and effort in creating a financial model. However, as any sophisticated venture capitalists will understand, these forecasts are often far from accurate given the highly unpredictable nature of startups.