Yesterday, I met angel investor and Silicon Valley entrepreneur Zach Coelius at the Google Campus in London. Zach was giving a talk about what early stage investors like him look for, and sharing some war stories from his time as an entrepreneur. Despite the fact that his talk started at 7 pm on Friday, the room was full — clearly there is a lot of dedicated interest in this topic! This is why I am sharing Zach’s advice in this blog. If you couldn’t make it to Google Campus on Friday night, but want to know about fundraising, read on.
Zach’s investments include Cruise Automation (bought by GM for $1B+), Branch Metrics, SkySafe and a dozen other start-ups. His last venture was Triggit, for which he raised over $25m in venture capital and exited to Gravity4 in 2015. Zach ran Triggit for 10 years, growing it from 4 to 60 employees and over $30m in revenue.
Start-ups are like babies. Just like babies, they need your attention and daily devotion more than they need money. Even with lots of cash, if you don’t pay attention to your baby, they are unlikely to grow into a well-functioning adult.
Investors invest because of 3 things:
Team: successful entrepreneurs like Elon Musk have a visible track record. If you’re not there yet, make sure your target investors get to know you. Offering to take an investor out for coffee to “pick their brain” is useless, but sending them information on the market you are working in is bringing them value. If you are building a new education platform, you have a unique perspective on where edu-tech is going. Keeping your target investors informed of these trends is useful to them.
Tech: build something to show what the vision is. Having a Minimum Viable Product makes a huge difference because investors can see it, touch it, feel it. (Side note — getting a working prototype made a difference in Style Counsel’s fundraise).
Traction: get your baby to walk, even if it is stumbling and the steps are little. If you’re having trouble getting funding, focus on traction first. Traction is validation of your idea, so even if an investor would not use your product themselves, traction shows that other people want it.
My view: this is particularly true if you are building a product for women. Since most investors are male, they will not understand the use case for your product if you just explain the idea. If you show that women are using the product, the male investors don’t need to worry about an unfamiliar use case because your proof is in the numbers.
Engagement is not the same as growth. Investors hear stories about engagement all the time, but the reason they invest is growth. Engagement can translate to traction (i.e. growth): if your users like the product enough to keep using it, you can convince them to share it. (We started doing this at Style Counsel and it works. We literally message heavy users and ask them to share us on their social media and they do).
Your first ever money will most likely come from your friends and family. When you raise money from this group, make sure they understand that you are very likely to lose it. Managing these people’s expectations is very important, so you don’t lose them if things go wrong. Also, you will be able to be more honest about how stressful your life is, if they know how risky start-up life is.
Social proof is a great help for fundraising. When LinkedIn founder Reid Hoffman invested in Zach’s business, others wanted to follow suit.
Smart money is worth fighting for and not just for the social proof. Dumb money can have a tremendous cost.
VCs are not on your team. They ride you like a horse and leave you when you die. This is not an inherently bad thing, because interests can be aligned, but entrepreneurs should keep this in mind.
Zach’s advice for what to send to an investor:
One sentence explanation of your business.
Short paragraph: 2 or 3 sentences max.
Slide deck. Most Executive Summaries are badly written, but slide decks usually explain the business better.
There is a tonne of bros in Silicon Valley and they have solved many bro questions. But there are lots of questions left unsolved that the bros don’t understand, so it is a huge opportunity for women.
My view: this is also a great opportunity to grow your female-consumer focused start-up under the radar of the tech giants until it is easier for them to buy your company than to compete with them. There are benefits to being the underdog if you play it right.
Always raise money when you can get it. If something bad happens that is outside of your control, like the Lehman Brothers collapse, you’ll be in a safer place with cash in the bank.
The further you are away from San Francisco, the higher the bar for Silicon Valley investors to invest in you.
Being an entrepreneur is a roller-coaster — you can feel really happy and really down all in one day. That’s just part of the job.
Managing your sanity is key to your start-up. If the entrepreneur breaks down from the stress, the company will collapse — just like in the baby analogy. Do something regularly that you cannot do while thinking about work. For Zach, it was playing professional poker, for me it is dance lessons: different micro, same macro.