Raising money for your startup

I had the opportunity to talk to a group of entrepreneurs and MBA students at Seattle University this past Monday. One question I frequently hear from entrepreneurs, and heard again on Monday, is How do I prepare my pitch to raise seed money?

While I have created successful (and not so successful) divisions at large corporations, managed M&A evaluations for large tech, educational, and media companies, and just in 2012 helped to raise one series A and raised a seed round for my own company, I don't think of myself as an expert. Each fund-raising event is a unique opportunity, and the unique players, economic environment, and business climate affect the dynamics of the process. What I have learned is that the pitch is really a basic exercise in Communications 101. You need to focus on the message (story), the target audience, and the delivery mechanism. The three elements intertwine and need to be adjusted depending on the occasion.

As I was preparing my story to share at Seattle University, I came up with the following four steps. These are not perfect or foolproof. They are just what have worked for me in the past, whether talking to investors in the Bay Area, Seattle, New York, or London.

1.- Understand your audience so you target the right investors. If it were only money, you would go to a bank. Trust me, money is the least of your worries. 

• Find investors that complement you. You want experts that can balance your blind spots on go-to-market, business development, technology, etc. 
• Go beyond your zip code, beyond your state. Get outside the echo chambers. 
• Forget you are raising money. You are simply asking for feedback on your venture and for intros to potentially interested parties. The best (quality) money comes from those that align with your vision, and they will encourage you to take it from them. 

2.- Forget PowerPoint or Keynote. Seriously, forget it. Craft your story as just that, a story to be told. Once you have told your story, follow-up with a demo. A demo is worth 1,000 slides. If you really need some AV help try Haiku deck, Prezi, a short video (2 min max), or a simple whiteboard. 

3.- Create a leave-behind executive summary and save it in a folder in the cloud alongside reference material, team bios, and professional references.

4.- Focus your story on five key areas. 

(A) You. (This is a personal loan backed by zero assets but you.) 

• Why should I trust you with my money? What have you done before? What have you completed, launched, created? 
• How do you deal with ambiguity and quick decision-making? How do you deal with failure? 
• What inspires you? What do you believe in? What are your motives? If you say this is for the money, I stop listening. Startups require passion and persistence, which flows from purpose. Find your purpose. 
• Can you afford it? The first leg is an 18- to 36-month trial period. Can you and your loved ones afford it? 

(B) The problem. (Not a solution in search of a problem.) 

• What is the problem you are looking to solve? Keep it simple. 
• Do you have the problem? If you don’t personally have the problem, that's a major warning sign. I need to see who in the team is an expert on the problem area. 
• What’s the opportunity? Not a hockey stick but a good sizing of the addressable opportunity and what makes you think it is addressable. 

(C) The solution.

• Expand your idea of value. Define your value in human terms, not in business terms. Your real value is about what you believe in, what you’re trying to do in the world, and how you make others’ lives better. 
• Can you describe it in a few words and is it easily understood? 
• Are you addressing pain or providing pleasure? Talk about PEOPLE, not about users, and let them speak through you. 
• Is it easy to try, easy to observe? 
• What is your relative competitive advantage? 
• How do you plan to take it to market? Have you done it before? Show me the numbers. 

(D) The financials. 

• i. How will you make money? 
• ii. What are the key metrics? 
• iii. How much cash do you need and what for? 

(E) The team. 

• What are your blind spots and how does the team complement you? How does the team complement each other?
• What great teams have you built before? How will you build this one? 
• Technical and marketing skills – find the balance. 
• Finances and biz dev – always overlooked. 
• Mentors and advisors – the real deal. Think value added, not a list of names.

Act local and think global when raising capital

+John Cook recently wrote about yet another local Seattle entrepreneur choosing another city to start their venture "Why this Entrepreneur is moving..." . I think John and Geekwire are doing a great job working as a voice for the entrepreneurship ecosystem in Seattle and that voice is the glue needed to keep on improving the local ecosystem. +Andy Sack and Bill Bryant replied to John’s post making very good points that I agree with. Seattle is a fantastic place given our size, local GDP, population, etc. Do we need more angels? Absolutely, but there are also great angels in NY and CA and we probably need to go beyond our borders in WA to attract capital. We need to act local and think global as entrepreneurs.

I am an Angel investor, but also an entrepreneur and last December we raised a seed series for our company Jobaline. We got support from Madrona Ventures and from fantastic Seattle’s based Angels that are not only great investors, but also added value investors and they have been terrific at helping us with UX, Biz Dev or even GTM. A curious data point is that most investors are Amazon, Local entrepreneurs that succeeded or Facebook alumni. In raising our seed round I went to NY and the bay area, not because we ever thought about moving there, but because there is good capital there, good value added investors and some of our target customers are there. As a result, some of the money came from those areas, which is good for Seattle’s entrepreneurship ecosystem.

I know it feels like a tragedy to see one startup moving to another state, but there are also many good stories, investors from NY and CA investing here, firms like Madrona, taking a fresh approach to VC by providing more than money but also help with resources in the areas of Marcom, HR, Finance. We have many great programs like TechStars, Founders Institute or the Startup Leadership Program. There are also firms moving here from other states (our next door neighbor at our office in Kirkland is a firm moving here from NY because talent, cost of doing business, regulations, etc are better here).

We have the talent here for building, not the next copy cat Instagram, but solutions to real problems and capital from other states or countries will gladly come here if we show the path, As I recently told Xconomy, while the Bay Area is the capital of the consumer Web, “Seattle is the place for the Smarter cloud.”

CA recently enacted a retroactive tax affecting entrepreneurship and the Bay area has a  higher cost of living than Seattle, On the other hand, tech talent, GTM talent and quality of life are just fantastic in Seattle. I still give Seattle an A as per my previous infographic "Entrepreneurship in Seattle" and we should all welcome capital from CA, NY, Europe, Asia and many other places as this is a great place to build real solutions to real life problems in order to make a positive impact on society.

As entrepreneurs and investors we absolutely need to expand our thinking and go beyond Seattle’s boundaries when thinking about raising capital. But we need to mature our approach and go to those other cities and countries, not complaining about Seattle, but explaining why our specific venture is a good investment, why our team is the right one to deliver on the vision and why Seattle is such a great place for their investment.

Marketing starts with engineering

  Whether we like it or not, one out of seven minutes online is spent on social networking, and Facebook captures most of that time. This comes with monetization challenges because of the decline of share of minutes online for web browsing and apps become a preferred mechanism for the mobile web.

  While the top 4 leaders: Facebook, Twitter, Google + and LinkedIn figure out monetization via online advertising (a macro economic mirage), the power of those players in the cloud computing space is clear, as they become de-facto user authentication mechanisms, online wallets, personal and business address books and digital memories data vaults, among other things.

  Startups cannot afford to waste too much cash on fancy marketing campaigns that win awards and result in zero incremental profit or market share. Actually most startups do not even hire a marketer until the product is getting some traction and revenue starts to flow. For consumer internet, digital media and consumer tech, marketing happens through engineering. If one is launching a new product or service (hopefully NOT monetized through advertising), it is crucial to understand how to embed into the user experience some natural leverage and intuitive connection points with these four players. Mastering this social integration at the end user experience layer is as critical for marketers as it is to master search engine optimization to maximize their online marketing spending.

Infographic by Go-Gulf