Seven Strategies for Getting Early Stage Financing
By Susan Williams DeFife, President and CEO
Women's Connection Online
Raising early stage capital, in all honesty, is probably one of the most
painful and gratifying experiences a netpreneur will face. You've got a great idea and the
vision to carry it out - all that's lacking is money. You don't want a lot of money, just
some seed capital to give it a jump start. You begin the Great Money Hunt. But the further
you get into the venture capital jungle, the harder it is to imagine ever arriving at a
clearing. That's when it's good to step back and look at your strategy.
After six months in that jungle - and many strategy assessment meetings later -- we've
received commitments for our first round of investment capital, a combination of venture
capital money and private investor dollars. What we gained, in addition to the money, were
some great contacts and valuable relationships, not to mention some important lessons
learned. In the end, we can point to seven strategies that were key in our getting early
Develop a Good Business Plan - Your business plan is often the first and only
introduction to a potential investor. Despite the fact that you've put blood, sweat and
tears into that plan, investors see many plans every day - all from enthusiastic
netpreneurs who've put just as much of themselves into their plans. An investor may only
read your executive summary before flipping to the information about your team and, of
course, the financials. Presentation is critical. Show them you're more than an idea. Hit
them up front in the summary with a concise description of your product/service, target
market, accomplishments to date and the competition. Especially critical for investors:
how will you get your product/service to market, how will you spend their money (use of
proceeds), and how do they get their money out (exit strategy).
The business plan is not a static document. When certain questions continued to come up
with investors, we adjusted our plan to reflect the answers. Don't assume investors know
your "space" as well as you do. As an early adopter of the community business
model on the Internet, we expected to have to explain and justify the business model, and,
in some cases, to "sell" the Internet. We nearly forgot the need to explain the
economic power of the women's market and why targeting this group makes good business
sense -- we thought that was obvious. Many investor meetings and business plan revisions
later, we finally got it right! The point is - listen, be flexible, and don't make
assumptions about your audience.
Focus on the Team - Okay, so they buy your vision - but why you? Why are you and
your team the ones to bank on? Show investors that you've got the experience to get the
job done. Is there "been there, done that" experience - either in your
product/service space or with your target audience? Is there strong marketing/branding
experience? Lay out the current team's strengths and let investors know you're aware of
the gaps, then tell them how you plan to fill those gaps. When all the other questions are
answered, the investment is still a risk. In the end, investors are going to bank on the
Target Your Investors -- Believe it or not, there is both a lot of money and a
lot of investors out there. The key is sorting through them and targeting the ones with
whom you are likely to be the most successful. Talking to many investors helps your cause
- if not for the first round, then the second, and don't discount the word-of-mouth
publicity. But, time is critical - both the amount of time you have to spend every day
raising money and the time left in your company's life cycle. Ask investors if they do
early round financing and qualify that - what stage is early stage to them? Do they have
money available to invest now and, if not, what is their timeline for making an investment
out of a new fund? If you don't meet their requirements or their timeline doesn't meet
yours, move on. Keep them posted about your progress, but spend your resources elsewhere.
Consider, too, the type of investor you're looking for. At some point, the only
criteria may be that their money's green, but your investors are important partners who
can bring much more to the table including experience, ideas, partnerships, and contacts.
It may be hard to believe up front, but once the due diligence is done, they're very
valuable members of your team. Choose them as carefully as you would your other partners.
Find a Mentor(s) - There's nothing like "been there, done that"
experience. Find an experienced business person who's willing to spend a couple of hours
with you every few weeks to review your plan, presentation, and progress. It's too easy to
get mired in the day to day activity of the business and it's enormously helpful to step
back and focus on your direction with someone who's been there.
Get the Word Out - Create a "buzz" about your company. Keep key people
in the industry/community informed of your progress. Send press releases, make speeches,
etc. Talk it up - and others will too. Eventually, investors will want to know what the
buzz is all about.
Build Momentum - Sign contracts, build strategic alliances, measure your press
coverage. You've told investors what you can do, now show them. Even without money, you
can make a great deal of progress. Building the momentum behind your plan is critical to
moving investors forward.
Participate Actively in the Netpreneur Project - The Netpreneur Project provides
important support to young companies. It's an opportunity to connect with potential
investors, strategic partners, and mentors -- and to learn. Sometimes it's also just what
the doctor ordered - the chance to find support among other struggling netpreneurs, to
re-energize, and spark new ideas. Netpreneurs benefit from the many intangibles of the
Project as well, especially the promotion -- to the investment community, within the
industry, to the press, and through the Netpreneur newsletter and web site. The more
active you are, the greater the benefits to all of us.
Early stage financing is a long process. While the six months it took us to raise
capital may be a relatively short period, it felt like a lifetime! It's full of incredible
highs and lows, but the lessons you learn are invaluable - and necessary - to moving
forward. Hard as it seems, be patient. If you have a good idea, competitive advantage, and
the right team you'll get there!
Susan Williams DeFife is President and CEO of Women's Connection Online, an online community for
professional women and women business owners.
Back to Articles
Back to Early Stage