By Callais Team
Pre-Seed Financing
Raising capital is hard. We get it. Aligning with the right co-founders, generating revenue streams, finding product market fit, and experiencing growth doesn’t happen overnight. It takes a lot of sweat equity. That’s why many entrepreneurs find themselves in a predicament their startup’s sales doesn’t support the capital needed to sustain the business. It’s a Catch 22. Even though venture capitalists tell you they invest in “disruptive” companies, or invest in the people, I’ve found that to be a rare unicorn case. Heck, even MoM growth doesn’t entice some VCs to open up their wallets. It’s a long game to entice a venture capitalist. But I promise, every rung you climb will make you more alluring to them.
If you find yourself in a financing conundrum, we’ve got a few suggestions on how to keep moving forward while you wait for the VC world to take notice.
Traditional Venture Capital Round
If you want to continue down the traditional VC route, you need to know the competitive landscape right now. I don’t point this out to dissuade you. There is a lot of money out there, but making it through the due diligence process has never been harder. We aren’t in the dotcom era where money is thrown at a team and a dream. It’s a sophisticated landscape filled with dashboards, analytics, and skilled instincts. VCs need to see month-over-month sales growth, multiple revenue streams, a core team of professionals, and a sense of exponential growth. You need to do all of this while also appearing laser-focused.
It’s never too early to connect with a VC. Making early connections with Gulf Coast founders improves our deal flow, supports the ecosystem, and provides more opportunity for our investors. At Callais Capital, we are always fielding emails and pitch decks sent in from entrepreneurs not quite ready for an investment from us. It also helps us get familiar with a particular entrepreneur’s work ethic, personality, and determination. No one wants to invest in a founder who isn’t completely invested in his own business.
Rejection is Future Acceptance
Looking back at my first startup, I wouldn’t have made it through the first VC interview. I was building a vision and not a business. We had a great idea that was going to rewrite the music industry, overturn it, disrupt the status quo, if only we had the knowledge then to execute on it. I created documents on top of documents, connected with fellow entrepreneurs raising capital, and spun my wheels trying to get a programmer to program.
One day, I received an eloquent email back from a managing partner at a large VC firm. They had passed, but explained why. I was trying to “part the seas,” so they said. I was deflated and took their critical email as a means to give up. It took me years to reflect back on that moment and realize it wasn’t a rejection at all. That “no” was a path forward, but I was too green to recognize. It was inspiration; a blueprint for what I needed to do to work with them in the future. By narrowing my scope, I could maybe work with them in the future.
I bring this up for two reasons: 1) to stress the importance of starting small with your company vision. 2) to underscore the benefits of reaching out to VCs early on in your process.
What if I had spent the following months restructuring my music startup to align with what the VC was asking from me? I could have sent a response back about how I’ve taken their guidance and relaunched with more focus. Progress is key.
Just remember, if a venture capitalist is spending their time responding, they see something special in you. They believe in you, just not right now. You need to prove to them that working with you is the right move for them this instant and not a year from now. Focus on channeling the moment: where is your company right now and what are your short-term objectives to move the needle?
Limit Your Vision (Just for Now!)
Many entrepreneurs are blessed with (and cursed by!) an endless amount of creativity. It’s always going and going and going. Changing, tweaking, modifying. Like a chess player, you should be a few moves ahead of us. Because you’ve been living it, day in and out. But you don’t need to show us everything. An entrepreneur that lacks a steady path forward is unlikely to get backed.
When discussing your company to a VC, keep your visions succinct and your broader dreams of greatness at bay. Begin talking about your startup in “chapters,” or phases. Speak heavily on your first phase: what will get you bringing in sales, big partnerships, or wide-spread adoption. Venture capitalists will appreciate your short-term focus over your long-term hopes.
If you write that first chapter beautifully, I bet the next one writes itself.
Alternative Fundraising Campaigns
Ok, now that we’ve got that out of the way. In the Gulf Coast, there are many regional opportunities that could help you achieve that first or second boost of dollars and keep your company afloat. But before you build an alternative fundraising campaign, perfect these five things:
- Business Plan
- Pitch Deck
- Founder Video
- Legal Docs
- Financials
Below are some of the most popular routes we recommend prior to your future VC fundraise.
Family and Friends
Close relatives and friends are an obvious first choice when looking for initial investors. You have the convenience of reaching out to a larger swath of people for smaller donations, or targeting a few people in your extended network with an interest in what you’re doing. If you practice your pitch, you’ll emerge with a stronger understanding on what’s appealing to investors. Overcome the awkwardness of asking money from family and friends. If you can’t convince your inner circle about the benefits of investing with you, how are you going to convince outsiders?
Crowdfunding
Put a pitch deck together, make a quick video about what you’re building, and get on a crowdfunding platform. There have been a ton of successful crowdfunding stories where ideas and businesses are launched by a supportive community. If you make your pitch enticing, with tiered benefits, you can really make this work instead of waiting around for a venture capital firm to invest in you. Finding early adopters is something you’ll need to overcome anyway. Why not make money off of it? Crowdfunding platforms allow you to drum up interest, hopefully future sales, and make ambassadors out of your supportive community.
Accelerator Programs
Although they are a dime a dozen these days, accelerator programs do work at helping you establish your business with a $100-250K check and supportive resources at your disposal. You will lose equity though, ranging from 5%-10%. You might also lose board seats, but that will be no different to taking venture capital money. You might also give up a right-to-refusal for the next round of funding. Also, if your experience with an accelerator program wasn’t as pleasant as you’d hoped for, you might find yourself married to them for a very long time as they continue to poke their heads up from time to time.
Grants
Every region has governmental grants given to support the startup ecosystem. If you search your state, I bet you’d be surprised at how many opportunities are out there for startups to receive a quick boost in funds. It’s also a great feather in your cap to receive these grants because it shows others that you are an investable commodity. The first few funding opportunities are going to be the toughest for you to establish, so do whatever you can to get over that hump as soon as possible.
Angel Investors
Angel investors are people that support your business when many venture capitalists would view it as too early. Angellist has a great database for searching your industry/focus. Also, LinkedIn can do wonders for you in finding angel investor organizations in your region that review a handful of potential companies to share with their broader community. Across our executive team at Callais Capital, we have personally been a part of hundreds of angel investment deals that don’t specifically fit the scope of our fund thesis but are promising opportunities.
Regional Support
Every state has a handful of governmental and private organizations that are designed to help you and your startup grow. Check your Chamber of Commerce website or local organizations (non-profit or for-profit) that specialize in helping entrepreneurs. They tend to have monthly pitch contests, yearly networking events, and technical services to help you package yourself up for investors. Across the board, they are underutilized resources that can help you perfect your business plan, construct financial models, design a pitch deck and score a loan, grant, or other funding. Some even offer free, month-to-month mentoring sessions that are great check-ins with business professionals and keep you on honest and on task.
Are you a startup founder in the Gulf Coast? It’s never too early to reach out, even if it’s not the right time. We know that companies take time to turn a profit and find their product market fit. We would love to hear what you are working on.