David Cummings on Startups

Fundraising Starts with Friend Making for Startups

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David Cummings

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A number of entrepreneurs have lamented to me how difficult it is to raise money for their startup. Now, they are trying to raise seed rounds of less than $1 million from angels and aren’t having much luck. Of course, the best time to raise money or get a bank loan is when you don’t need it, but that’s rarely the case for startups. One of the most important aspects of fundraising, and least discussed, is that of investors wanting to invest in and work with people they genuinely like — potential friends if not already friends.

Entrepreneurs would do well to read How to Win Friends and Influence People by Dale Carnegie at the start of their fundraising process (if not right away). The idea isn’t to be fake but rather to be genuinely interested in the person and the relationship, as that sets the foundation for everything going forward. Some of the most successful fundraisers are also the best at making friends.

Fundraising starts with friend making as investors want to invest in startups that have entrepreneurs they truly want to hang out with for many years. In addition to finding investors generically, entrepreneurs would do well to find investors that they enjoy being around and have complementary personalities.

What else? What are some other reasons fundraising starts with friend making for startups?

Comments

2 responses to “Fundraising Starts with Friend Making for Startups”

  1. Kyle Porter Avatar
    Kyle Porter

    Entrepreneurs & investors both benefit significantly by building relationships with each-other. The best way to begin those relationships is through the entrepreneur seeking advice, mentor engagement & by adding value up front.

    The important point is that it’s up to the entrepreneur to cultivate these relationships over time and maintain connection through frequent valuable communication. Then, when the entrepreneur is ready to raise money, they can reach out to their investor connections. If the relationship is strong, then the investor doesn’t have to do due diligence on the person, just on the business. Which in turn means a higher likelihood of the deal happening…and happening fast.

    I wouldn’t say the best time to raise money is when you don’t need it, but that the best time to raise money is when it can make the most positive impact on your business. And the best way to raise money is by going to your long-time investor relationships, those who believe in you and want to work together with you.

    Reply
  2. Sanford Avatar
    Sanford

    If you need money, then, by definition, the investors are going to discount the heck out of your company.

    I’m not an advocate of friends investing in friends’ companies. I’ve seen many friendships blow up because of that. Don’t forget the stats: 9 out of 10 businesses fail. Secondly, most “friends” don’t understand risk and valuations. Thirdly, if you are the 1 out of 10 company that does succeed, then you will still likely dilute your earliest investors as you seek additional funding.

    Three things i’ve learned: 1) if you are seeking capital in your company, then give yourself a 1.5 year “runway” to raise that capital. It can take a long time and by giving yourself this runway,then you can better handle the time frame and expectations, 2) go to companies, investors, strategic partners who are already in your line of business because they will understand what your doing better than other investors, 3) consider searching for particular investors inside the angel investor groups more so than the angel investor groups themselves.

    Reply

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