Dr. Thorndike: “Do you really think that is nece…”
Professor Lilloman: “Don’t tell me what’s nece…. I’ll tell you what’s nece..”
Script from High Anxiety by Mel Brooks
So why the arcane quote? In this scene from one of my favorite Brook’s films, Dr. Richard Thorndike is being told by his mentor, an old psychology professor that he (Richard) needs psychoanalysis. Richard does not even get the chance to complete his question about if it is necessary; he is stopped in mid-word. His mentor tells Richard (again with a partial word) that he will tell him what is necessary.
The parallel for me is the guidance I constantly hear at MeetUps and other gatherings that those “in the know” give to startups regarding achieving success with funding sources. The common theme to me is these so called “advisors” never listen to the startup. Many just dive right in with their advice and while some of it is good, some just seems to perpetuate what I think are myths. It is the same phenomena we hear as tax advisors when clients call about some great tax saving gimmick they learned about on a golf course. Raising capital is an intense process requiring serious dialogue, so let me try to debunk or perhaps clarify five of the more egregious myths I hear:
- You don’t need revenue – while this is true for very early start up funding, you do need a revenue model and a “path” to revenue. At some point, you have to show that investor money will eventually lead to a “salable product or service” and revenue will commence. Without that, you are going down a very long road.
- You need an introduction from a trusted advisor – this is false. While an introduction from someone known to the funding source is helpful, it is more important to make sure when approaching a funding source that the stage of development they seek and the space they like match with you. A venture capitalist interested in emerging growth medical device plays is not the right source for an “ed tech” company seeking seed financing regardless of who introduces you.
- You can build the team later – while true as to a full team, investors want to see more than one person dedicated to the Company vision – – how do you operate together, how do your skillsets match your business model. If it is just you and an organization chart with boxes that contain TBD, you are not going to make it.
You do not need a business model; just a product or concept – false. As the late Jeff Timmons would say “an entrepreneur knows the difference between an idea and an opportunity.” Business models validate opportunities.
You can use funding meetings to practice your pitch – false. I think the idea of getting before as many investors as possible for a true “funding pitch” is not the way to go. There are friends, professional advisors, pitch competitions and a dozen other venues to practice your pitch. A funding meeting is the real game – – not a warmup and you should treat it accordingly.
We have watched our entrepreneurial friends waste endless hours in the pursuit of funding. Some blindly follow all of this “advice” and have minimal success. Hopefully, by delving behind these myths, I can help shorten your journey.