Pre–seed. Seed. Series A. Series B. Growth capital. Term sheets. Valuations. Cap Tables. Convertible notes. Market opportunity. Venture Capital. Angel investment. Equity Crowdfunding. Family offices.
While the learning curve is steep, getting funding is about more than just an understanding of terms, it’s about the art of relationships. For female founders, the funding landscape has been less than friendly. According to Crunchbase, the number of female-founded, venture backed companies has plateaued at 17% since 2012. Is venture the only way to go? Certainly not. There are a diversity of funding sources founders can tap into. Crowdfunding, for example, is the only type of funding where women outperform men.The SheWorx100 Summit NYC brought together 200 female founders, over 30 leading investors, and a panel of top female investors and discussed actionable ways to leverage these different sources of capital. Here are the takeaways:
Angel investors are oftentimes injecting the first round of capital into startups, generally funding round sizes between $200,000 and $1 million. They are not typically beholden to anyone, since they invest with their own money.
Scaleable. Customer-ready. Competitive. When it comes to investing, Joanne looks for businesses that have traction and large market potential. “It’s really about – can this company be funded in the next round?” When it comes to making decisions, investors evaluate the strength and well-roundedness of both the team and the business model. Has the team worked together before? Is there a solid business plan in place? Can they survive the grueling fundraising process? Joanne wants to know that the projects she funds will make it to an exit, so that she can get a return. “What I’m looking for at the end of the day are survivors – people who are really scrappy, tenacious entrepreneurs – that no matter what comes at them, they’ll figure out a way to survive.”
A lot of times your first meeting is your only meeting. Joanne’s advice: Do your research. Don’t come too early. Don’t come too late. Know what else the investor has funded.. Be really thoughtful about what it is that you’re doing, what the opportunities are, and what you’ve accomplished so far. “Angel investors make decisions based on their gut, people and the business model.” First impressions count. Don’t set foot in an investor’s office until you know there’s an opportunity that you’re going to connect with them and they’re going to be interested in your business.
Angel investors should move relatively quickly. When you approach a VC, there is a different amount of diligence required – analysts look at how big the market is, who else is on your cap table, etc. Angels don’t have the same obligations. It shouldn’t take more than 2 – 3 meetings for an angel to buy in or back out. Any angel who takes more than a couple of meetings to make a decision about financing is not someone you want in your business. Don’t bother pitching them. Once the investment is made, reach out to investors. Keep them updated on highs and lows. And don’t be afraid to ask for support. As a founder you should really think about using your investors as advocates. These people literally have a piece of your business and they’re incentivized to help you succeed
When it comes to family offices, it’s a mixed bag. Some do early stage investment. Some do late stage. Family offices don’t have to deal with a typical investment structure. There are no dollar limits or holding period limits. There is no formal process or investment committee. This means, if they like your idea, they can invest in it over and over again.
Find out as much as you can about the family before you approach them. What are their values? What have they previously invested in? Who is involved in the business? Typically there is one principal directly involved with financing decisions. What other projects has this person worked on? What are their hobbies? Dig. Dig. Dig. The more you know, the better able you are to find some common ground. Keep in mind that in the initial stages of communication, you will likely be dealing with “gatekeepers” or employees. Your goal is to get yourself in front of the primary decision maker.
Investors aren’t just investing in your company, they’re investing in you. Personal relationships mean a lot. Tell your own story. How did you get to where you are? What was your journey? Maybe it parallels their own. Humanize yourself. Don’t be a robot. Embrace interruptions. Make time for questions. Find out what they know and tailor your pitch accordingly. Since family offices have less structure, they may have more money to invest then you are initially asking for. Don’t be afraid to sell them the big dream. Give them a full-scale action plan instead of immediate milestones (in the next 6 months to one year), so that they can decide how big a slice of the pie they want.
Equity crowdfunding is most suitable for businesses who already have traction and are looking to scale their business. Typically, the startup will already have a lead, but needs an injection of a few hundred thousand dollars to keep the ball rolling.
Market is very important. There are a lot of trends in business. Equity crowdfunding platforms, like SeedInvest, tend to strike while the iron is hot. What’s in right now, according to Pelli? Artificial Intelligence. It’s consumer-ready, business-ready and there’s a lot of funding available. It’s a product that’s in demand. When it comes to product development, ask yourself: Is there a demand? If so, what does supply look like right now? Does my product stand out? Do I have the right development team? You need to know your market and your product inside out. Make sure it really matters.
Every crowdfunding platform operates differently. Find out which platform is the best fit for your company. How many investors do they have in their database? What is their success rate? Are they industry-specific (ie. focus on tech startups)? What are their fees? Know how crowdfunding platforms operate, and what they will expect from you. SeedInvest, for example, runs similar to a fund on the front-end. Preliminary meetings. Investment committee approval. Onboarding process. Quarterly communication. Figure out what your company needs (and can give back) and source exactly that.
Venture capital can come in just about anywhere in the funding cycle, from seed-stage to mezzanine funding. Every firm will have a different area of interest. Since VC’s are investing on behalf of limited partners, they are more accountable, which means due diligence takes center stage.
“We need to see a clear path to 100 million revenue business, and the clear possibility of a billion dollar business.” You need to eliminate the sense of risk. Charisma. Conviction. Past Experience. Current Revenue. Show your panel of investors that you have what it takes to run a successful business. There is no room for self-doubt. When Hayley invests, she uses a 3-point assessment rubric: (1) market (2) product and (3) founding team. You need to sell each point in a way that sparks the imagination. “Don’t be afraid to get in that room and paint a picture about how the world is going to be different 5 – 10 years from now because your business exists.”
Do your due diligence. Some investors might not be right for your business. When you take someone’s money and give them equity in your company, you are starting a very long-term relationship. Remember: you’re in the driver’s seat. Ask for references. Reach out to mutual connections on LinkedIn. Find out what their deal is. How involved are they going to be? What expectations will they have for you? Make sure the investor is someone that you want to be working with in the long run. If you do decide to work with an investor, make sure you hold up your end of the bargain. “The best founders are really proactive in terms of updating investors.” It’s ideal to be reaching out monthly. It doesn’t take much. Highlights + Lowlights + Homework + Thank you. A short email, with the three metrics that matter for your business at the top.
These are only some of the take home points that came out of SheWorx100 NYC. We want to thank our members, for the vivacious energy and collaborative spirit they brought to this event. A big shout out to our all-star panel for their actionable advice and expertise. And to Alicia Syrett of Pantegrion Capital, for facilitating such a productive discussion. You can check out coverage of the event on Forbes.com.
Next Up: The SheWorx100 Summit in San Francisco will be on May 10th evening. The Summit brings together 200 female founders and 30 top VCs to build meaningful collaborative relationships that lead to real investment in female founded companies.
Originally published on SheWorx.co.
Lisa Wang is a serial entrepreneur and the Co-founder of SheWorx, the global collective of ambitious female entrepreneurs redefining leadership. Recognized as the leading female entrepreneur event series, SheWorx has reached over 20,000 women, providing access to top investors, mentors, and actionable business strategies to build and scale successful companies. Lisa is a former Olympic-level gymnast, 4x US National Champion, and U.S. Hall of Fame Inductee. She was named CIO’s “Top 20 Female Entrepreneurs to Watch in 2017” and was featured on Forbes Leadership for the resilience and tenacity she brings from her athletic training to the SheWorx mission. She is a former Wall Street hedge fund analyst and a graduate of Yale University. Follow her on Twitter @lisawang007