Raising Capital

The secret to fundraising success? Think friends, not investors.

Evan Loomis | January 2, 2016

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Evan Loomis (above right) and Evan Baehr (above left) are accomplished entrepreneurs.  In their new book, Get Backed, they analyze their own experience as well as that of other successful entrepreneurs to answer the question:  What does it really take to raise money? The answers—highlighted in the excerpt below— may surprise you. 

Sixty-three percent of today’s American twenty-somethings want to start a business. Whether it’s the next Facebook, the next world-changing nonprofit, or the next coffee shop down the street, starting something is the ambition of today’s generation.

But here’s the dirty little secret: starting something is insanely hard.

Launching the venture of your dreams takes more hustle, more failure, and significantly more resources than a lot of people can stomach. Yet, talk to any entrepreneurs who’ve been through it and they will tell you one thing: it’s worth it.

Three years ago, I set out with long-time friend and entrepreneur Evan Baehr to demystify one of the most intimidating parts of launching a venture: fundraising.

Why most advice on fundraising sucks.

There’s no shortage of advice on fundraising. Most of it is terrible. Self-described experts spout phrases like, “create a business plan,” “show traction,” and “create urgency,” without any practical insight into how to do what they suggest. A great strategy for a serial entrepreneur with a track record of success will likely be the worst possible advice for a first-time founder. Experienced entrepreneurs forget what raising money is like when you have no network, no track record, and, at best, only a conceptual knowledge of a term sheet. The entrepreneurs we know aren’t interested in the theoretical best way to do something; they are interested in what works.

We asked ourselves: What if we could give entrepreneurs what we wished we had had when raising money for our ventures?

GetBacked__3D_Cover

So, Evan and I got to work. We mentored dozens of first-time founders and interviewed angel investors, venture capitalists, directors of angel networks, heads of family investment offices, and CEOs of crowdfunding platforms. We took improv classes. We worked with some of the country’s biggest accelerators and angel groups, and sweet-talked fifteen successful entrepreneurs into letting us show you exactly what they did to raise money, including the pitch decks they showed investors. We’ve also raised over $45 million for our own ventures, including the second-largest round ever raised on the startup platform AngelList at the time.

We did all of these things to answer one question: What does it really take to raise money?

What we discovered is that the skill to raise the money you need, get expert feedback, and build partnerships isn’t just an X factor that some people have and others don’t. On the contrary, it can be decoded.

Successful fundraisers don’t raise money, they raise friends.

There are specific habits and tools that aspiring entrepreneurs can cultivate to dramatically increase the likelihood that their ventures will succeed. Here are a few of them:

1. Don’t write a business plan. Create a pitch deck. Far too many entrepreneurs are still wasting their time writing a business plan. Don’t do it. Nobody reads them. Instead, create a pitch deck: a series of presentation slides that illustrate your venture’s story and business model. Create two versions: a presentation deck and a reading deck.

2. Don’t listen to experts. Look over other founders’ shoulders. Entrepreneurs, especially first-time entrepreneurs, don’t need a perfectly optimized fundraising strategy; they need to know what works for them. Entrepreneurs need to see the real pitch decks of ventures who raised money. They also need to see what kind of investors they closed, the email scripts they used to close them, and the mistakes they made along the way.

3. Communicate visually. Great visual design is critical to communicating your vision to others. Visual design masters like Nancy Duarte, Dan Roam, and others have shown that good design is more than just window dressing, it’s a critical part of getting others to understand and care about what you are doing.

4. Tell stories. Great fundraisers are master storytellers. They develop their own versions of 4 basic story archetypes that answer 4 critical questions about their ventures: the origin story (why are you doing this?), the customer story (what problem are you solving?), the industry story (why now?), and the venture growth story (what have you done?).

What we discovered, though, was that as helpful as these techniques are, they are not the secret to raising money.

Nearly every startup founder we interviewed had a “miracle”some unexpected occurrence that catapulted him or her into ultimate success. As we dug in, we discovered that these miracles weren’t really miraculous at all; they were the direct result of relationships the founders had nurtured earlier.

The secret to raising money is one simple principle: successful fundraisers don’t raise money, they raise friends.

There needs to be more entrepreneurs raising wildly successful funding rounds. But even more than that, there needs to be entrepreneurs who build friendships that outlast any term sheet and create true value for them, their ventures, and their communities.

Related: Collaborative Lender Able Joins the Online Lending Fray

Evan Loomis is an entrepreneur and investor. He currently serves as the President of Clarion and VP of Strategy at Corinthian Health Services. Evan cofounded the home improvement store TreeHouse and the national angel investment group Wedgwood Circle. He got his start on Wall Street after graduating from Texas A&M University, and is a mentor through the startup accelerators Techstars and Praxis.

Evan Baehr is the cofounder of Able, a tech company committed to growing the “fortune five million”–small businesses around the United States–with collaborative, low-interest loans. He’s worked at the White House, a hedge fund, and Facebook and is a graduate of Princeton, Yale, and Harvard Business School.

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Comments

  1. As an entrepreneur, I agree with this article on premise, and I also want to look at this through a gender and class lens. I’ve been preaching to my choir about women of wealth self identifying as investors in women entrepreneurs. After all, my largest circle of friends are women. You first have to have friends that also have access to capital, preferably their own, & then also have the risk-taking and core competence to invest in an entrepreneur. It is a different world for women entrepreneurs, particularly in areas that have not caught up to more egalitarian attitudes that can be found elsewhere. In my experience, women turn to husbands and fathers to fund them, and that comes with an intense amount of emotional and gender challenging strings that can muck up the full focus and energy needed to launch a venture. For my next venture, I’m looking for Sovereign Capital and want it to come from sources that I do not have to constantly deal with the entanglements that gender-flipped roles seem to cause and that I have observed holding back many womenpreneuers in my community. These are #thingswedonttalkabout but are epidemic amongst female founders.

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