Funding Tips for Startups

TIFFANIE ROBINSON

Co-Founder, The JumpFund

When seeking funding, what should be the first step?

If you’re thinking about fundraising for your company, the very first thing you should do is make sure you know how to articulate the problem your company is solving. You must be able to do this in a compelling and practical way that is going to intrigue an investor to be a part of solving the pain point your product was created to do. If you can’t convincingly explain that, you’ll have a hard time raising money.

Once funds are secured, how should they be allocated?

Ideally, a founder has mapped out how exactly they plan to spend the funds they are raising. They should try to stick to that plan as closely as they can to show smart fiduciary effort. However, we all know that things change and sometimes plans don’t work. Staying in communication with your investors and being transparent with anything that’s changed is best practice.

What advice can you give to founders for getting themselves in front of the right investors?

Don’t be afraid to go to your family and friends for that first raise. If you do not have a friends-and-family network of investors (most people don’t, so don’t worry), be brave and reach out to people you may not know. You will need to network and ask for referrals – don’t be afraid to do so!

CAM DOODY

General Partner, Brickyard

What is the biggest mistake you see founders make when seeking funding?

Many founders do not understand the outcome expectations of the investors they’re pitching. In venture capital, we invest when we believe a company is capable of returning our entire fund by itself.  For example, Brickyard’s current fund is $20 million, and will make 40+ investments. If we write a $400,000 check into a company on an $8 million valuation, we must believe that its 5% stake will be worth $20 million if things go right (a $400 million sale). Angels and private equity have different fund mechanics, and you should understand what a “win” for them is before taking their check. Alignment matters a lot in marriage!

Once funds are secured, how should they be allocated?

Wait for your tires to catch before dumping more fuel (money) in the engine.

What should founders do to maximize growth and prepare for the next round of funding?

Know what your metrics need to be in 18-24 months to raise your next round. Know every day if you’re ahead or behind, and constantly ratchet your burn up or down in response. If you’re way ahead, consider burning hotter and raising earlier. If you’re behind, slow your burn. It’s pretty simple. You can’t fail if you don’t run out of cash.

JONATHAN BRAGDON

General Partner, Capacity Capital

When seeking funding, what should be the first step?

The first step is to treat it as a hiring decision: bringing in money to do a specific job in the business, at a specific cost to you and a benefit to the investor. The cost is driven by the investor’s risk: the higher their risk, the more expensive the capital. Equity/venture capital is usually the most expensive, customer revenue is the least expensive, and there are a lot of tools between those two.

Once funds are secured, how should they be allocated?

Once funding is in, focus it on whatever is most clearly blocking growth. If you’re still finding product/market fit, spend on customer experiments. If you have traction, invest in a repeatable sales motion and the onboarding process. If growth is exploding, invest in talent, operations, delivery, and customer delight to scale what’s working.

Growth tends to create cash gaps and a need to invest before the revenue arrives. The use of funds becomes clear when you frame every dollar around unlocking the next stage.

What should founders do to maximize growth and prepare for the next round of funding?

Founders should build as if this round might be their last: design a business that can be funded by customers, not capital markets. That means being obsessed with solving a real customer problem, letting revenue validate that you’re creating value, and then getting serious about both capital efficiency and top-line growth.