Raising Capital | Strategies and Tools

foundersfundraising2“I go into everything with a huge ego,” DailyWorth founder Amanda Steinberg told more than 100 entrepreneurs this July at an event co-hosted by TheLi.st and weeSpring. What she conceded could be seen as a huge personal defect in the social world turned out to be her biggest strength in raising well over $4 million for her powerhouse personal finance site that’s among the best of the web for women.

Steinberg picked up the mic last month to talk to female entrepreneurs—in the room, on a conference call and streamed through Google +0.46% hangout (watch the whole thing, it’s totally worth it)—about the complex process of raising capital for young companies. “I’m going to keep it real,” she said as she regaled the audience with tales from the nine months it took her to raise the first $850,000 for DailyWorth in 2011. She was running on fumes, parenting two small children and going through a divorce. Real talk: it got ugly.

But Steinberg’s been-there-done-that advice was frank and refreshing and inspired me to tap other female founders in my network—from YC-alums fresh out of seed rounds to trailblazers with millions in the bank—to find more no BS counsel for entrepreneurs looking to impress investors and fill their own startup coffers.

Amanda Steinberg, founder and CEO of DailyWorth

Steinberg breaks down her top-level fundraising advice into four must-have items, and because her insight is on display on YouTube, we’ll keep it basic (but oh-so-helpful) in this space.

No. 1, a mentor (“Everybody and every website says you need one, but it’s true. You really do. There’s just so much you don’t know”), No. 2, the obvious: your deck (slides on core value proposition, the size of your market, who the customer is, competition, exit strategy, etc.). No. 3, your financial model (map out revenue and expenses with growth rate: “It really shows why you need capital—it’s the justification of what that cash is going to do). No. 4, an executive summary (think the most kick-ass cover letter ever, as in “Here’s why I’m awesome, here’s why it’s going to succeed, here’s why you should talk to me).

Katia Beauchamp, cofounder and co-CEO, Birchbox

Beauchamp and cofounder/co-CEO Hayley Barna have raised more than $11 million for Birchbox, the company that set the subscription commerce trend in motion and has seen continued success since its 2010 launch. What they’ve learned from the process of fundraising while simultaneously scaling a business is the importance of time management—or more specifically learning what’s just a waste of time.

Their advice? Finding investors whose area of interest—or market of choice—is the most aligned with your business. You’re e-commerce and they invest in health tech? You might want to skip it—no matter how many mutual acquaintances you have. “Taking the time to find the right investors is a huge, huge part of the way to spend your time fundraising the most wisely,” Beauchamp told me in early August. “When you talk to VCs they should be someone in your wheelhouse—or for us someone who at least likes the idea of e-commerce.”

This helped in two ways. One, the Birchbox founders didn’t waste their breath on uninterested parties, but more importantly they didn’t spend hours explaining a female-focused business model to male investors who couldn’t—or wouldn’t—understand the consumer. “Pitching is a complex process,” she says, “But pitching to someone whose interests are so far from yours that you have to reeducate them adds a whole new layer.” Lesson learned: choose wisely.

Michelle Crosby, founder and CEO, Wevorce

As far as Crosby is concerned, the key to raising capital—whether via angels or venture capitalists—is as much managing your own expectations as it is wowing investors with a flashy business plan. The former attorney applied her disciplined approach in the courtroom to build a structure that she used in every investor meeting. “It’s helped me to manage my own mindset,” she says. “And keep worry—and overwhelming eagerness–at bay as much as possible.” She laughs. “Well those things come anyway, but creating structure helps.”

powerful_11-10c59a31So what is it? It starts, like any first date, with a bit of flattery. “I call it the bromance section of the meeting and it always comes first,” Crosby says. “I like to lead with a question—usually something I’ve researched before-hand, some nugget of uniqueness about this person –because neuroscience tells us that when someone feels listened to the same part of their brain lights up as when they feel loved.”

Once the meeting is formally underway and decks are on display, Crosby, whose business focuses on divorcing families, turns to cross-checking intention. “I’m focused on recognizing whether their intentions as an investor align with my intentions for the business. We intend to do well by doing good. So I’m looking for people who know that and believe in it from the moment we meet. And I do that by asking what they like the most about the company. If it’s ‘I want a healthy return,’ then cool—but they’re maybe not for us.”

The third prong is (by my own estimation) one of the savviest pieces of advice I’ve heard on the process. Ask this question: How do you see yourself being involved with the company? If the response is a blank stare, it’s a strong sign they’re not interested and, as Crosby puts it, you might as well know that right away. But the ones with clear ideas will stand out—and give you the opening for a strong close on your own terms.

“I always end by asking them about next steps,” she says. “Can I put you down for the round and for how much? If you’re going to think about it, I’ll say I’m holding your spot for X number of days and then release it.” That way you’re killing two birds: one, you’re giving investors and easy out with no hard feelings and two, managing those pesky expectations again. Waiting by the phone is the worst way to spend your time.

Fei Deyle, cofounder, Lollipuff

Crosby’s fellow YC-alum Deyle, whose Lollipuff auctions second-hand designer goods with the promise of authenticity, actually stopped fundraising mid-process earlier this year. “We received commitments from angels and also a few VCs,” she explains, “But ultimately felt that after putting so much effort into fundraising it was better as an already profitable company to keep our focus on the product.” She may have been right: after doubling users since June, Deyle says investors are starting to pursue them.

Despite that, Deyle and her two cofounders put a method in place that’s a useful piece of advice for all founding teams—provided they’ve got the manpower. “We decided up-front that it was important for one of us to stay back and focus solely on product,” she says. “Not just to keep the lights on, but to keep a real distance from the fundraising process.”

“It’s an emotionally exhausting time,” she says. “Because every time you receive a no—or even a maybe which is really a no—it’s almost as if someone’s telling you your baby is ugly. So ugly they don’t even want to look at it!” Having a cofounder who’s not poisoned by “nos” Deyle says, helped the team as a whole to stay grounded, and to appreciate what they’d built. In other words, to remind them that their baby wasn’t ugly—no matter what they’d heard in a bad meeting.

Kellee Khalil, founder and CEO, Lover.ly

Khalil’s no stranger to raising money—but she’d like you to think she is. Thewedding expert’s view on fundraising has whispers of Fight Club. The first rule of raising capital is: you don’t talk about raising capital. “So many founders are out there making an announcement every time they raise a new round,” Khalil told me recently over lunch. “But why are you going to brag about taking other people’s money?”

Additionally, she says, putting the word out that you’ve got $5 million in the bank is hardly going to help you keep costs down when negotiating with vendors or new hires. “I just don’t believe it’s a win in any sense.” For what it’s worth, Crunchbase has Khalil listed a having raised a $500,000 round led by angel Joanne Wilson in late 2012. The truth, as far as Khalil is concerned, will go with her to the grave—or at least an eventual exit.

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