Not a week goes by where I meet with an entrepreneur that has an all to familiar problem — “I can’t raise seed money”. Even in this environment where it seems like everyone is pulling in $10’s of millions of funding, there are still alot of companies that are having a hard time raising seed capital. The next statement that I often hear, is “I’ve been so focused on fund raising over the past XX months, I haven’t spent much time on product/customer acquisition/etc.” When I hear this, it always concerns me.
The reality is, they’re not listening to the market and instead of spending time on what really matters — they’ve spent their time chasing every lead, introduction, and possible funding source — with little to show (except frustration and exhaustion). Hopefully you have a great team with really relevant experiences, and there are a few entrepreneurs that can raise money based on reputation alone, but chances are — pretty slim. So what’s my advice? It’s simple really:
- Stop spending all of your time on fundraising.
- Listen to the feedback — silence is deafening.
- Focus your time and energy on building a disruptive and compelling product & start to get data to show validation.
- Great product and some traction, the funding will come to you.
What should traction look like? It doesn’t have to be 6 months of data, or millions of users. It should be directional (IE: does the slope of the line head the right way with a 3 or 4 key data points). Your goal is to have a thesis (not all of the answers), start to understand whats working and what’s not, and what levers you need to pull to make the business head in the right direction……yup, it’s all about reducing risk! A few key data points I’d think about (and I always ask about!) and be able to show data against: (Note: not all are always applicable)
- User acquisition rate and source (can you acquire users and are you buying them, or are they organic?)
- Of those users, what is the daily/weekly/monthly actives (registered users alone, is totally uninteresting w/o this data)
- Unit economics and conversion of free to paid users? (can you build layers of services on top of a freemium model?)
- What’s the cost of acquisition? LTV of a customer? (ideally you’l show cost going down, value going up)
You shouldn’t expect to have mountains of data, but the more data you can provide — the better. What creates compelling data? Great product!! If you’re struggling to fund raise — Focus on a building a compelling & disruptive product, the fundraising will complete itself.