When we founded Unacast, Thomas and I always knew that we would need external capital injections to fuel our ambitious, global journey, and we early on created the below-mentioned 10 + 1 guidelines. Hopefully they can be of some help to you as well.
I do admire companies that can build stone for stone over the balance sheet but for us that was never an option – or a desire. With Unacast, we wanted and needed to capture a leading global position by building the definitive accurate, transparent, and trusted human mobility and location platform on top of the physical world; the Real World Graph®.
That would require large up-front investments, geared for high risk and high reward, typically found at venture capital funds.
Read more: Defining the Real World Graph®
Of course, our experience from building TIDAL was certainly also an important data point as we saw how Spotify raised past us (pun intended) – largely because of their understanding of, and access to, growth capital.
Read more: Lessons from the WiMPs who created TIDAL
So, in order to help us hold a steady course in navigating complicated waters when raising capital, we early on created the below-mentioned 10 + 1 guidelines purely for internal reasons, and in this very specific order.
Hopefully they can be of some help to you as well.
1. Raising capital is a core founder task - like hiring. I’m not saying that you should always be in investment meetings (you shouldn’t), but if you are a company with growth ambitions similar to ours you need to embed the focus on raising capital into the company DNA and not only think about it three months before you need more. The same advice goes for hiring.
2. Focus on the right investors - in the right order. Don’t start on A, then B, and then C. Find your investor sweet spot by understanding which phase, vertical, technology, and/or geography each investor is more likely to be interested in – and start there.
3. Raising capital requires regularity. Tightly coupled with guideline #1 above is to be consistent and regular in your communication. As an example, we have since we started Unacast sent out a newsletter every single month to investors we have met along the way. The same goes for follow-ups after meeting, completion of tasks etc. Use a project management tool to structure everything and work with pipelines as you would in a sales situation (This is sales!).
4. Raising capital requires growth. Each and every time you go back to an investor, and e.g. in the above-mentioned investor newsletters, you should demonstrate growth on some level: Product, users, revenue, hiring, whatever makes sense for you. A risk orientated investor (like venture capital) is looking for future growth potential to justify the investment today.
5. Go big or go home. And demonstrate it. Investors have their own investors (Limited Partners - often called “LPs”) and they too require return on their investments. This means in practice, with binary glasses on, that each investment needs to be able to return the fund. So, if you are a small to medium sized opportunity (and there’s nothing wrong with that in itself) you just won’t be able to yield the kind of returns most venture capital funds need.
6. Optimize for success - not for ownership. Fact: Most startups fail. And a large stake in a failed startup is of course worth nothing. You should rather optimize for success, and therefore be less concerned about your ownership percentage. Find the investor(s) that best fit your needs and agree on a fair dilution together with them. Don’t be greedy. Be successful.
7. Products. Products. Products. Post-raise it’s easy to be caught up in the administration of running a company and neglect the one thing that gives you the upper hand vs. competition and corporates. As an example, corporates will have more money than you, more experience, and more people, but what they can never replicate is your dedication and agility in fixing real problems by again and again launching, failing, iterating, and eventually succeeding. Don’t lose sight of your product development focus – that might be the end of you as you try to raise more capital.
8. Know your metrics, control investments, and control cost. Hey, I shouldn’t have to even mention this, but you are by now running a business, and you can’t run a business without knowing the business. You have to understand every minute detail that impact your ability to make money, and to keep margins at the level right for you (and for your board, and for your investors) to ensure a 18 to 24 month runway between each raise (allowing for around 6 months active fund raising). Think like a shareholder, but with the deep knowledge of an expert.
9. Your existing investors and board members are your most important references. The job isn’t over when you have your first, second, or third investors on board. You’ll most likely need more capital, and the best people to vouch for you in the next raise is your existing investors. Focus on growth, regularity, and NO SURPRISES! (Quote from White Star Capital’s Christian Hernandez Gallardo, lead investor in our recent B round)
10. It’s all about the team! There’s no way around it. It is not you that will ultimately make your company a success - it is your team. They are the ones that each and every day will have the brightest ideas, the best execution, and the most thorough retrospectives. And, who do you think will be keeping the ship afloat while you fund raise? A hint: It’s not you.
10+1. Repeat. Go back to guideline #1 and repeat until you no longer need venture capital. Such an event could be hitting break-even, an IPO, or an acquisition.
That’s it. It’s not complicated, but it does require dedication. Of course, all of these 10 + 1 guidelines might not be right for you, but some of them surely should.
And, they certainly are a big reason why we have raised $25 million so far and the reason we will be able to raise what we’ll need to reach our ultimate goal: The Real World Graph®.