Sean Percival is an American investor and entrepreneur with investments in over 120 early-stage startups. Formerly a partner at 500 Startups, today he works with X2 Labs, in Stavanger, and several startups in Oslo. Here, on Shifter he gives candid answers to common founder questions.
Raising money for your startup is both an art and a science. It’s a delicate balance of both and, often founders struggle with the process. In general, investors want to give you money when you don’t need it. For example, when your company starts scaling and working really well. However, they almost never want to give it you when you desperately need it – in the early years when you’re figuring things out.
This is further exacerbated here in Norway. Where, despite being an incredibly wealthy country, risk capital is scarce. As it turns out, here, angel investor types prefer to buy their 3rd or 4th property before taking a chance on a promising startup. I’m often critical of founders in Norway not having enough conviction but I’m doubly critical of Norwegian family offices and rich bastards alike who have even less. Many of them were great first time entrepreneurs years ago but must have forgotten what it was like to start a business. Because today they seem to fear risk and don’t do much to support the next generation of founders.
Getting back to you, the founder. What can you do to make your startup look like a sexy new apartment in the Barcode area of Oslo? What is it going to take to attract the private capital you need, either from angel investors or venture funds?
Unfortunately, there’s no magic bullet to guarantee you’ll get the funding you need. Every startup and situation is different and there’s a lot of variables involved. However, I can tell you a few reasons why you won’t get funded. This is based on my experience listening to literally thousands of startup pitches in Silicon Valley and many hundreds, here, in the Nordic region.
So, without further ado, let’s review why no one is investing in your start-up:
You need the money to build your product
The weakest possible pitch an investor can hear is how if you just had more money you could launch your product. Savvy investors know that execution is everything. So, if you haven’t launched yet then there’s a high likelihood you never will. Investors also really want to see you can do something with nothing and that, with just a little capital, you could do much much more. So, if your product is so complex or expensive that you can’t launch it without massive cash then you’re probably building the wrong thing.
Your product is in a perpetual beta state
Here, in the Nordics, I meet an overwhelming number of companies that are “in beta”. This is a term that has, for all intents and purposes, died in Silicon Valley. There is no more beta, there is only launching fast and iterating quickly after that. I think it comes down to some local fear of failure and apprehension to push something imperfect out into the world. When I hear a startup is in beta, I immediately think, “Ya, my cheque is also in beta then, as in not ready for signing.” I would stop using the word all together in investor conversations as you are literally telling them you are not ready for their investment.
Investors don’t understand WTF you are saying
A lot of investors will tell you they only invest in things they understand. So, if you come in flinging every fancy new tech buzzword at them they are likely to be overwhelmed. They’ll politely listen but, in the end, not invest or, worst, ghost you and stop returning emails. When presenting your business, especially to Norwegian investors, it’s best to go with the KISS method (Keep It Simple and Stupid).
You can’t clearly articulate the metrics that drive your business
Understanding and being able to clearly present your metrics is best path to fundraising. Unfortunately, most founders don’t put enough emphasis on this. So, you fail to answer critical questions around acquisition costs, LTV, and other important metrics. For those of you in the 3rd year of “beta”, you simply don’t have any metrics. Hence why it’s important to launch early and begin collecting the data needed to inform both you and the investors that you really have a viable business.
Your pitch just plain sucks
Now, this is certainly not only a Norwegian problem as I see bad pitches from all over the world. Truth be told, it’s incredibly tough to pitch a business well, either on stage or in an investor meeting. So, I don’t fault founders for struggling here as I also did the same the first time I raised venture capital. Still, a strong and clear pitch is a major advantage to getting that elusive investment. The general tips I can give in this area are below:
- Be succinct. Less is more.
- If you have good data or traction use it.
- Sell the problem, not the solution.
- Sell your momentum (users/revenue/sales pipeline).
- Making people laugh helps.
- Close strong, with a call to action (When can we meet next? What are the next steps to receive investment?).
Locking down the fundraising that you need is going to be gruelling process. So, the only final advice I can give you is to get used to hearing “No” and hearing it often. Even great businesses like Airbnb and Uber heard a lot of «nos» during their humble beginnings. If they can persevere and keep moving forward then perhaps you can as well. Best of luck to you, my brave and woefully underfunded founders.
Hør også vår seneste podcast med softwarepioner og solgründer Jon Bøhmer i Kyoto Group – en reise fra Brumunddal til Nairobi. Som 19-åring gründet han det som skulle bli software-suksessen Scala. Og innen han var 25 år hadde han solgt fem millioner disketter til Amiga-eiere verden over og hadde funnet opp noe som lignet på internett seks år før internett. I denne podcasten forteller han om tech-eventyrene på 80- og 90-tallet.
I 2008 solgte han både selskaper og hus i Norge for å flytte til Afrika med sin kenyanske kone, og gründet energistartupen Kyoto Group. Nå skal teknologien tørke te på storskala produksjonsanlegg i Kenya. Her gir han sine beste tips til hvordan man lykkes i Afrika, de største utfordringene og hvordan man bør tenke. Ikke bare til gründere, men også til norske myndigheter.
Hør hele podcasten med Jon Bøhmer på Shifter. Last ned podcasten i iTunes / Podcaster på iphonen eller bruk din foretrukne podcast-klient på Android. Søk på «Shifter».