Avoiding the WRONG type of investor for your company | Sidebean

0:00When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsor job credit at Indeed.com slash podcast. That's Indeed.com slash podcast, terms and conditions apply. If you need a hiring hero, this is a job for Indeed Sponsored Jobs. Visible puts unlimited 5G data and hotspot in the palm of your hand, powered by Verizon's 5G network, with no contract holding you back. And for a limited time, you can get visible for just $19 a month for 12 months when you use promo code Save6. All the features of Big Wireless Service for half the cost. Tap the banner to switch today. And for more information, visit www.vizible.com for plan features and network management details. When you shop pick up at Fred Meyer, you can expect the savings you love and fresh groceries

1:04selected just for you. Our associates are committed to getting every detail right, carefully hand picking your items, checking for quality and freshness and packing your order with care. Because bringing you fresh, quality groceries is what we do best. And right now, enjoy $30 off your first online order of $75 or more. Restrictions apply, seasite for details. Fred Meyer, fresh for everyone. This video was brought to you by Slightbean Founders Edition. Get help from our team in your pitch deck, your financial models and your fundraising. Sign up with the link in the description. One of the most common problems we see with pitch decks is companies with a business model that is not venture-fundable, aspiring to raise venture capital. We made a video on the difference between what I call a small business and what I call a tech startup and how traditional businesses don't have access to the same capital that startups do. However, we didn't provide a solution back then, mostly because I didn't have one, or at least one that was clear enough. And I still don't have one today, and that's why we brought Steve Barch from Dreamit to

2:07pitch in. Steve was no kidding the first VC I ever met. In 2012, I joined the Dreamit Accelerator with a previous company. And Steve gave the class the opening remarks. It was the first of many steps to beginning to understand how fundraising in this startup world worked. That first company failed, but Steve and I have remained close. And now he hosts a fantastic YouTube channel for the Dreamit Accelerator. And without further ado, here he is. Thanks, Kaya for having me. This startup is obsessively focused on finding investors to back their idea. Someone to take a chance on them. Someone who wants to get behind the next big thing. But often founders are perplexed on how to find those investors, why it's taking so long and how to speed up the process. Let's dive in. I hope you liked this video, and if you do, please like and subscribe to both the Slide Bean and Dream Adventures YouTube channels. No matter what kind of startup you are, the first thing I want you to think about is,

3:08do you really need outside investors in the first place? It seems most startups and founders feel that getting investment is a milestone they have to achieve to get started. They read the headlines about deals getting done. This company just raised $3 million. This other company just raised $10 million. And they get dollar signs in their eyes that success is always raising outside money. I want you to try to back away from that concept for now. The first thing I want you to really think hard about and push yourself on is, do you really need to raise at all? I don't see enough startups trying to start by bootstrapping. It's a great way to go, but you'll have to push yourself and ignore the x just raised y dollar headlines. Instead of burning up so much of your time trying to convince investors to part with their cash, how about you spend more time trying to convince customers to part with their cash? I know you may be saying, but I need money to build the product. Yep, but I want you to think outside the box here. I want you to burn up your intellectual capital before taking outside capital, raising outside

4:09capital is extremely time consuming and often yields poor results. How can you do things differently? Can you find co-founders who you can live with or everyone works remotely from home and you can all take just a little bit of salary and within a few months have a basic working product that you can sell? Can you find a customer who will pre-order or pre-pay for the product? If you're a B2C company, maybe you could start by using Kickstarter or Indiegogo to raise initial funds by pre-selling your product. What if you're a B2B company? Maybe if you could find just three B2B customers and cut them a sweetheart deal, that's going to be your startup capital, also called revenue. Let me give you a bootstrap example from a baker I met this week who started a company Hawk Inspiro in Midway, Utah, near Park City. He makes the most amazing bread. Instead of taking the approach that I need money to rent a location for my bakery, I need this really expensive output. Andrew started his company from his garage, bought in oven and started by selling wholesale to restaurants and also to consumers with a bread subscription service in the local park

5:12city area. He's building his business with an amazing product. Now that he's up and running and has actual product, if he does want to raise, he can give investors a taste of the product. Talk about his vision of how, why he wants to expand. It's going to be so much easier for him to raise money as many of the base assumptions are gone. He has a great product that people love and he can find customers at a reasonable cost of customer acquisition. His only real concern now could be, he doesn't have enough capital to keep up with demand, hire more bakers and expand. So ignore the headlines and try everything possible to bootstrap. Now, let's say the time comes and you do want to raise outside funds. It's a friends and family round. Maybe it's your seed or your series A round. The first thing I want you to think about is how much are you going to raise and why that amount of money. Think carefully about how that money is going to get you to cashflow break even or your next set of fundable milestones. Do not think about the money in terms of how many months of time it's going to buy you.

6:15We see so many startups that when you ask, how much are you raising or why are you raising X millions of dollars they respond with, well, because that buys me 18 months, time is not a fundable milestone. Investors don't care how much time it buys you. They want to fund things like rapid learning, goals being met and revenue targets. Don't forget to add at least three months of cash to how much you're raising so you can hit those fundable milestones and leave yourself enough time to raise your next round before you run out of cash. Now that you know how much you're raising, you can focus your investor search so it's as productive as possible. The easiest place to start is to ask yourself what investors placed bets in your sector. Usually investors will openly state their thesis about a particular sector. For example, some investors like space startups. Now that you no longer need NASA to get a vehicle into low earth orbit or create or launch satellites with the advent of CubeSats, a space investor's thesis is that the industry will be disrupted and new revenue streams will emerge rapidly from startups that are taken

7:16advantage of new technological breakthroughs. When you're back down to earth, there's some investors that feel consumers want everything on a subscription basis. So those investors feel that subscription based directed consumer startups can be down. When you need to build up your team to handle the growing chaos at work, use indeed sponsor jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. The partners of this show will get a $75 sponsor job credit at indeed.com slash podcast. That's indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for indeed sponsor jobs. Visible puts unlimited 5G data and hotspot in the palm of your hand, powered by Verizon's 5G network, with no contract holding you back. And for a limited time, you can get visible for just $19 a month for 12 months when you use promo code Save6. Call the features of Big Wireless Service for half the cost.

8:18Tap the banner to switch today. Terms apply. Standard rate applies at month 13. See visible.com for planned features and network management details. When you shop pick up at Fred Meyer, you can expect the savings you love and fresh groceries selected just for you. Our associates are committed to getting every detail right, carefully hand picking your items, checking for quality and freshness and packing your order with care. His bringing you fresh quality groceries is what we do best. And right now, enjoy $30 off your first online order of $75 or more. Restrictions apply. See site for details. Fred Meyer, fresh for everyone. Decades old billion dollar brands that have no direct relationship with their customers. Whether you're selling space or soap are all points in between. Make sure to start by identifying the investors that invest in your sector. The next thing I want you to think about, what investors typically invest at your stage? You want to find investors who align with your level of risk.

9:20There's a huge difference in investors who will do an angel versus a seed versus a series A or growth capital round. It's all based on what stage your company is at and what perceived level of risk they're taking. While thinking about stage, you should also target investors based on the check size they typically write. By the way, for the record, they don't actually write checks anymore. It's nearly all done by wire transfer, but you know, we still call it check size. Anyway, let's say you're looking to raise $400,000 to get your new franchise off the ground. Don't approach investors who typically write checks for $2 to $3 million? It just doesn't align for them. How do you know how much they typically invest? Research online. Or shoot them a quick note and ask. Next, think about geography. Many investors want to invest in their own backyard. A company or startup they can go and see an entrepreneur who they can meet with every few months to see how things are going or be there in person for board meeting. There's some investors who will focus on broad geographies like South America, the US, Canada, Europe, or Asia. But most investors tend to invest more locally.

10:21So if you're starting your new e-commerce company in Poland or Turkey, reaching out to investors in the US will most likely be a waste of your time. When it comes to investors, think local, start local, and expand from there. Next, add your targeting criteria if you're looking for an investor that does debt or equity rounds. Basically, how do they like to invest? Some investors will basically loan you money as debt. In many early stage tech companies, that will be via a convertible note or a safe agreement. There are other investors who never want to get into debt rounds and instead want to buy price equity. Stock in your company. Make sure you understand what type of funding you're looking for and narrow your search to investors that align with it. We talked earlier about looking at investors that are active in your vertical. One way to quickly eliminate investors is when they have an investment in a direct competitor. You may think it's a good signal. Hey, look, they invested in a company just like us. So they're interested in our space. But it's actually just the opposite. Usually investors will only place one bet in a company solving a specific problem for

11:23a specific target customer. So if you see an investment in a direct competitor, don't target that investor. Now I want to point out a special investor type that's important for really early stage startups, no matter what type of company you are, angel investors. Angels will invest for a multitude of reasons. While they are almost always looking for great investment opportunities, they're often other reasons that they'll do deals. They're typically much further along in their career, successful and are looking to invest in a space they already know very well. They often want to enable an opportunity for another entrepreneur to be successful in that space. Maybe they made their money in the food business. So they want to fund the next great restaurant or breakthrough food concept or bakery in Utah. Maybe they made their money in real estate. So they want to help startups in an area they know really well and they can take personal advantage of a product or service that solves a problem that they haven't been intimately familiar with. The point is you can think about connecting with angels on more than one level. Think about how you can identify angels that have been successful in your sector.

12:24Search them out online. Search them on how you think what you're doing is well aligned with successes they've had. And further, ask them for their advice on the two or three most critical things you should be focusing on. And you know, there's a funny saying we have about that. If you ask for advice, you tend to get money. And if you ask for money, you tend to get advice. So ask for a lot of advice. Oh, and let me share some thoughts on best tools and sites you should be using for all of this. Google, LinkedIn, Crunchbase, and Angelist. And a final thought. Jeff Bezos had 60 meetings to race his first $1 million in outside capital for Amazon.com, giving up 20% early investors. He ended up getting investment from 22 people who put in an average of $50,000 each. So if you think, wow, this is so hard, so much rejection. I can't believe how many people I've had to meet with. Be like Bezos and stick with it. No one ever said fundraising or startups were easy, but man, is it a ton of fun.

13:24I hope you liked this video. And if you did, please like and subscribe to both the SlideBean and Dream Adventures YouTube channels. Thanks for watching. Carefully hand picking your items, checking for quality and freshness and packing your order with care. Because bringing you fresh, quality groceries is what we do best. And right now, enjoy $30 off your first online order of $75 or more. Restrictions apply, seasite for details. Fred Meyer, fresh for everyone. Close your eyes, exhale. Feel your body relax. Let go of whatever you're carrying today. Well, I'm letting go of the worry that I wouldn't get my new contacts in time for this

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