Mike Ivey is the cofounder of Modern Message. His company recently announced that they just closed a $300,000 funding round raised entirely from North Texas Angels. This is part 1 of a 2 part series detailing what they did wrong.
Fundraising can be a soul-crushing, character-revealing, time-wasting rollercoaster of fun (and yes, it can actually be fun) that will test you physically, mentally, and most of all emotionally.
And that’s if you’re successful…
I know this because my company, Modern Message, despite doing almost everything wrong, just announced that we closed our first round of funding. In fact we were oversubscribed. How did we do it? Well for starters, it took 4 months & 90 meetings to get to 10 yes’s.
But that’s only half the story. What follows is an incomplete list of everything we did wrong, written in the hopes that it might help any other founders out there on your journey. Stay tuned for part two, where I’ll try to remember the few things that we accidentally did right.
Get a Lead Investor
Raising less money does not mean it will close faster. In fact, the opposite is typically true. The most effective weapon against this reality is the presence of a stellar and aggressive lead investor. Unfortunately, the size of my Rolodex was small and I knew only a handful of people that could actually be classified as “active angel investors.” Therefore I knew the chances were remote that these individuals would actually invest and even worse that they would lead the round.
Strikes 1 & 2.
To overcome this, I took the Mark Suster “Lines Not Dots” strategy and approached the few investors that I did know 6 months before we were ready and said:
“We’re not ready yet, but if you like where we are in 6 months, I’d like you to invest.”
They all said, “Sure”.
Over the next six months I kept them updated on our progress and was sure to send an email anytime we had a notable “win.” By late-January we were seeing significant market adoption and determined that the timing was finally right. I prepped our deck, reached out to these individuals, and clearly walked them through how we were going to combine our market knowledge / passion with their money to make all of us a lot more money.
The upside? Before we even announced we were fund-raising, we had half the round closed. The downside? We still lacked a lead investor and our personal networks were tapped.
Get a lead investor.
Get to know investors well before you need their money.
Be upfront and purposeful. Ask if they’ll invest once you reach x, y, or z milestone.
Meetings Do Not Equal Momentum
When you’re raising money it’s easy to get excited about every meeting. Now, celebrating any victory (however small) can be critical to keeping your sanity during this process, but without qualifying investors on the front-end, you are setting yourself up for failure.
Why? Well, remember how excited you were after meeting that guy at the LaunchDFW Startup Happy Hour who said he was interested in investing? Or your b-school buddy who introduced you to someone that “loves tech investments”?
Yeah, they’re wasting your time.
The simple truth is that if you have a good enough story (more on that in part two) you should be able to get almost anyone excited. However, you will quickly realize that there are an infinite number of reasons NOT to invest in an early stage deal and these reasons tend to not manifest themselves until it comes time to actually write the check.
Like any good salesman, your job is to qualify who these people are early and often so that you don’t waste each other’s time.
Boy did I learn this the hard way.
Develop a system for screening investors. This is critical.
Be honest about where you are in your life cycle. In fact, be blunt!
Treat a soft “yes” like a “no” until their money is in your bank account.
Relying on Angel Groups
Do not, I repeat, do not start your round with an angel group. Now, this is probably the most controversial point I’ll make since we ended up raising a significant percentage of our round from angels. But, I had to include it because working with these groups can come at a steep cost (in addition to their “pay-to-pitch” business model).
First, none of the groups have a formal diligence process for smaller rounds. One group actually scoffed when they heard we were raising less than $1M. That means you’ll end up pitching 2-3x at the group level only to then have dozens of meetings with the individual angels. In a world where time equals money, this is very expensive.
Let me reiterate: get a lead investor!
Secondly, none of them are focused beyond “tech” as a general theme, so you may find yourself in some very unusual situations where you are presenting alongside companies in completely different verticals.
Here’s a true story. After making it to one angel groups’ big event I found myself on stage following two companies presentations: one that was raising $2M to reinvent heart surgery with a half dozen heart surgeons there for support and another that had already raised $5M for an improved dental implant. I was there, by myself, raising $300k for an internet software company focused on the apartment industry!
Yeah, I thought it was funny too.
So at this point, you’re probably wondering, “How did these jokers actually raise money?” That’s a great question, and one that I will attempt to answer in part two.