Some founders that we call serial entrepreneurs can raise money over and over even if their startups fail big and publicly. How do they do this?
Investors in startups understand that they are putting their money at risk, but they hope that there are enough big wins to offset the losses of startups that don’t make it. Even so, these investors usually are very careful to identify and qualify the risks associated with every investment. That is why a VC typically receives thousands of pitches a year only to invest in a dozen or so.
If you want to be one of the few that receives funding, it helps to know how best to communicate with your would-be investors. Tech founders often face the greatest challenges because most STEM programs are very rigorous in the chosen field, but have little to no coursework in anything remotely related to business. In my undergrad experience, the closest things were a couple of economics courses.
My Carnegie Mellon MBA prepared me well to run a business whether large or small and educated me in a broad range of basic business functions like finance, accounting, marketing, strategy, operations, negotiations, business law and more. I could speak intelligently about how options are priced, competitive response and game theory. Still, I wasn’t prepared to talk to investors about investing in a new startup.
I learned this the hard way. I made beginner mistakes like suggesting an IPO as an exit strategy (BIG red flag) or suggesting that there will be no need to exit (another BIG red flag.) I made many more mistakes even though my business plans were very solid. This is an expensive road, and there are no books or courses I am aware of to help guide founders.
I am fortunate that I have a good friend who started up M&A work for a major U.S. industrial conglomerate. He has shared many stories with me over the years that complement my first-hand experience. Just as valuable, another friend is a VC focusing on tech – primarily robotics. He receives dozens of pitches a week from founders seeking funding. In some cases when he cannot recommend to his partners that their firm should invest, he can provide some helpful feedback that may improve their position. Most often, unfortunately, he simply doesn’t have enough time to provide that kind of feedback because he has hundreds of pitches to hear, several portfolio companies (companies the VC has invested in) to monitor and advise, and the VC’s own investors to communicate with about existing investments or upcoming opportunities. Even if he wants to offer guidance, time simply doesn’t allow it.
For the most promising companies, this VC will suggest that they seek advice, and then I get the opportunity to help them out. I speak the VC language well enough to understand him, and my technical background allows me to communicate efficiently with tech founders. Often, I can help founders overcome the language barrier while helping them avoid common pitfalls that would eliminate them from consideration.
Founders may pitch to two hundred investors before they raise capital. It is unlikely that the 200th investor just happened to be the “perfect investor” for this founder. It is likely that the founder finally figured out what investors are looking for after much trial and error. This is expensive and time consuming and may prevent founders from ever getting funded as they run out of resources before ever getting a chance.
Some founders, however, simply can never get there because there are too many obstacles. In that case, it is much better to learn that right away than to exhaust so many resources on an unlikely venture.