How to Get Venture Funding - The Path to Millions in 2023
Nov 12, 2023
In this blog post, I’m going to tell you something that ALL other blog posts on venture funding won’t tell you.
Most blog posts would answer the question “How To Get Venture Funding” with a list of things you should do:
- Find investors
- Pitch investors
- Get a term sheet
- Close the round
etc. etc.
But if you subscribe to my once-a-week Startup Secret newsletter (which you should!) you’ll know that I don’t give you generic, Chat-GPT generated, advice.
I cut through the noise and get to the heart of what really matters.
And what matters today is that I help you raise money and not fall into the traps that 99% of newbie founders find themselves in when they approach venture capitalists for funds.
Because anyone can look up a step-by-step list of how to raise from VCs. That part is easy. But what really makes a difference to the amount you can raise, is knowing what truly gets an investor to WIRE THE FUNDS! 💰
I’m sure this is what you want, and I want this for you too.
Ready to dive in? Of course you are!
Let’s start with some questions:
Do you have dreams of raising money for your business?
Ever thought about what it would feel like to walk into a room, pitch, and walk out with a check?
I know you know what I am talking about… it’s the feeling of being one of THOSE founders. Founders who raise money with ease, naturally.
So why hasn’t it happened to you yet?
Maybe you haven’t started raising…
Or maybe you’ve started and have realized just how hard it can be to convince others to invest.
There are no illusions here, fundraising IS hard.
And yes, you do need to understand how to structure the process. You need to know how to find investors, and get them to take meetings (all things I cover in my newsletter).
But you also need to convince investors that your business is good enough to bet on.
I’ve worked with hundreds of founders and have helped entrepreneurs from all around the world raise millions of dollars. And yet, time-and-time again I see founders making the SAME mistake when pitching.
So… before I tell you the sure-fire way to get venture funding, let me tell you the #1 thing founders are guilty of, that ends up making them fundraising repellant.
By the way, if you’ve made this mistake, it’s not your fault. You’re just new to the game. And that’s why you’ve got me!
What's the #1 mistake founders make when trying to get venture funding?
A: They spend too much time talking about their product or service.
There, I’ve said it.
“But Christine…” I hear you say “...they’re investing in my product, they need to know what it does. And besides, we worked really hard on getting this off the ground and making it unique, don’t they want to know how we got here?”
To which I would answer:
No. Investors actually don’t care about how you got here (at least not in the first instance). And despite what you may think, investors are not investing in your product or solution. They are investing in your business.
Which brings me to the answer to your actual question:
How to Get Venture Funding?
If you want to get funded by venture capital, the only thing you need to do is: sell the outcome. That’s it. Nothing else. It doesn't have to be hard either. There are simple steps you can follow to do this. The key lesson here is: investors are wired to care about tomorrow (not today) and your ability to project into the future is what will actually close the deal.
How To 'Sell The Outcome'
Step 1: Think Like A Venture Capitalist
If your goal is to Sell the Outcome the first thing you need to understand is how venture capital firms think and operate. In other words - what's the outcome that venture capital firms actually want and what are they driven by? The answer is simple: money.
“But why, Christine? Why can’t they also be driven by being good? Or impact?” I hear you say.
Here’s why:
Because venture capital firms have promised their own investors (that’s right, VC firms have their own investors!) that they will generate a return.
How venture funding actually works:
Every venture capital firm raises the pool of money they deploy to startups from wealthy individuals or groups. And the promise to these wealthy people (called LPs or Limited Partners) is that they’ll make MUCH more money investing in the venture capital fund than they would investing in other ways.
So even if a venture capitalist has a heart of gold and cares about social impact, the dynamics that surround the venture capital firm (get money back at all costs) means they need to prioritize businesses that make a LOT of money. Period.*
*(At this stage someone is bound to tell me about a venture capital firm that is truly triple bottom line and cares about the world… But this is an exception, not the rule, and if you go on to raise more rounds, you won’t have many VC firms to choose from).
So if you’re thinking like an investor, then the only thing that matters is: show how my business makes money and can be HUGE. a.k.a. Sell the outcome
And by the way, when I say HUGE, I mean huge.
Investor Capital math works like this:
"If this one investment works out, I want it to return the entire amount of my fund, or more..."
So if a VC firm raises $100M for their fund from wealthy people, they are looking for their investment in YOU to return $100M (or more) at a later date.
Let’s say the VC firm decides to invest in you and ends up owning 10% of your company.
If they own 10% and want that 10% to be worth $100M in the future, then you need to be valued at 10 X $100M, or $1 billion dollars in the future.
This doesn’t even account for dilution in future rounds, so you actually need to be worth more!
Ask yourself:
Does your pitch deck show your path to being a billion dollar company? Or are you too busy getting in the weeds about how your app works.
As an aside:
At this stage you might be thinking - eek! If this is the math, maybe I don’t want to get venture funding at all! That’s what many founders decide (and it’s totally OK - I’ve got funding paths for you too). But most founders waste months trying to succeed with venture capital before they realize how it all actually works.
But, I digress - here’s the second essential step in Selling the Outcome. A step that is useful, no matter whether you end up going down the venture path, or not.
Step 2: Show The Road To Success
A founder friend (who I coached on growing her business with Google Ads) wrote to me the other day with some exciting news.
She said:
...We got a term sheet
When asked how, she said:
[It was a] combination of your marketing push, which got me real numbers to plug into my forecast assumptions, then Forecastr to make a great revenue model.
See the realization she had there? It wasn’t her product that won investors over. It was creating a believable growth model that showed a roadmap to success.
In other words, she used metrics and forecasting to sell the outcome.
And you can sell the outcome too.
All it takes is gathering the right numbers and creating a growth model that shows your smart assumptions for why this CAN not fail.
This blog post is already too long for me to go into all the details about how to build growth models, but if you’re interested in learning more, then my newsletter is the best place for you to start.
The mechanics are not the important part of this post.
The important part is that you remember:
If you want to get venture capital funding, the ONLY thing you should focus on is selling the outcome, not the product. It is your ability to demonstrate a solid and well-thought-through path to success that will get you those: "money wired!" emails.
This is not homework, or some checkbox you need to mark off in order to raise. Business-focused founders want to work this stuff out because growth modeling helps you make smarter decisions.
And if numbers and math isn’t your thing, that’s OK too - plenty of people have a co-founder or key team member who is good at this stuff. Or when you're ready, I’m here to help you too.
Until our paths cross on Zoom, or IRL...
Your friend,
Christine “Sell The Outcome” Outram
