Thursday, June 22, 2006

Secrets to contact strangers and ask for funding

I spoke to 120 people in 40 days during my initial funding and thought I should share some secrets as I hear from smart people wondering how to get started asking strangers for money.

First, yes, YOU can do it, its better if you haven't done it before.

The first step of waking the entrepreneur in you is to be able to communicate your passion about your idea to others. Its like a first time newborns parents who can talk excitedly about their baby to strangers. It will come naturally if you don't stop to think about it.

Ok, you have stopped to think about it, so lets get a plan in place.

1. Start with people who you think you can trust and pitch your idea. Hear their comments, as best as possible without taking all criticism to heart.
This should help you through the process of validating whether you have a unique idea. Try this on as many people who are willing to hear it. This is also your practice session to get to explain the idea in simple words in less than a minute such that it explains the uniqueness of your idea and your passion.

2. First focus on validating whether the problem your idea solves really exists. In other words, market validate the solution for an existing problem in a vertical. Its easy to focus on how cool your technology will be, especially for tech ideas. Remember, you are out to build a business, and make money so focus on the problem you are solving for customers.

3. You may soon pitch your idea to get advisors, investors, hire the best talents and to companies to become your customers and partners. So, don't worry about investors yet. Everyone of them is a person. So practice your pitch on everyone who will listen. Its your lesson in gauging people's interest, their nuances in giving you feedback, your persuasiveness in getting them to see the vision you are painting.
The real success of an entrepreneur finally lies in being able to discern people - separating the good from the bad, separating good intensions from real capabilities, separating people who just want to talk from those who want to do.

4. Go to networking events; share your idea with several people. Meeting fellow entrepreneurs will help benchmark how far you are in the process, learn the good and bad you have to do and avoid. It will build friendships that will help with referrals and validations later.

5. I see a lot of entrepreneurs seeking investors and trying to smooze with them and trying to befriend them. This is painfully obvious in a panel, where the usual format is to see an entrepreneur flanked between two VCs. I don't know a single case of a VC funding an entrepreneur simply for sucking up to them.

Investors are real people. They are seasoned at spotting an entrepreneur who has a real money making proposition and shows the confidence to execute on it. Your confidence will show when you get there.

So, first focus on finding your first customer.

These people will also be at networking events. You can find referrals to companies at events from fellow entrepreneurs. Don't hesitate to call or email them. I spent bulk of my early days talking to potential customers to market validate my idea. They may surprise you and respond more favorably than you think. You'll never know till you try. This will also help you understand what is doable and what is futuristic.

6. Pitching to customers is a different game. Till now, you have been talking about your idea from your perspective. Now you need to pitch it from this particular customer view point of 'Whats in it for them".
In early Coola days, we pitched to several segments and always made a screen shot of what it would look like on their web site to use Coola. We setup demos specifically applying to their type of data and mobility problem.
This helped me understand the problem better and talk from their point of view.

7. I'd suggest never to stop talking to customers from this point on. Find the segment that easy to penetrate for YOU, the ones where you can get started.
I called pure strangers and found customer prospects before funding. But after funding one of my advisors told me an obvious truth, kept as a well-guarded secret by entrepreneurs.

“Your first paying customer is not going to be a stranger. It has to be someone who is ready to bet their job to trust you personally to go up to his/her boss to justify spending real money on a non-existent or brand new company that has no guarantees of survival next year".

In a software play, there are contractual ways to get around it by offering exit and merger clauses offer source code in case your company closed down.

Just remembering that you are dealing with real people, with real jobs will give you perspective in getting ready to network and sell your idea to your first customer.

One option is to go about the rounds getting validation that the need is real and they could be a potential customer before your funding cycle. Another option is to work hard to get a paid pilot deal with your first customer, which can serve as validation and get your seed money too.

8. Find advisors along the way who can guide you through the process. These can be strangers. Successful entrepreneurs who have sold their companies and are working in a large company are ideal people who are likely to understand your position and will help you.

I've written before about why you need advisors and compensation etc.

You just need that one person who you can trust. If you truly believe you have this great idea to change the world, be proud of asking people to be part of it.

One common question new entrepreneurs have is "how can I just ask someone to be my advisor? What does it mean? What am I offering?".

When you find the right person you can ask them to be your advisor. Find out the best mode of communication that works for them and stay in touch. Take their advice and move ahead on next steps and keep them posted on your learning and progress.

If your personalities do not work out, tell them politely and drop them. Its common to learn after your networking round that this advisor was not the best advisor for the long-term. So, don't make commitments of payments or add their names to your business plan too soon. Treat them as a new friend and keep them posted and take it from there.

9. Finally you get to the investors. Early on, find investors and ask for their advice and see what objections they raise. Do your homework on the investor that fits your type of business and stage of company and get a referral through their trusted network when you are ready. Before that as you network, setup meeting with investors to showcase your idea and get advice. They bring years of experience making comparables to business ideas being pitched to them.
At best, you'll learn a lot about potential blind spots, companies that sound like your competition just by the way you pitch your idea.

Later on, media will judge you the same way as investors by quickly trying to place you in the overall market. So, at best, your investor meetings should give you feedback on your pitch (wordings, tone, style and succinct meaning) and feedback on your business model and customer pain. You can gain valuable insight into execution details of scaling your business into your vertical.

But, remember, investors are real people. I heard from an honest VC from Fidelity Ventures who told me early on during my "meet me for advice" rounds, that he is doing a job. Will my company offer the level of comfort for him to go to his other partners and stage his career to bet that we will survive and guarantee the return on investment that the VC fund has promised its investors?
It sounds the same as the concern of the first customer right?
That’s why VCs prefer entrepreneurs who have successfully built and exited out of companies. They follow others in their network who are betting on some new technology. They like some fundamental technology which appears at worse as a potential candidate that can easily be sold to several companies, e.g., tool players.

10. The only caveat at a VC meeting is that they do not know if you are winning guy or girl as much as they do not know that you are likely to fail.

So, in the initial rounds, I'd suggest not meeting VCs in their offices. Meet them as real people at breakfast and ask for advice. Be open to hear the advice and take it in perspective and see what you need to fix to make your business plan reduce risk towards success.

I used to be available to meet investors at 30 minute notice locally and next day anywhere in America. I used to send a follow-up up email that night (however late). I made sure I got something out of my meeting with every person I met.

If you like the investor, follow-up after you have made fixes be it rounding off team or customer validation. Do not loop around just adding more features to your product. Think of your job as being to pitch to investors and get the money and hire the team who will build the product.

After this stage, nobody will look like a stranger, everyone will look like a potential person who can help your company grow :-)

10 comments:

Chris said...

I love the lessons learned here. It's truly a great piece for everyone. Here's how I summarized it.

*Everyone is a person and treat them that way. Similarly, REACH THEM at that level.
*Be willing to work harder than anyone else (drive you to the airport!)
*Do your homework (I owe you homework on the vertical you suggested be #1).
*Ask everyone. Pitch everyone from their perspective. Practice often.
*Take feedback. Be open to the idea changing.
*Be infectuous about your ideas.

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Anonymous said...

I just found this post today, its great, timeless advice, I am going to digg it.

Anonymous said...

hi, chris it depends what you have, you shouldn't be to open for you loose most of your energies, but keep on thinking about it. & it will come. Just thinking alone will give you more than talking to everyone.
mms

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