Ep. #586 - Startup Fundraising – What to Expect
In this episode of Startup Hustle, join Matt and Matt for Part 15 of “How to Start a Tech Company” as they discuss what to expect throughout the startup fundraising process.
Covered In This Episode
Most often, founders thinking of raising funds do not know what to expect from startup fundraising. Questions such as which route is better for their startups to go – the bootstrapped or venture capitalists route? Or what exactly do investors expect from their portfolio companies?
In Part 15 of the “How to Start a Tech Company” series, Matt and Matt discuss everything that founders should expect in their startup fundraising process. The hosts share their experiences in looking for funding. They also share the differences between incubators, accelerators, VCs, and other startup funding sources. More importantly, the Matts give honest and realistic advice to entrepreneurs planning to start their startup fundraising journey.
Learn what exactly to expect during your startup fundraising efforts in this Startup Hustle episode.
Missed the previous episode? Click here to listen to the 14th episode, jump ahead to the 16th episode, or access the complete “How to Start a Tech Company” series.
- Raising funds will be harder than you thought (0:10)
- Initial funding sources: Self-funding and Crowdfunding (1:48)
- Getting funded sucks (5:03)
- Getting traction (7:27)
- Incubators and Accelerators (11:04)
- What do VCs want? (14:21)
- What to expect when fundraising (16:17)
- The fundraising process (21:04)
- Networking and Mentorship (26:48)
- Acquisition (32:12)
- Founder’s freestyle (36:22)
- Wrapping up (39:30)
It’s when you’re at that super early stage that it’s the most difficult especially, and we all know people have done this or like, I’ve got an idea for an app, I need to find a software developer, and I need to raise some money and hire a developer and build an app. They don’t have any of the rest of the business strategy. I’ll figure it out, probably. Those people fail almost every time.Matt Watson
With an accelerator, they took companies that had traction and a validated model. And then they did actually put some funding into it. But they gave an even more important part of funding something more valuable than funding, and that’s a partnership, clients, and a vested interest from a powerful partner that can help move you forward exponentially.Matt DeCoursey
You’re gonna have a lot of people that cut straight to the point. They will tell you everything that’s wrong with you and your business. Sometimes that’s great feedback. And sometimes it’s not. It can feel disheartening. But if you want to get through it, listen to it, listen for the echo, listen for the repetitive thing you hear over and over again. And if it is within your wheelhouse of fixing or adapting to, then fix it, and get back out there.Matt DeCoursey
I think the key here is you’ve got to figure out a path forward where you don’t raise any money, right? Because if you’re only solution for this business to ever survive and succeed is to raise capital, it’s a bad place to be. And if you just keep running around with that dream in your head that you’re gonna raise capital, then it’s just never gonna go anywhere. So I would always think about what Plan B is.Matt Watson
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Following is an auto-generated text transcript of this episode. Apologies for any errors!
Matt DeCoursey 0:00
And we’re back. Back for another episode of Startup Hustle. Matt DeCoursey here with Matt Watson. Hi, Matt.
Matt Watson 0:08
What’s going on, man?
Matt DeCoursey 0:10
Well, I’m getting ready to raise some startup funds and I’m not sure what to expect.
Matt Watson 0:17
I can tell you what to expect.
Matt DeCoursey 0:21
Matt Watson 0:23
Not to raise any funds.
Matt DeCoursey 0:26
Why? Is it harder than I think it’s gonna be?
Matt Watson 0:28
a man, I think we get stopped the whole episode there.
Matt DeCoursey 0:31
Just say, it’s this shit, this shit ain’t easy.
Matt Watson 0:35
And you’re not gonna raise funds?
Matt DeCoursey 0:38
Yeah, there you go. Well, you might, you might in speaking of funds, this episode of Startup Hustle is brought to you by Silicon Valley Bank. SVB has been supporting innovative founders, companies and investors with targeted financial services and expertise for over 35 years. Silicon Valley Bank built for what’s next, learn more at svb.com There’s a link in the show notes. And once again, if you can’t remember sbb.com, I don’t know if you should be raising funds for your startup. Cuz that’s not how long domain to remember. But you know, Matt, so here we are, it’s part 15. And how to start a tech series. And you know, we’ve we’ve tried to take this from square one last week, we talked about, tried to explain how valuations work. And you know, that was an important part, you got to figure out what valuation you’re going to be raising funds at. Now we’re going to hit the street, we’re gonna go raise some cash. So we’re going to talk a little bit about what to expect. We’ve been in the driver’s seat in the passenger seat on several deals. So the stats tell me we might know a little bit about what we’re talking about today.
Matt Watson 1:42
Um, you know, we both raised money before. So I think we know what we’re talking about.
Matt DeCoursey 1:48
Well, we’re gonna find out, we’re gonna find out so yeah, just we’re gonna breeze through a couple of things here. So we, you know, we’ve talked about what some of the initial sources of funds for startups are. And you know, some of that’s like, obviously, self funding now. Okay, I’ve self funded myself more than others have funded me. You’re on that same boat?
Matt Watson 2:09
Yeah, absolutely. Yeah.
Matt DeCoursey 2:12
Why to like, Why did you laugh about that?
Matt Watson 2:15
I’m self funded, that’s for sure.
Matt DeCoursey 2:18
Well, I mean, that’s, and that’s been the case. So you know, obviously, if you have the the ways and means to write yourself check, then you then what you can expect? Let’s actually talk about that. What can you expect when you self-fund? Because, for me, it sometimes it makes things feel a lot easier, and sometimes multiplies the agony?
Matt Watson 2:42
Well, you know, it’s, it sucks when you’re investing somebody else’s money, and you feel like you need to be a good steward of it and all that. And it’s even harder when it’s your own money, right. But, and it can be a lot more stressful, but at the same time, when it’s your own money, some people are probably more careful with it, but some people are less careful than if it was,
Matt DeCoursey 3:05
I think when it’s using your own money too, though, like if I if I invested my own money in myself, and I lose it like that’s on me. And like, I will handle that the way I handle it, you know, now, kind of what you’re talking about. And one of the in the next thing on our list is a lot of people do raise funds from friends and family. And I think, honestly, I don’t recommend that on most days. If you can avoid it, you might want to consider it because I think that it can be enough pressure when it’s your own cash. It’s way more I think there’s a lot more pressure when it’s friends and family.
Matt Watson 3:37
Yeah, absolutely. And the last thing you want to do is be sitting around Thanksgiving dinner with your grandma and your uncle and the only thing they’re doing is grilling you about your stupid startup idea that lost all their money.
Matt DeCoursey 3:49
Right? And you’re not gonna live that down. You know, certain things it you know, there’s, there’s a whole lot of stuff, you know, another thing too is a lot of people you talk about, like really early stage stuff, they’ll do things like crowdfunding, different, you know, business plan, we’ll just air quotes here contests, which are, you know, like here in Kansas City, we have Digital Sandbox, where is like, you can get $20,000 for your startup. And technically, that’s revolving around a pitch and a plan and some hope, and some people find money and you know, end up getting that, you know, bringing it in there. And, I mean, there are a lot of initial sources. For most, it’s often not venture capital. And last they have some cred meaning likes and credibility to get others to invest. So you know, when you talk about what to expect, I mean, I think the first answer is man, this shit is an easy the episode two of this entire podcast is titled getting funded sucks. I think we kind of set the tone for today’s episode three years, three and a half years ago with epic So to, but why does it suck, Matt?
Matt Watson 5:03
Because nobody’s going to invest in your idea, and there’s a 90% chance it’s going to fail. I mean, that’s the deal. The biggest challenge is, if I think ultimately you have to plan we talked about what to expect, you have to plan to never raise any money, if the only way your business is ever, ever, ever going to be successful, is if you raise money, you know how you solve that problem, getting a customer that pays you some money. True, not getting an investor. I mean, it’s to be honest, like, it’s, if that’s the only way your business is ever going to get anywhere, it’s really, really hard. Because you’re saying, I can’t sell it to a customer, I literally have nothing I can sell to a customer that will pay me, but I gotta go convince somebody else to give me money. Like it’s not a good place.
Matt DeCoursey 5:53
Now, I want to let me disclaim some of this because we’re not trying to discourage you from trying this, the the mission statement of Startup Hustle is to tell the real truth of entrepreneurship and what it’s like to be a startup founder. And when Matt says you’re not getting funded, okay? Statistically, you’re not I mean, I have a 1%, you have a 1% chance. And that is, and that’s according to literally dozens and dozens of investors, venture capitalists, and hundreds of founders that we have had on the show that will tell you the same thing. We’ve had a whole lot of episodes with venture capital, funds, firms, people, investors, and those flat out tell you, I talked to 100 people and maybe write one check. So you have theoretically and technically a less than 1% chance. So you so when if this, if we’re talking about what to expect when raising funding, the easy binary answer that is expect a lot of nose expects a lot of people to say no. So you got to grow some thick fucking skin, and either get back on the field and get up off the mat and keep doing it. Now that said, Everybody I know that’s been successful with raising capital will literally on some levels, and some mics stated a little differently. They’ll say, You know what I just I given I get I kept giving pitches until I got a yes. I kept giving pitches till I got a yes. And that’s what it takes. That’s what you should expel. I don’t know how many that is for you. Some people get it and 10. Some people get it and 500. Some people don’t get it at all. But that’s what you should expect.
Matt Watson 7:27
Well, and I think I think you have to separate this into a couple of different buckets, right? You got the people that they have an idea, but they need money to get it to the next phase, versus people that their business is growing, and they need cash that cash to help grow it right. It’s when you’re at that super early stage that it’s the most difficult especially and we all know, we all know, 10 people have done this or like, I’ve got an idea for an app, I need to find a software developer, and I need to raise some money and hire a developer and build an app. They don’t have any of the rest of the business strategy. I’ll figure it out. Probably those people fail almost every time. And if you’re one of those people, I love you, I’m sorry, your best bet is to find a software developer that can be your business partner to go build this thing. But because if you want to go raise 100 grand to then go build an app like it’s a hard, hard road.
Matt DeCoursey 8:26
Yeah, and so you’re gonna have people and you know, to kind of tack onto that, you know, what Matt’s talking about is if you don’t I mean, if you have your plan together, you have you have something. So I think here’s the next thing you can expect when trying to raise capital. All right. And people have been, get ready to hear this. These exact words, let us know, when you have this, this isn’t for us right now. Let us know. And you gained a little traction.
Matt Watson 8:54
Yes. Well, and I think the other thing they’re meant to remind to think about here, we’re talking about early stage is the best place to be is if you’re in some kind of business, and you’re like, I know we have people that will pay for this, we just have to build it. That’s a different place. Right? If you know, you’re like, Oh, I work at whatever company and they desperately need this product. And I know they’ll pay for it, you know, whatever. Or you’re spinning out of a larger company, right? Like you’re like, or whatever. That’s, that’s okay. Like, that’s a great place to be in, it’s easier to raise capital there is like, I know, I haven’t but
Matt DeCoursey 9:32
that’s, that’s a form of traction. That’s a form of traction, though, on some levels. Like, I mean, traction is defined as like grep forward movement, progress, like momentum and that’s the that’s the thing that and you know, once again, like I don’t want to sound inherently negative, but a lot of people this is practice, we’re prepping you for what’s going to occur because because like when Matt what Matt’s talking about is that okay, that’s traction traction is As I’ve got a client and a customer lined up traction is, I’ve already built an MVP. And I’ve had a bunch of people sign up for it. Traction is validation. And revenue is validation that signups and revenue validation,
Matt Watson 10:17
validation and having customers lined up, right? Like, you take a crazy idea like Airbnb or couchsurfers, or some of these things, right? It’s like, if you have no customers at all, and you’re like, I’m gonna build a marketplace where people can rent my couch and sleep on my couch tonight, most of us would be like, that is the dumbest idea I’ve ever heard of, I’m not investing in that shit. But if you line up like 100 people, they’re like, Yeah, I’ll rent my couch for 10 bucks tonight, and another 100 People that are ready to hand you 10 bucks, like, Alright, maybe we got something, right. Like, it’s at some point in time. You fake it till you make it. And you’re, you’re building fake websites and PowerPoints, all this stuff, and you’re, you’re trying to sell the dream, and you’re getting people lined up to buy the dream and you got people lined up to the dream at some point, it makes more sense. And it’s easier to find an investor.
Matt DeCoursey 11:04
Because and that’s when we’ve talked about, you know, you know, the minimum viable products and all different, you know, different stuff like that. But that’s a form of traction to meaning you’re moving forward. And, and, you know, traction has traction. So when we talk about it, so be prepared to hear that and then also define it. Because if you’re in the earliest stages, that’s what you’re going to run into. So there’s a few places that you’re gonna run in to startup fundraising sources, and they’re gonna, you’re gonna kind of get different reactions to it. So let’s, we’re gonna start, let’s start real quick with an incubator. Okay, so we’ll say an incubator. So an incubator is actually okay. So Matt, now, it’s kind of funny, we’re starting with incubator because the incubator oftentimes will settle for a lot of the stuff you said, don’t expect funding from an incubator is usually a partner. In many ways, they may while there may be some cash involved with that, they’re going to help nurture you, they’re literally going to do what it sounds like, you’re the egg, they’re gonna keep you warm, they’re gonna roll you over once a day, you know, kind of like, keep up with you until you start to pack out of that shell. Right? So in an incubator situation, you’re not necessarily startup funding, but you are. Okay, so now you’re preparing for traction,
Matt Watson 12:24
you’re getting the mentors and the help. Yes.
Matt DeCoursey 12:27
And that is, and that’s validation. And that is some forward momentum. So incubators can be a good way, that can be a good way to leverage yourself into funding. Sometimes they come with a little bit of it, but that’s maybe like that’s like subsistence that’s hand to mouth living, that’s paycheck to paycheck kind of shit, that might just be so you don’t have to go work at another job. But you’re still going to need to generate traction, or that’s going to come to an end. Alright, so then we move down, let’s talk about accelerators, accelerators, like what it sounds, that’s something that’s already moving forward. And now we’re gonna be like, Hey, let me put a rocket behind this and see what happens. Okay, so accelerators are often a source of startup funding, and then we’ll use let’s just launch Casey. So we’re from Kansas City, if you didn’t already know that, here in Kansas City, or the company that Matt and I own together Full Scale. We help if you need developers for your startup after it gets funding, call us FullScale.io. But anyway, we say after you got funding, because we’re not going to fund you either. But with an accelerator, we partnered with a local business accelerator, and they took companies that had traction halibut had a validated model. And then they did actually put some funding into it. But they gave an even more important part of funding something more valuable than funding that partnership, and clients and a vested interest from a powerful partner that can help move you forward exponentially.
Matt Watson 13:53
That doesn’t mean that it was customers. Yeah, yeah, that’s a funny thing more important than money.
Matt DeCoursey 14:00
is, you know, one thing that we talked about this, the stats are some of this math. So one of those cohorts, as they called it, they only had like 70 companies apply, and six of them got in that numbers on that’s a hell of a lot better and going out and trying to raise capital.
Matt Watson 14:18
Those that good, that’s a lot better than a lot better.
Matt DeCoursey 14:21
Sure. Less than 10% Oh, my God. All right. So okay, so now, if you are going to try to do startup funding, and you’re gonna go talk to venture capitalists, you have a completely you should have a completely different set of expectations. And honestly, a different approach pattern than incubators, accelerators, VCs want you to fit into the box into the mold. They are a formula to those people they’re going to I mean, I’m many shapes and forms you are a formula. Now So, for the most part, there are some that are going to look out, you know, the, like, there’s the hustle fund their, their founder was on there. And their motto is, is way too early funding. Like, like, literally they want, they actually you can go to the hustle fund and maybe get that check based on your dream because they literally written like 1000 checks. And they’re for small amounts, because they want to get started. Now, Matt, you have dealt and talked to a lot of VCs, pe firms, stuff like that, that’s what’s important to them?
Matt Watson 15:32
Scalability, reducing risk, being a big enough opportunity. I mean, we’re i, so I’m the CTO of Metro. Now, and, you know, we’re looking to do more acquisitions, right, they acquired stack five, but now I work partly for them as a, which is owned by PE group to do even more acquisitions. So I have a meeting later today looking at three opportunities. And so I mean, the thing we’re looking for is strategic fit and growth and the risk of the company, you know, all these different things. It’s, it’s actually kind of fun. But if you’re the entrepreneur on the other side, I mean, the thing you always have to remember, we talked about this last episode, you’re competing against everybody else. Everybody else’s chasing the same dollars. So.
Matt DeCoursey 16:17
So what you can expect is really to hear things like No, one no, yes, no. That’s why I’m struggling on this one. They I just I like I don’t want to be I don’t want to be a hater. But there’s really like, here I am. Okay, Matt, sit down and talk about what to expect startup fundraising, what to expect here know
Matt Watson 16:43
what to expect, Mr. DeCoursey, we appreciate you’re trying to raise capital, but you’re not going to raise this million dollars from us. So you can pay yourself $250,000 a year. And that’s the reason you needed to raise capital. No, now, if you still want to continue to work for free, we will give you a million dollars, and then you can hire some people to actually help grow the business. Be prepared for that one. And by the way, your shares are all going to vest. So if we decided we don’t like your ass, we’re kicking you out and keeping your shares
Matt DeCoursey 17:17
and your company may be, and you’re going Hey, Matt, I I just invented a game and I want to play it and I think we’re gonna have fun with this. This game has called things VCs have said to me. Okay, and this is good. Is this gonna turn into this could be a recurring thing. Things VCs have said to me. All right, I’m gonna go first. Matt, we really like you. But you do way too many things. Let us know when you’re ready to focus on one. Your turn.
Matt Watson 17:51
Is that as big as it gets?
Matt DeCoursey 17:55
That was the VC that said that to you?
Matt Watson 17:57
Matt DeCoursey 17:59
Okay, just making sure making sure we’re on the same page. All right. So we really like you this. You’re a little early for us. Let us know when you get some traction.
Matt Watson 18:11
This is looking a little soft. How do we how do we make this grow faster?
Matt DeCoursey 18:16
We’re playing a different game here. And you need to get your mind out of the gutter, dude. No, you’re right.
Matt Watson 18:22
You know, your forecast is looking a little soft. I mean, we got to grow this business faster. I mean, what are we gonna do? Right? It’s what I mean. Okay.
Matt DeCoursey 18:32
And by the way, just the word no, is not permitted. So we’ve all heard that. We don’t invest in service companies.
Matt Watson 18:42
Your churn is too high.
Matt DeCoursey 18:45
Right? We just don’t think that you have. Okay, here we go. This is a really crowded space, and we’re not sure you can compete with the 800 pound gorilla in the room. It’s a good one that happens a lot. That’s a lot.
Matt Watson 19:03
You don’t have the right team. You there’s no management. It’s you. How are you going to grow and scale a team?
Matt DeCoursey 19:11
We really like you, we love your energy, but this opportunity isn’t for us.
Matt Watson 19:19
I love you like a brother but no.
Matt DeCoursey 19:23
All right, and then we could have a successful one. So you know, like here’s, by the way, what we really liked this opportunity, we’d like to enter the diligence process, which by the way should strike a separate set of fear in your heart.
Matt Watson 19:41
We’re excited to work with you. We’re going to send you our loi which contains like a million dollars a year in management fees and it’s participating preferred stock so we’re gonna get all our money back plus, like 50% and your we could fire you at anytime. In and yeah, a bunch of other shit, you realize
Matt DeCoursey 20:02
that you’ve really had them speak the words we could fire you at any time or is that on the sheet? All right. And that concludes the very first, the very first version ever of things VCs have said to me. And by the way that that is probably a fun game that you should play with your founder friends. As we get as we move on, in this episode, a quick reminder that this episode of Startup Hustle and possibly, regrettably, has been brought to you by Silicon Valley Bank. SVB has been supporting innovative founders, companies and investors with targeted financial services and expertise for over 35 years. SBB calm,
Matt Watson 20:47
still RS still my favorite, I love that SVB
Matt DeCoursey 20:51
i feel like i i tried to sell that to them, just you know, like, you get like a montage of that. And then put that on Startup Hustle TV, by the way, go to YouTube, check out our YouTube channel. If you want to see what the process of getting acquired was like the true timeline story, go find episode 10.1. It’s literally Matt Watson story where his company stack epi was recently acquired by Huntington Bayes net trio. And they are doing some cool stuff. It was a really good inside. Look, Matt, you did some fundraising into that were largely self funded. But overall, that was I mean, that that was the hope and the dream. So once again, congratulations. Now, you know, a few things like, you know, when it comes to what to expect for fundraising, and once again, like if you’re listening to tick, tick, look, we’re just trying to tick keep it real folks. And it’s, it’s tough, man, it’s tough. Like, I mean, the fundraising process, just realistically, it chews up almost everyone and spits them back out. And I think one of the things is just like being real candid here, is you need to expect to have your ego bruised. You know, the, the, the those that are interested in this whole process of getting funded and fundraising is that you’re gonna have a lot of people that are very type A alpha type folks that cut straight to the point, they’re going to tell you everything that’s wrong with you everything that’s wrong with your business and everything they don’t like about both and and sometimes that’s great feedback. Most of the time, it is usually quite honestly, excellent feedback. And sometimes it’s it’s not. But what to expect with that is it’s it’s it can be I think it can feel disheartening. I mean, because I don’t think anyone likes to talk about their flaws, or what’s wrong with their business or why you’re not going to get it done. But I mean, if you want to get through it, I mean, listen to it, listen, for the echo, listen for the repetitive thing you hear over and over and over and over again. And if and if it feels like it’s something that’s within your wheelhouse of fixing or adapting to then fix it, and get back out there. One thing if you’re hearing No, no, no, no, no, and you’re hearing the exact same feedback every single time. Now you’re beginning to define insanity, if you’re still going forward with it a little bit. But just because someone tells you now, or gives you feedback that you don’t like, doesn’t mean that you’re going to get that all the time, you get 40 pitches in and you hear the exact same thing every time and the feedbacks the same every time. You might have to sit back and consider the it’s valid.
Matt Watson 23:36
Well, and the other thing to think about when you’re trying to raise money is you got to find the right type of investor. So for example, you know, stack fi, we sold a product that’s it related, right? So going to raise money from people who have only invested in oil and real estate. Yeah, don’t get it. They don’t get it. They don’t understand software, you’re talking to the wrong people. Right? I mean, they might be like, Hey, I saw that Facebook thing became worth billions. I’m gonna give you some money kid, like, maybe. But odds are you need to go find somebody who invests in technology companies. And even better somebody who’s invested in that industry in that space, you’re gonna have way better results.
Matt DeCoursey 24:21
The confused mind almost always says no, is why. So it’s hard to get investment from people that don’t understand what they’re investing in. If they don’t understand your business, if they don’t understand the problem and the solution. It makes it a lot harder to quantify, especially if, you know, next thing you expect. Let’s talk about what to expect if you haven’t raised money and you haven’t had success before as a startup founder because it’s a lot harder. I think if you haven’t done either, you need to expect to have more of a fight. Now look, the process is built to eliminate A lot of the weaker, you know, companies and founders, like that’s part of it. Like there are investors, including myself that like founders with scars, I like people that have failed at something before I like, I want you to be a tenacious motherfucker that doesn’t give up and prove that how best do you want the money? Matt? Matt, how bad do you want the money?
Matt Watson 25:24
There’s, there’s nothing more Darwinistic than founders and fundraising.
Matt DeCoursey 25:31
Matt Watson 25:32
God, we’re gonna make our own survive only.
Matt DeCoursey 25:35
It’s so true, though. So that I mean, here’s the thing. And remember, they’re trying to weed you out. So Matt, you’re spot on about finding an investor that fits that criteria. That’s why I knew when we played things, VCs have said to me, which is going to be a new thing. By the way, I don’t see how it’s not. That might even just be its own podcast, you know, like, we’ll just do a five minute with founders, and they can just talk about all the things, it’ll sound like the same episode over and over again, I’ll tell you that much. It really will. But you know, when I mentioned, hey, we don’t invest in service companies. That’s because you’re I was talking to the wrong people talking to the wrong wrong investor, because investors do fit a profile now, you’re gonna save yourself a lot of time, you’re gonna save yourself a lot of noise, you’re gonna save yourself a lot of misery. If you find it people that invest in in the kind of businesses that you have. So, you know, there’s how do you figure that out? Well, CrunchBase is a really easy place to start. I mean, CrunchBase literally documents like how people that God investors firm a lot of different ways. Like I literally have, I have a profile as Matt DeCoursey. And I think you do too, and CrunchBase as investors that literally talked about some of the things we’ve invested in
Matt Watson 26:48
well, and that the number one thing you got to do is network, right? Because like even in Kansas City, let’s be honest, there’s some tech companies here, we’ve had some tech wins, but not a lot, right. And so you very quickly, you start talking to people, and they’re like, oh, you should go talk to so and so he sold some tech company, aha, yes. Let me talk to him. Maybe he’ll be an angel investor or her whatever. And you kind of network and figure out okay, who in the community does angel investing in tech even had a tech exit before whatever right in that industry, somebody who, you know, but the other thing to think about one of the very best things you can do as an investor is find a customer that will be an investor. Right? Let’s, let’s go back to the VinSolutions days, right? I’m making software for car dealerships. Who do you think I should ask to invest? Somebody who owns a car dealership, car dealers, because they can look at it and be like, oh, yeah, this solves a problem I have, I would gladly pay for this, I would tell all my friends about it. And this is going to be huge. Right versus going and talk to the oil and gas guys be like, What does technology
Matt DeCoursey 28:00
go to your customer episode? What is technology? Go to your customer, everyone that? So all right. So some other things too. While we’re on the subject to that, I mean, there’s, there’s professional people out there. I mean, there’s programs like there’s all kinds of, I’m going to call them civic based organizations, you know, like Casey Sourcelink, something here locally, then they do like, they do like best pitch school like they, they will help they’re there. These are economic development entities that want to help you get your shit together. And then there are actual just their consultants and people I hired one I hired one. Four years ago, I hired a guy for about six weeks to help me get my shit together, and coach me and that that resulted in me getting in front of some really amazing people. And I learned a hell of a lot, I learned a hell of a lot, I learned how to how, when giving these pitches, I learned the value of brevity and getting right to the point with these people. And by the way, that’s another thing we should probably throw in, get right to the point, you’re right to the point, you have a few minutes. And if you don’t get to the point, you’re going to lose that. But other things too, is like go look for a mentor. Go look for a mentor, go talk to someone, either either a professional advice or a mentor or someone and like that’s it. Here’s the thing, man, there’s like, literally, I don’t think you could hit the bottom of advice when it comes to raising funds for your startup that’s on the internet. Like, it’s everywhere. I mean, we’ve got it, there’s at least 10 episodes, if not 20 In this series that are related just to that.
Matt Watson 29:35
So let’s go on LinkedIn, go on LinkedIn, find potential customers, and ask to buy them a cup of coffee and pick their brain. A lot of times they’ll say yes, and maybe they’ll
Matt DeCoursey 29:48
I do hate that invite just a cup of coffee invite but yeah.
Matt Watson 29:54
Okay, maybe a glass of milk for you, whatever.
Matt DeCoursey 29:57
You had a nerve. Well, here’s the thing is
Matt Watson 29:59
all right, thanks. go shake,
Matt DeCoursey 30:00
it’s when you get that would get me you gotta come, you gotta come to me make it easy for people to help you and you will get more help. And that’s that’s why that’s actually why you hit the nerve there because, like, if you want me to stop what I’m doing get in my car drive somewhere come meet you. And what I get out of that is a cup of coffee that means that an hour an hour or two of my time was worth $3. And you know the thing is, yeah, and I think you ever paid at that rate but you know, by the way, is this a good time to point out that you want to offered me a job for one Bitcoin a month and I was apparently the dumbest person in the world for not taking that. Yeah, I mean, Bitcoin was like $5,000 a coin.
Matt Watson 30:48
Matt DeCoursey 30:49
Yeah, yeah, yeah. But anyway, if you want to
Matt Watson 30:52
I’ll hire you for one Dogecoin
Matt DeCoursey 30:57
By the way, I looked at my Robinhood account, and I had at one point purchase and Dogecoin for like three cents. And I have like $4,000 worth. So yeah, I kind of missed an opportunity there was that at 80 grand now or anyway. So like, if you want if you want professional advice, or you want mentor you want help from people make it easy for them to help you. And you’ll get more help like, and that’s why I was you know, joking about the coffee invite. Because look, if you say hey, I’ll come to you now we we used we used you and I both were remarkably accommodating to meetings like this, when we had an office and people would, you know, they’d reach out and okay, sure, if you come here, and then I would set I’d say 30 minutes, you have 30 minutes, not isn’t going to ramble into two and a half hours or anything like that, and make it easy to come up with all that. So you know, like, Alright, now let’s talk about expectations. If you do find people that are interested, you should expect to not get a check quickly.
Matt Watson 32:02
When our family office meets every month, and we’ll get together, and I’ll see if I can get my cousin and my brother to get involved in chip and a little money for this deal.
Matt DeCoursey 32:12
But I need money now. You’re not gonna get it now, you’re not just expect that expect that. Now, if you have an angel investor or someone close, like you may get it, but you’re not gonna get a patch and get someone interested and get money quickly. It just rarely if it just rarely happens. And overall, I mean, depending on the industry and the form, like realistically you’re looking at three to nine months, three to nine months. Matt, how long did it take your acquisition deal to close?
Matt Watson 32:41
It was about six months.
Matt DeCoursey 32:43
I mean, and in the past, when you’ve raised capital before, from first and for the first time you reached out to when the money hit your bank? How long did that usually take?
Matt Watson 32:58
It was probably a good 90 days, yeah, the remarks and the and the other thing you have to think about, it depends on the stage you’re at. But when you’re dealing like real with really early stage investors, either they’re gonna do no due diligence at all, or there’ll be a giant pain in your ass. There’s not really an in between, for my experience, most of them will just write you the check. Like they won’t even read the shit you send them. They’ll be like, Oh, I like this guy like idea true. All right, rewrite the check in your hand. And then you’ll have the other guy that wants to go through all of your accounting like all this shit and like he’ll be the giant biggest pain in the ass you ever had. And he still will be in for the rest of his life. That’s just the way it is. When you’re when you’re early,
Matt DeCoursey 33:41
we raised three quarters of a million dollars in venture debt for Full Scale and 0% of those people looked at anything
Matt Watson 33:55
it was true it was pocket change to them that
Matt DeCoursey 33:59
to some of them it was but it but Case in point now we didn’t get that money overnight. But you know you’re right. I mean a lot of cases that’s not what it’s about now. I think you can also expect that kinda like not mentioned some people are going to string you along and it and look Be careful with this folks be careful with this trap because it can be a time suck and you can really get your hopes up and kind of make you in build some false hopes and expectations. Oh man, I mean I’ve been in this boat everyone that that season has and that’s you get interested in your Okay another meeting another meeting another meeting another meeting another you know waiting and waiting and waiting and waiting and that’s why it takes so long now I think some of that is by design right cuz like I said some of these things want to kind of make you fight for it and make you proof for the but you know, I mean, they’re gonna keep you ask and now I can tell by the look on your face. You have something to say what is
Matt Watson 34:59
I remember when I went through this a couple of years ago.
Matt DeCoursey 35:03
Matt Watson 35:04
I had we had I had somebody
Matt DeCoursey 35:06
the other way. The way the the answer is which time?
Matt Watson 35:09
Yeah, I estimate it was gonna invest a few million dollars from a family office
Matt DeCoursey 35:14
I went through, I went through it too, brother.
Matt Watson 35:17
Yeah. And so they strung me along for a while and then eventually this come to find out there was no money, I guess I don’t know what that’ll happen. But yeah, it was
Matt DeCoursey 35:25
paper. It was all vapor. It was all bullshit. And and that and and all right, well, let’s just be open about it like that prevented you from pursuing other options, because that seemed like a really good one. And by the way, that’s that same situation was and I said, I went through it to like had inquired about investing in Full Scale. And I just said, I said no faster. Because it because I just did, because, you know, for me, it’s like, at some point, it’s okay to say, hey, look, are you in on this or not?
Matt Watson 35:59
Well, and that’s the thing is they keep saying yes. And so I think the point here is when you’re raising money from people, you haven’t raised the money until it’s in the bank. That’s the first lesson and think about who you’re dealing with and the reputation and do they do a lot of these deals or is this the first deal they’ve ever done? And, yeah, just take you got to take all that into account.
Matt DeCoursey 36:22
Okay, so it’s almost time for the founders freestyle. And I say my episodes that episodes I do with Matt, the episodes I do with other guests. So do the founders for yourself. Why am I upset? It’s because I’m not the only host Startup Hustle, make sure to tune in on Tuesdays. Join Andrew Morgans, the CEO and founder of Mark Knology. talks a lot about Amazon branding, e commerce and other stuff tune in on Thursdays for the founder of innovate her Casey, Lauren Conaway, who tackles a variety of subjects on a variety of things once again, Tuesdays and Thursdays joined Lauren and Andrew. If you haven’t had enough Startup, Hustle, go over to YouTube and type in Startup Hustle, it’s pretty easy to find the channel that we started earlier this year, we’re coming out with an episode or two new videos every week. And you can see there, you get a lot of candidate input and advice. Sometimes storylines, sometimes different topics you never know. So tune in, make sure to subscribe before we do the founders freestyle. This episode Startup Hustle is brought to you by Silicon Valley Bank. SVB has been supporting innovative founders, companies and investors with targeted financial services and expertise for over 35 years. Silicon Valley Bank is built for what’s next learn firstname.lastname@example.org. Matt, what’s the best advice you can give on today’s topic of what to expect? By the way? Wait, let me back up. Rejection is disqualified from being your only answer here. So in mind to so what pass pass Hearing no a lot. What’s the best advice you can give? When it comes to what to expect with startup funding fundraising,
Matt Watson 38:03
beg borrow and steal? Maybe not steal? I think the I think the key here is you’ve got to figure out a path forward where you don’t raise any money, right? Is there a path forward where we don’t raise any money, I have a founder, I mean, I’ve got a little bit of money, like I need $1,000 to, you know, set up a company or you know, do some basic stuff or whatever. But you know, how much of this can you do from your own blood, sweat and tears, your own labor and other business, you know, your other co founders and stuff like that to get things done. Because if you’re only only solution for this business to ever survive and succeed is to raise capital, it’s a bad place to be. And if you just keep running around with that dream in your head, that you’re gonna raise capital, and your business just never goes anywhere, then it’s just never gonna go anywhere. So I would always think about what what Plan B is. And also think about, it’s a lot easier potentially, to find customers and sell your product than it is to raise capital. And it’s amazed me some of the people I’ve met that were like, really good professional fundraisers. And I have no idea how they raised any money because their product was absolute shit. And some of you out there are really good at that. And I commend you for it. Because there are some people that are professional fundraisers, they just blow me away at how they raise money. But a lot of times, it’s easier to just keep getting the product right and go find a customer. And my favorite is if you can find a customer, that’s also an investor.
Matt DeCoursey 39:28
Yeah, I agree with you. I think overall, if you know for what to expect, you know, I think you should expect to have your ego bruised. I think you should expect to have it take longer than you might think it would. I think you should expect all the things that Matt said I think you should expect to hear literally the phrase of well, we liked they were I don’t this might be a little early for us. Let us know when you have some traction like that is almost like an automated VC counter. response. And I think you should expect to, you know, like, like I said, be humbled and challenged and and embrace the fact that that might be good for you, and it might be good for your business. And if you can make it through, then you’re gonna potentially do well. And if not, you might struggle and you know, overall, I just, I just think that it’s a rigorous process. It’s designed to kill a lot of people that enter the gauntlet. It’s intentionally long, it’s intentionally difficult. But past that, you know, like, I mean, if you can make it through, if you have, if you have the guts, you may experience the glory. Thanks again for tuning in for part 15 of 52. We need to like maybe accelerate our timeline much like startups and the real world. We’re three weeks behind already on the deliverables for 2021. So we might have to supplement some episodes or something. But anyway, Matt, I’ll see you next week.
Matt Watson 41:03