When I started Listenwise four years ago, I didn’t give much thought to raising money for the company. I was under the (incorrect) assumption that I could immediately fund the company with revenue.
I quickly learned that it takes a lot of money to build the ed-tech tool you want to sell. And then it takes longer for you to find early adopters in school and districts to try your tool. And on average it takes between seven and nine months to make a school or district sale.
So I needed to raise money.
Investors Want a Return
I think most entrepreneurs are like me: They are so focused on their great idea and how it will transform education, that they overlook the money-raising aspect of a startup.
What does it take to raise $2 million in funding? Now I know because I’ve done it.
There are two things I’ve learned. Your idea must be “fundable” and you, as leader of the startup, must be fundable. I’ll explain.
Your idea has to have a believable business plan behind it–a revenue-generating model that makes sense. And it needs to make sense on a large scale. It’s not enough to project that you’ll have a nice $1 million-per-year business that will grow slowly over time.
One venture capitalist I pitched put Listenwise in the category of a “lifestyle business.” I wish I could put all of the disgust and derision I heard in his voice onto paper when he said “lifestyle business.” This is why I was a radio reporter for 20 years–you could have heard it for yourself.
When investors–be they angel investors or venture capitalists–put money into your company, they want a return. And they want a big return within five years, preferably.
So if you have a credible business plan in a market that has the demand to generate the kinds of revenue you are projecting, you are halfway there.
What Do You Bring to the Table?
Now, are you fundable?
I learned quickly that as a solo entrepreneur, I was unlikely to get funding. As a woman, I was already at a disadvantage. Research shows investors favor entrepreneurial ventures led by men.
I found an excellent business partner in my COO, Karen Gage. We made a good solid fundable team.
When investors evaluate your company, they are evaluating you. What have you done in the past that shows you will do anything to make this company work? If you have previous startup experience, you are very credible. If you have experience in the area in which you are starting a business (like a teacher starting an ed-tech), that helps.
I was a public radio reporter for 20 years with no business experience and had never worked in any company that wasn’t a non-profit.
But what I do have is something intangible, hard to see on first glance and hard to predict. And that’s perseverance. I will not give up. It’s part of my personality and part of my training as a reporter. But one thing I see as a common trait of entrepreneurs is their ability to see through, push through, and overcome any obstacle.
Those traits led to our first successful fundraising effort three years ago.
Note: In my next post, I’ll explore how raising money for a startup that is already a functioning company is different than raising money on a good idea.