This episode focuses on the top 3 challenges when you raise money for your startup. Everyone thinks that once you raise $1 million that things get easier. They don’t.
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Here’s the transcript from this podcast episode, please excuse any typos!
In today’s episode I’m going to talk about the top three reasons why raising your first million dollars for your startup is so difficult and challenging. Not only raising the money but then afterwards, what things are like everybody seems to think that when you raise money for your company or your business or your startup that things get easier. Now I haven’t raised a million dollars for a business before but I did raise a couple 100,000 for a tech startup and things definitely got more difficult, and the top three reasons why number one is investors, expect a lot from you. So the pressure is on big time.
You know they want you to give them reports on data they want you to try different methods that they might suggest to you. So maybe one investor wants you to try monetization or revenue methods, but you want to do more user acquisition on maybe another investor has a partner in a company they want you to let them advertise for free, which you might not like because it might be a company that you don’t really like we’re a company that doesn’t make any sense to partner with but the investor gave you money and they’re really pushing it on you. And when you have investors and partners, you also raise money, I mean it’s more than likely you have a board of directors. So now you have to hold regular board meetings, you have to take board minutes which is a document that explains what happens in those board meetings, you have to have a lot of documentation I mean raising money is a lot of legalities, so you have to get a lawyer, you have to go through cap tables and executive summaries and operational agreements, trust me when I tell you the list of documents is so long I can have a whole episode, just on that. So we’re gonna skip it for now.
Maybe in the future I’ll have a legality or a legal document episode where I explain more about legalities, but when investors see that things are working really well in your business, they’re going to want to know what that is and they’re going to want to push you along that path, even though you might not like it. Again, when you have money from investors they expect a lot out of you. If things are going south and they’re not going well, well they’re gonna want to ask you how you can change the path and pivot, or, you know, change what the marketing path is that you’re undertaking. And they’re gonna want to know that you have the answers to make sure that things go well so the pressure is just really really high when you raise money because a lot of people are counting on you. And here’s a cool thing, say you do raise money for your startup. It doesn’t have to be a million dollars it can be, you know, 250,000 hours and say the investors push you along, and you start to do well.
They may go on to a second round of funding with you and then you might raise the million dollars or if you raised a million maybe they’ll do a second round and you’ll raise $5 million. So, part of the reason why raising money for your company is so challenging, is because maybe you’re not a big fan of the investors you’re working with. And they have first dibs that’s the term sheet. Usually they have. I think it’s called writer first refusal or something like that where they get to choose. If the investors that want to invest that they allow them to commit they can refuse them, and then basically they can invest instead so if you’re not happy with the investors you have, you may be stuck with them for a while so that’s kind of one of the challenges, but the good news is, you’ll get more money from them. And when you get money. You have to now spend more time, so everyone knows entrepreneurs work 12 to 16 hour days, seven days a week, we don’t get a lot of time off when you raise funding from an investor. I mean it doesn’t get any better it gets worse you have to now work twice as hard if that’s even possible than you were as a fledgling entrepreneur now you have to work as a really hardcore entrepreneur. This means you have to be on top of your business, marketing, the financial aspect of technology UI UX, you know your beta testing, your app development, everything has to be 100%, you have to be on top of it. And you have to have your entire team on top of it, and you have to manage your entire team.
So for the second point, it’s the time that you have to put in, but that’s the challenge is how much more time you have to put into your business to make sure it succeeds because again, these guys aren’t giving you money just to blow it, they’re giving you money because they believe they can turn that into a 10 times exit. They want an ROI, they want a return on their investment and short investors are known to throw money at 100 companies and hopefully one of them turns into a billion dollar unicorn. But that’s not the case. Usually, but they want you to succeed. So that’s why, at least for me, one of the biggest challenges was how much time I had to put into the business after that. It’s like you’re living and breathing and working that business non stop, and that’s all you think about it’s all you do. And it’s very stressful. It’s very exhaustive and, you know, you end up not having
time for anything personal like when you’re with your friends and your family all you’re doing is talking about your business it’s all you can talk about. So it’s difficult to disconnect from the business. You know, so it’s a lot of long hours a lot of long days, weeks, months, years even. And it’s a very difficult road to follow and it’s not for everyone. And that’s why it’s super important to find the right team to work with you to fill in the gaps of your weaknesses, or if you find people who are really good at marketing and programming, and even business and whatnot, haven’t joined your team so that you’re not doing it all by yourself. That’s the third point.
The third challenge of running a business is managing your team, because now you’re not by yourself anymore. Now you have people depending on you. It’s not so much the investors who are pressuring you now you have teams looking at you for guidance and suggestions and feedback on the work they’re looking for leadership. They want you to have a game plan and have everything laid out for them so that they know exactly what they’re working on. They know what works and what doesn’t. And you have to have synergy. There has to be a company culture, there has to be a vision, everybody has to be on the same page and you are in charge of that. So it’s challenging. It’s tough because you’re used to working as a lone wolf and now you have a pack. And you have to make sure everything is being done correctly, because your mistakes, turn into their mistakes and their mistakes turn into your mistakes and all together it’s just what it could be one big mistake of the investors will think you’re just not the right team for the job and they might start firing people or having you fire your employees or your co founders or whatnot and pushing people out of the company so that they can bring people in that they feel as though, are more experienced for the job. I mean so many people have been booted from their companies, if you look at Steve Jobs and Apple he was booted and other people have as well. So you need to avoid that and that’s a big challenge is making sure your team is happy in the company, they’re happy with you and everyone is doing the right job the right thing and that you’re leading them properly.
So overall when you do get funding for your business, and you are now doing things that you always wanted to do because you have the funding. The first thing you want to do is make sure that your operational costs that you had laid out before you got funding of course that you actually follow it, don’t start blowing money on things like office space and trips and cars and whatever else you want to buy. I’ve heard horror stories of entrepreneurs who raised money and they blew all of it on trips and cars and houses and I didn’t understand their office space like I didn’t understand why they were doing that, like, you should be spending the money, very wisely. Don’t blow it at all. Always be very frugal every single dollar counts in your business. For every dollar you put out you should be making something back so you should be having a really good monetization plan a revenue plan because let’s face it, your goal, as the CEO or the founder of the business is to take that investment and make it work for the company so that it succeeds, so that that million dollars turns into 10 million or so that 250 k turns into 2.5, million, and so on and so forth so the whole goal of the investment is to grow the company it’s to scale it, it’s not to figure out what you have to do. It’s not meant to build your app or build your product or find the team, you should already have all that in place.
The money is just fuel for the fire your fire should already be burning, and you should just want to make it bigger, burn hotter and explode to the point where you’re either acquired by a bigger company, or your revenue starts paying for the bills, so that you actually don’t need to raise more money which is rare but if you can scale your business with revenue to the point where you’re making more money than you need. Then why would you need more investors, you can then retain more shares of your business. Although, historically, if you look at all the big companies out there, they raise money pretty much every six months to a year. So, if you look at every big company out there. Typically, as the CEO Your job is to raise money almost every six months. So as soon as you close around the funding, you should be out there raising more money. That sounds crazy but that’s actually how it works. Because as soon as you get that money. Your burn rate starts, your monthly cash burn has already started, you’re already paying bills, you’re paying employees, you’re paying for scale scaling your business and you need more money for the next six months so you have to keep raising money. It’s a never ending fundraiser, basically. So just keep that in the back of your mind is once you start raising money you’re never going to stop. If you can handle all these challenges and you can raise money and you can handle your team and you can handle the investors’ pressure that you’re going to do just fine. And I wish you the best of luck.
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