What you'll take away from this chapter:

In this chapter, we'll explore the ways in which you can succinctly describe what you are working on with a solid pitch deck. You'll also find helpful resources on multiple funding options, ranging from nondilutive to traditional investments.

Six Months Later…

“Sophie, I really need to pay you a compliment.” Jill was being earnest. She, Maria, Sophie, and Hannah were taking a walk together through the streets of the small community.

“I'm really impressed with the way you've bootstrapped your company so far. You've got two months of traction with some really impressive customers. From the outside looking in, it's hard to believe you've only been doing this in your spare time with limited resources.”

“Yeah, Sophie, it's pretty amazing. Do you think you're going to raise capital now, or are you going to bootstrap a little longer?” Maria was curious. With Jill's help Maria had been able to raise a small angel investment round, and was rooting for Sophie's business to succeed as well.

“I'm not sure if I'm going to raise capital or if I'm going to try to build this more slowly and organically, as a consultative business.” Sophie had built her model with multiple assumptions, and knew if she raised capital she could do more faster, but she had also been focused enough on generating cash that she hadn't spent any time thinking about her pitch to investors.

“Well, honestly, venture capital is expensive. If you can figure out how to really build your business without it, in many ways you'd be better off, but I know getting funding has really empowered me to move more quickly and get the right people on board to help out.” Maria slowed her pace as she thought about her investment win over the last month. After getting her investor pitch together and maximizing the connections she had made, she had been able to obtain two term sheets from prospective investors and negotiated fairly competitive terms.

“Yeah, one of the things I've been excited to learn in the last few months is how much nondilutive funding is out there too. And this business is just starting to feel like a third child.” Sophie was making a joke (sort of).

“It really depends on the business you're trying to build. If you're working on that hockey stick plan with quickly accelerating growth, you'll probably need outside funding at some point to move forward. If you're able to generate an additional income on your own terms without it, and achieve your primary mission, I wouldn't bother.”

“Right, but at the same time, sometimes the best things happen with constraints in the beginning. I know we have projects at work that have literally blown through millions of dollars and produced nothing because they are bloated, people-heavy things. While I managed a project that came in at budget and was deemed a success last year, I can tell you we spent a lot on things I would not have paid for myself.” Hannah smirked as she thought of the countless dollars they had been asked to budget for an outside contractor.

“Well, Sophie, if you don't need the money, then don't raise it. I know I wish I had raised a little more wisely, a little earlier on. I had a full year of traction with some awesome customers before I felt comfortable asking for investment, because I wanted to prove myself.” Maria thought of the countless sleepless nights she had had, managing customers while also working on her day job.

“But I look back and think I could have started to raise capital when I had about two or three months of strong customer traction.”

“Well, if you're up for it, I'd love to show you where I'm at, and what I'm thinking, and take a look at whatever pitch deck you used to raise,” Sophie suggested.

“Of course, and I think it's also worth digging in to other nondilutive funding options that might also be out there. I didn't really explore a ton of those, and if you can find nondilutive funding, you can avoid giving up a large percentage of your company.”

“I think the key to whether you decide to fundraise or not is that you realize that the most effective entrepreneurs are resourceful,” Jill said wisely. “In addition to many successes, you'll likely have lean periods or months when things aren't going well. You need to be resourceful to deal with any challenge that comes your way and handle constraints. Moreover, each time you raise, you should consider that you may need to raise again, and that the current round is really for about 18 months of runway, of which you'll spend three to six months working to raise again.”

“That makes sense. I feel like I'm actually pretty resourceful already.” Sophie was thinking out loud. “I'd love to take a look at what you used to raise, though, Maria.”

“Sure thing!”

When they got back to Jill's house, Maria pulled up a PowerPoint slide deck. It was beautifully designed and professional looking. “So on the first slide, I just put my company logo.” Maria flipped to the second slide. “Then I outlined the massive industry problem. In our case it was the security vulnerability in the market.” Maria flipped again. “The next slide outlines how we can solve this massive problem.” From there, she flipped to show her remaining slides, which covered a brief demo, her approach to the business model, the total market size, why her company was different, key milestones her company has delivered on, her team with bios, and general financials.

Sophie read through it, realizing that although it wasn't a ton of information—it was just a handful of slides—the way in which the slides were presented and the attention to detail required were pretty significant and impressive.

Maria watched Sophie processing the information.

“Sometimes being succinct is harder than writing in details about what you're building. I know this looks simple, but I also think it will take me some time to do it right.”

“Sophie, you don't have to raise right now…but I know you can do this.”

* * *

When Bootstrapping…

The technical definition of bootstrapping is using your own existing resources to get into or out of a situation. In this case, Sophie had been working to develop her business and obtain customers without looking for or accepting any outside capital. If you can self-fund your own business, you will own 100% of it. This is critical to understand because in the tech community, stories are so often told of companies successfully raising capital that it becomes easy to think that the act of raising was the win. But for the entrepreneur, it's the creation of value that is the win. Whether you continue to build your business toward profitability or ultimately sell your business, the more of it you own, the more capital you'll keep personally.

From personal experience, I know that if I had figured out how to get as far as I did in my business without any outside capital or at the very least with more nondilutive capital, I would have personally increased my wealth more. I know of other entrepreneurs who raised less than I did but personally gained more.

If you are working on bootstrapping your business, there are a number of sources that can be helpful to you.

Seeking Investors

Each time you accept outside investment, you are giving up a percentage of your company in the form of equity. With this exchange you also give up some control and, depending on the deal terms that you received, in the event of a liquidity event your investor may be paid first—before you are as the founder. However, there are many times that taking investment is the right thing to do. You can move faster, get ahead of your competition, and you may simply need it to build the business you have conceptualized.

If you decide to go this route, it's important to understand the terms at play, as they can wildly impact the amount of ownership you may be giving up under a varying set of circumstances. For example, an investor may set a liquidation preference of 2×. This could mean that if the company was acquired, your investor would get 2× their initial investment, before you receive anything. While the original agreement may have set your ownership at 50%, if you sold for $4 million and they had invested $2 million but set that type of liquidation preference, you would get nothing at the time the deal closed because 2 × $2M is $4M). That said, under those terms, if you sold your company for $40 million, if they exercised their liquidation preference, they would still get $4 million, but you'd get 50% of the remaining $16 million. All of these terms are designed to help the investor optimize their return and to incentivize the entrepreneur to build the business as big as possible. But it's critical to know what you're getting in to.

You can learn more about how venture investment works and the various terms you need to be aware of in Brad Feld's book Venture Deals.

If you do decide to seek outside capital or investment, you should first do research on the type of investors in your vertical market or industry and the stage of companies in which they invest. For example, if you are building a company with AI capabilities, research investors who have played in that space, and also research the other companies in which they invested. Research the location of the investors, and understand that many will want to invest in companies in their geographic location. There are several online tools available to help you research this such as Crunchbase and Pitchbook.

Seek out local events to network with potential investors, and if you end up in a meeting, ask good questions.

Don't go approach an investor and simply ask them to invest. Ask questions that convey your understanding of their history and demonstrate your desire to generate returns with a company that can scale. There's a statement that's been made a thousand times, which is “if you want investment, ask for advice. If you want advice, ask for investment”—which really means that if you're just asking for money, you're not describing the value you're creating and you're not demonstrating any curiosity about the investor's business. Neither of these makes an investor interested in funding your business. But they may offer advice on what you could do instead.

If you ask smart questions that demonstrate that you understand your market, your customers, and their investment thesis, they might turn around and start talking to you about investment. One of my first investor meetings that actually went well started with a question I asked in a Q&A session following an investor panel presentation. I had just finished negotiating a contract and had had an early conversation with another company that had alluded to partnering or acquiring. So I asked the panel, “How do you recommend that entrepreneurs handle partnership conversations that allude to acquisitions when they are still very early in the company lifecycle development?” This question got the investor's attention and led to additional meetings, and ultimately a term sheet. It's important to note that I didn't make anything up to try to sound smarter or better off than I was. But I took the time to ask something that was real and that I thought might be of interest to an investor.