The Startup Journey - powered by Precursa

EPISODE 8

Founders Session: Putting the “Fun” Back in Fundraising

It’s another founders session episode where all three of us get together to talk about what it’s like building a startup real time. We’ve hit some snags with our fundraising, and in this episode we’re talking about all the options, how we’re approaching them, and providing our best wisdom on bootstrap versus raise and everything in between. (PS – If you’re a banker, we have good advice for you!)

In today’s episode, all three of Precursa’s founders are together again to discuss funding and all its challenges, along with how to find pre-launch funding options.

Most of the work as a startup founder revolves around fundraising. It can be a frustrating process and forces founders to assess their motivations and determine what will be best for the company in the long run. They stress that there are many ways to raise money, including angel investors, bootstrapping, connections and friends and family. Angel investments tend to be a lower dollar amount but are often used as a jumpstart in conjunction with other funding.

 Debt financing isn’t always the best option, especially for those with limited experience. However, its benefits include the ability to keep the company true to your vision rather than compromising for potential investors, though outside perspectives can be beneficial. Additionally, you must be in a good financial position to begin paying off your debt, or your company will find itself back at square one. At the end of the day, customers are what really matters along this journey. A large driver for Precursa when weighing different financing options was how to maximize its customer base.

It’s important for the investor to have a general understanding and experience of the market you’re in. As a tech company, they give the example that Precursa would never be successful seeking funding from an investment group that specializes in medical investing. Ultimately, if you are getting in front of the right people and sharing the story and the problems the organization is solving, the financing will happen. There’s a fair amount of self-work you may need to do in preparation for pitching to be able to answer questions and provide feedback.

Passion about the problem your company is ultimately working to solve will undoubtedly shine through. Without customers, a company can’t be successful regardless of how much money you raise. How will your target audience resonate with what you’re doing? You never know where something may lead, so remember to be open to all options on your search.

Be sure to like, share, and subscribe to Precursa: The Startup Journey on your favorite podcasting platform and tune in for the next episode!

Email us (startup@precursa.com) with any questions or comments. Check out our website (https://www.precursa.com) for more information on getting your startup rolling.

Straight to you from Denver, Colorado, this is Precursa: The Startup Journey. We share the ins and outs of building a tech startup from inception to launch to revenue and beyond. If you’ve ever wondered what building a startup from scratch really looks like, you’re in the right place. With full transparency and honesty, we reveal it all about Precursa on our ride from idea to exit: the wins, the lessons learned, and the unexpected twists and turns.

Hello, everybody, and welcome back to Precursa: The Startup Journey. This is a very fun week because we have all three founders together again. Yay. It’s always so fun when we all get together. So since we’re all here together and the last two weeks have been rather a roller coaster ride in terms of this funding that we’ve been trying to secure, and then sort of figuring out kind of give you the update on that, but then, you know, it just made us realize, like there are so many challenges to getting funding, particularly when you’re pre revenue or pre traction, right? So there’s a chance that over the next couple months, as our advertising runs and you know, we start to get users on a list, we could use that as traction to get some, to get some more people interested in investing from an equity standpoint. Um, but it is really hard getting pre traction funding. So we figured today we’ll talk about what we’re dealing with and what we’re going through with that. You know, what kind of decisions are we having to make? How are we making them? And then we’ll talk a little bit about what really are the, the pre-launch kind of funding options and how do you find them. But before we dive into it, I was listening to a podcast the other day called how I raised it. And it’s this guy who liked two or three times a month. He does these podcasts with founders who have had to raise capital. And usually they’ve raised, he tries to get pretty big companies. I mean, the founder of Cameo was on there last year. And the founder of Patreon was on there in September. These are big companies that you’ve heard of. Right? So sometimes I just scroll through and listen to like random episodes that I missed in the past. And I started listening to this one and this I’m going to call him a kid. Right. Because that’s how he sounds to me. That’s probably not true. But he was like, yeah, I worked for this venture capital guy right out of college, right out of college after getting my MBA, I worked for him. And after like six months, I was like, I don’t like working here. This isn’t fun. I’m going to go find an idea. I’m going to go figure out something I’m going to build a startup. And the guy was like, okay, I’ll give you money. And I was like, end. Because I’m like, no, I’m not listening to you talk about how easy it was for you to get fricking money because you worked for a VC guy in Silicon Valley, and you’re probably a white dude. Right. Like I had to turn it off. I was, I can’t even, and so now, like I have not been able to open up a new episode of his podcast in a little while after that, because I’m like-

Sarah: Just rub it in. Why don’t you?

Cynthia: That’s exactly right. I was like, I do not need that right now.

Paige: That is the opposite of motivation. Thank you. Thank you.

Cynthia: Well, I was like, you didn’t even have an idea, like literally the next sentence out of his mouth was, so then I was like really nervous cause I had to go find something worthwhile to build. Uh, so anyway, I just thought I’d tell that story. Uh, just in case anybody else listened to that episode, that’s not typical. Most of the time founders work really hard. And the majority of the work that you do as a founder is about fundraising. Because even when you close around, you know, how much runway that gives you and you’re almost always immediately, or within, within a few months right. Into your next raise. So you’re back to, and I don’t know how you guys feel about this, but I realized that part of my hesitation or dislike of the fundraising process is it just, I notice, and I coach people on this all the time, which is so funny, but I just notice how much it feels like begging, right? Like, oh yeah, I have to, I have to tell you why I’m passionate. I have to get you engaged in my passion. I have to tell the story about why this is so important. And I just, I don’t know, I wonder like, you know, we have been pursuing this debt financing and so, you know, Sarah, you, you have been the one talking to our, our liaison with that. So maybe, you know, give us whatever update you think is comfortable with that so that people understand the complete weirdness of this.

Sarah: Totally. Yeah, so I mean, first of all, I think you’re totally right, Cynthia. I just listened to a talk the other day from a female who had exited her company and had offers to go be a CEO elsewhere but turned them down because she didn’t want to fundraise again. She was like, it’s so painful. I’m avoiding the process at all costs. So, which is terrible. Like, it shouldn’t be that way. Right. But it, it, it’s the opposite of empowering, you’re right. So, you know, for a variety of reasons, which I’m sure we’ll get into, we really liked the idea of debt financing. And we ran across a super attractive option. Right. We didn’t have to give up a piece of the pie, super low interest. Right. It seemed too good to be true, but we did some due diligence and it kind of pass the sniff test. So we approached our contact. He was completely onboard. Right. Sounds like a cool idea. Yes, we’ll do it. And we were assured we were good to go. So we kind of proceeded like, all right, hey, we passed the first hurdle, like pat ourselves on the back, it was super easy. And we knew there was going to be, you know, some lead time. So we were like, we can make it, we can make it work until 60 days or whatever it was going to take. But things kept getting pushed back and they kept getting pushed back and we were having trouble getting, you know, really a good straight answer in the details that we were looking for. And next thing you know, that funding didn’t come through. It was never there. We’re kind of back to square one. And so it was frustrating, but in a way, it kind of forced us to ask ourselves some really good questions about, okay, are we just going after debt financing because of fear, right. As Cynthia alluded to before, is it truly the right thing for Precursa? So we, we really had to get real with ourselves and our motivations and what was best for the company in the long run.

Cynthia: Yeah. So I’ve talked a little bit, you know, in previous episodes where I’ve sort of been giving, I’m always giving regular updates on, on our journey because although we’re doing a lot of teaching and a lot of giving advice and, and making suggestions through the podcast, we’re also telling our story because we eat our own dog food. And that was, that was a really big thing for us is this isn’t, you know, Precursa is a company that we built to teach you how to build startups. We, we use our own methodology. And all of the things that we talk about that we tell you to do we have done them or are doing them, or we’ll be doing them, uh, you know, as, as the company grows. So I, I talk a lot about why I don’t like getting early money, but I’d be curious for you guys to put in your own words, you know, what do you see as the challenges of early money like this pre-traction revenue kind of money, and what do you see are the benefits of, of finding other ways and other alternatives? And when does somebody know if they should look for another alternative?

Paige: I love mute tag. It’s my favorite. So I think I have a bit of a different sort of approach in thought around fundraising and money and capital. And I think one of the things that a lot of founders, uh, really kind of in their mind, well, I have to go raise it from, from a VC or from a private equity firm. And there’s a lot of other ways to get money. Right. And, and for me, I look at it as how do we finance what we’re trying to do. So, you know, not that we have to, um, beg a VC or a PE to give us money, but really selling the benefits of anybody that would get in at this stage with us. So, you know, other options like angel investment or other friends and family.

Cynthia: What does angel mean?

Paige: Yeah. So from my side, and I’d love to hear kind of both of your definitions as well, but angel really is, I look at it as individuals or a group of individuals that come together and not institutionalized from a formal venture capital or formal private equity and give different sums of money, uh, for different, uh, amounts of equity. So sort of an individual that’s giving capital, but doesn’t necessarily have a board seat or isn’t actively involved in the organization. And from my experience, angel investing tends to be in lower dollar amounts than traditional VC and PE, very much intended to get people going to kind of jumpstart. And you can use it in conjunction with other things, right. So in conjunction with individual money, right? So, you know, bootstrapping, um, as both Cynthia and I have done it, using it in addition to friends and family using it, in addition to other, that financing, right, to give you a balance. So for me, I, I really think that, uh, for founders, it’s really looking at all of our options and, and to Sarah’s point making decisions on all of those options, not pigeonholing, not pigeonholing ourselves into one or the other one, because it’s easier or two, because it’s not right for, for where you are within your organization.

Cynthia: Hm. Interesting. Yeah. So when is it appropriate or, or what are the, you know, I I’ve, I’ve said several times, we, we kind of started going after this debt financing and all three of us are serial entrepreneurs in one way or another. And so we’ve all been down this road and we know how much we’re willing to put behind what we’re doing, because this isn’t our first time, this isn’t, you know, and so I’m sort of cautioning people constantly: debt financing isn’t right for everyone. And in a lot of cases, especially if it’s your first time, probably not a great idea, because it allows you to bypass a lot of input and validation from other people about whether or not they’re willing to put money behind what you’re doing, right. So I just, I wonder do either of you have any cautionary or advice or when, when is debt financing right for people and how would they know?

Sarah: Yeah, I’ll jump in here. I mean, one of the benefits that we talked about with debt financing was kind of keeping our vision true to what we wanted it to be. Right. So when you take on an investor, a, you’re giving away part of your company, likely some of the ownership there, right. But in addition, you have, you have another person and their opinions. And I think it’s really important to find that balance of, of course there are people out there who know things you don’t know and can benefit and mentor you. Right. But there are also people who just think they know how it should be, and at the end of the day, if you’re the founder, you know, the vision and you want to stay true to that and not have to kind of veer off in a weird direction just to get money. Right. So, so that was a huge piece for us. We liked the idea of debt financing, because we could kind of keep control of the reigns. Um, the other side of that though, is we also had worked and kind of beat up our pro forma and looked at our financials closely. And we felt confident that we would have money pretty quickly. So in a debt financing scenario, you know, it depends on kind of the terms that you get, but sooner or later, you’re going to have to start paying that back. Right. And you have to have the cashflow to do that. And so to Cynthia’s point, either you’re raising another round to kind of cover that first round, which puts you right back at square one, or you have to be cashflow positive and have money in the bank to start paying off that loan. So if you know there’s going to be a really long runway and there’s a lot of upfront expense, and you’re just not going to be able to do that, it might not be a great fit. The other side of that is that it can be really expensive money when you’re first starting out, right. Most banks, as much as they say all the right things, um, really heartfelt to work with, we have a hate,

Cynthia: We have a hate-hate relationship with banks. So.

Sarah: Truly, truly, if I have another banker tell me that relationships are really what mattered to them then, you know? Um, but, but they, I mean, they’re, they’re so bound by restrictions and laws. And at the end of the day, if you don’t fit into their underwriters boxes, then it’s just not going to happen. And most startups don’t have the historicals or the financials to satisfy the requirements. So it’s not an option. And you’re left with people who are likely charging really high interest rates. And so yes, you’re keeping control of your company, but you’re paying a lot more for that money. So yeah, it really is kind of like there, aren’t a lot of great options at the end of the day.

Cynthia: I mean, it’s almost like you might as well just take some credit card advanced checks against your credit card, right?

Sarah: Almost, yeah.

Cynthia: And we definitely don’t recommend doing that. Definitely not.

Paige: We definitely don’t, you know, one of the things to do that I think, uh, is important and in Sarah nailed it right from the confidence in how quickly you’re going to be able to go to market and how quickly you’re going to be able to really secure customers. Right. Because at the end of the day, customers are what matters in this journey and how quickly you can expand and replicate, right? How fast can you get your next customer and then your fourth customer, and then your hundredth customer. So, you know, the, the confidence in that and, and go really looking yourself in the mirror. And I think the three of us have done a really good job of seeing our financials, our pro forma from three different lenses. Right. I see it very much from a market side, from, uh, working with partners, from understanding, uh, sort of topline and margin. Um, I think Cynthia you see it from kind of all sides. Um, Sarah very much sees it like, Hey, where are we starting to break even? And I think having the ability to have other people that look at things in a different way is really powerful. And so that helped us, I think, in, in our approach to financing. And, you know, we’re still not there at the end of the day, guys, like we’re talking to you as you know, I’m having conversations with people about alternative options. Cynthia is having conversation, Sarah’s having conversations. And I think the more and more that we talk about Precursa and how we’re going to ultimately finance it, the more excited I personally get, because the more we’re talking about it, the more people are coming around saying this is fricking awesome. And now it’s a matter of signing on the dotted line, right. And the check going in into the account. So I think we’re on our way, but our ability to really look at our finances and when we’re going to start to maximize customers, I think was a big driver in how we looked at financing.

Cynthia: Yeah. I love that. And what’s interesting is I’m reminded now that we’re back in this process again, right. I’m reminded how critically important it is to be able to talk about the why. Right. And because I had a conversation just yesterday with somebody who was asking me, well, what is that tell me more about it? And I might know some people who might be interested and it’s one thing to give all the nitty-gritty details of your business, but what people really want- So last night I went to a virtual founders live event from the Boston chapter, cause a very good friend of ours and someone who we mentor who’s a startup founder was pitching and they gave her 99 seconds to pitch. And there was four companies that participated and did this 99 second pitch. And, and before the event started, I was like, I have no idea how this is going to go. Like how in a minute and 39 seconds, do you say anything meaningful about what you’re doing so that people get it? And I will tell you every single one of those founders nailed it. And the reason they did was because they spent the first 30 seconds talking about the, why, the story, the statistics, what they’re trying to change. And I think for us, since we’re back in the fundraising mode, we’re now starting to do some updates on our pitch again, and get really comfortable with telling that story and get some feedback on it. And you know, so working with some, some folks who are good at that, and what I realized is the piece of the story that I really have to tell is the one that investors get right away, which is that it is ridiculous that VCs have accepted a 90% failure rate in their investments. That’s not how it’s supposed to be. It’s preventable and the way you prevent it is you give entrepreneurs, the tools to do the work that they should be doing prior to fundraising and prior to getting out there and spending a bunch of money and, and doing all the things through the product-market fit and the idea validation process, which is exactly what we do. So for us, we know that the entrepreneur is the center of our universe. And we’ll tell that story all day long. But when I’m sitting in front of an investor, what I realize is telling them, I want to flip the script and know, and have them be 90% plus successful in 10 years, that’s how you hook an investor. And that’s how they get the story. So that’s, you have to know your audience. And I think you have to know your why and the why has to have enough passion behind it, because at the end of the day, that’s really what they’re investing in. They’re looking at a human being who has a goal who has a passion, who has a drive and saying, I want that to exist in the world. I can get behind that.

Sarah: Absolutely. And those guys, and I say guys, because most of them are, I mean, all day long, they could beat up the numbers you’re throwing out and the business plan you’ve put together and have all kinds of thoughts and opinions on it. But if you can hook them with that, why, like you said, Cynthia, then, then that takes care of a lot of it, right? Like, okay, we can figure out the details later, but you get what we’re trying to do and why it needs to be done.

Paige: Yeah, Sarah, I agree. And Cynthia, I think, you know, another way to look at this as not a why, right. Is the why, but what problem are we ultimately solving? What problems in the market, why would an issue, right? I mean, how are we going to solve it? And if you can identify those three things really quickly, um, and connect with whomever you’re sitting across the table from then, then to both of your points in the rest of the are details that I think most investors and certainly founders are confident that they can figure out. And so that, that problem that we’re solving in the market and how quickly we can get it solved is a big, big piece to this puzzle.

Cynthia: Yeah. No, I love that. So let’s talk a little bit about what’s entailed in the fundraising process, right? Like you hear people talk about I’m raising money, I’m raising money, I’m raising money. What does that mean? Where would someone go? Like someone in our situation who’s, pre-revenue, we don’t have a product, we have a, we have a web page, we’ve got a lot of content. We’ve got a content strategy, you know, we’re creating value for people, but we don’t have something they can pay us for yet. What are we looking at? And what’s involved in that process. What does that even mean?

Paige: Uh, a hope and a prayer. I’m just kidding. No, I think from a fundraising standpoint, right. And, and again, kind of, for me, it goes back to financing and capital, right. At the end of the day money, and money can come from, from a lot of different sources. But I think to start, it’s really understanding what are you, what are you going after? Right. What dollar amount are you going after? Why is that dollar amount important, to Cynthia, to your point earlier, what runway does that give you? How are you going to sort of recover that as you move the organization forward? So I think that is one of the initial steps. Then I think, understanding what are your options, right? What realistically, what are your options is, is that financing realistic, is friends and family realistic, is angel investing realistic. And so do you, you kind of, I look at it very much like a sales funnel, right? All of these options are out there initially. And then you start to kind of whittle them down, looking at more and more, who’s going to resonate with this type of idea, what types of organizations, um, both VC, PE, angels, right, work in the space that you’re working in. Right. Very different in one of the other companies that we work, uh, that we work in, that you mentioned earlier, right? Healthcare. So there’s, there’s certain VCs, certain angel funds that love healthcare. Okay. We’re not as a technology platform, you got to go talk to those people; that doesn’t make any sense. So as we kind of go through this funnel, it’s narrowing down more and more of, of who we should talk to. And then from my standpoint, it’s really starting conversations. And in every conversation, very similar to in a sales cycle, it was not you who, right. So if not, if it’s not the individual that we’re talking to in pitching to, then who else should we be talking to? Because we’re confident that by these sort of circles of influence that we have, we will continue to get connected to the right person or the right people or the right institution, for that matter. So I think that process it’s exhausting at times, um, you get really tired of hearing no, or sounds great, but probably not now, you know, all of those responses are, oh, wow. This is amazing. Yeah. It’s probably not me. That’s exactly. Exactly. Yeah. You guys are killing it really. We just need some money. So, you know, I think it’s all about kind of what circles are you talking to and are you constantly asking the question, if not you who, so that you can get to the right people that ultimately, I believe when it’s the right individuals with the right problem, that the organization is solving, then the financing ultimately.

Sarah: Yeah. And I would jump in and say there’s a fair amount of self-work you need to do to prepare, right. Probably prior to fundraising, you’ve talked to your friends or your family, and they’re like, this idea is great. You’re going to be great. They’re very supportive and encouraging, which is fantastic. Right. But now you’re going to be in front of people who are looking to poke holes in your idea and your plan, and you need to be prepared to answer questions, right. You just need to put in the reps and get comfortable with those questions. But also you need to remind yourself that you are the world’s foremost expert on your idea, right? Yes. They have questions and opinions, but at the end of the day, you know what it’s supposed to be, and you can do it, you can handle it. Right. You’re the CEO right now in front of them. So I think practice makes that easier. And unfortunately, like Paige said, it will probably, you’ll probably get a lot of practice as you’re having these conversations. But I think just being mentally prepared for that is huge.

Cynthia: Yeah, I love that. Sarah, the thing I think people forget to practice. Like I notice when I work with founders, they do so much work on the actual pitch itself, which is great. Like, you need to know your pitch inside, outside, backwards, forwards. Like you got to know it, but they forget to practice objection, handling. They forget to practice answering questions that are going to come in. Right. And so what was interesting is last night in the 99 second pitch thing, so they got their 99 seconds do their pitch. And then the audience had five minutes to ask questions. And then they had, uh, an expert panelist who had five minutes to ask questions. And every single one of them knew exactly how to answer every question they got. And it didn’t matter. Like there was, there was even one with our, our gal, Emily, uh, that they threw at her. And I was like, ooh, I don’t know how she’s going to answer that. She knew it, she knew it cold. And it, it, she, she, even the way that it was asked, because we’ve worked together, she was able to turn around and present it as like, it’s a huge opportunity for us. And I was like, that was brilliant. Like completely. I just, I was so thrilled with her in that moment, I can’t even say. And so how important is it to practice? When should you start practicing? Is the meeting with the investor the best time to practice? Like, like how do you prepare for that?

Sarah: I think it’s kind of like Paige said early on, I’m sure she she’ll jump back in, but it is similar to sales, right? To some extent the practice is going to come in the real meeting, but definitely you’ll feel more confident and comfortable if you’ve done some of that practice ahead of time. Even if it’s on your dog or your significant other or whatever it is, right. Just sit in front of the mirror and practice anything it takes. But the sooner, the better and the more often the better.

Paige: Yeah, I completely agree. I mean, repetition is key. And for, I think for a lot of founders, objections are really opportunities to, again, show value. And if you look at it like that and to, Cynthia, to your point in what it sounds like, it landed very well. It was finished, right? You’re showing which could be perceived as something negative and I’m going to show you why this is actually an extra motivator as value to the market or whatever it may be. I 100% say practice, practice, practice. And don’t always practice with people that love you. Practice with people that will give you realistic objections, or don’t know you as a founder, or don’t know you as a CEO or don’t know necessarily your idea, and it’s completely cold to them. Um, it will be important to give, to give, get their feedback, to give yourself opportunities, to pitch to somebody you don’t know. Um, and it’s talk over and over to somebody because as much as we all want, I don’t want that experience necessarily, it’s the best experience to prepare us. I used to tell my sales team all the time you are role placed with me should be way harder than the actual client. So if your pitches are way harder with me as a fellow founder or whatever it may be, then you’re prepared for the actual event. And I think there’s tremendous value in that.

Cynthia: You’ve both mentioned a couple of times, it’s, it’s sort of like sales, so that is very intimidating for a founder who’s not a salesperson. And, and to be quite fair, this is the thing I always hire first in every company, the second I have enough money to hire it. I’m like, where’s my sales person. Where’s my biz dev people, because I’m a right. Like I’m not good at it. And I know that about myself. So what advice would you have for a founder who isn’t, you know, sales forward or who isn’t sales first or who doesn’t enjoy sales or doesn’t event know how to do it, or has ever even attempted it? Like what would be your advice for that founder?

Sarah: Yeah, I will jump in because sales gives me the heebie-jeebies too. Right? When you hear that word, you can look up like cold calling and I don’t know bad suits or whatever. Um, so, but I think when you said that, Cynthia, the first thing that popped into my mind is I know you feel like you’re bad at sales, but when you start talking about something passionately, people can’t help but be drawn in. Right. And I think we compare it to sales because it feels similar, but just like sales, it doesn’t have to have a bad connotation. It’s you giving people the chance to get in on something really cool. Right? You’re not trying to sell them something they don’t need. You’re trying to tell them about this awesome thing you’re going to do to fix a problem that exists. Right. And I think if you just speak from your passion about it and you are prepared and confident in it, that’s really what we mean. When we say it’s like sales, it’s not about convincing someone like what’s that movie way of the Wolf, the Wolf of Wall Street. This is not what we’re talking about.

Paige: The fact that you just said way of the Wolf makes me laugh. So hard, um.

Sarah: I had to read that book for a job once and I did not resonate with it at all.

Paige: So sales does not give me the heebie-jeebies. Uh, we’ve sorta talked about this as, as a founding, uh, group, but I will tell you Cynthia, one of the things that I believe at the depths is people don’t want to be sold to, right? They want to buy. And if you think about raising money, as they want to buy, and they’re buying you, they’re buying the problem you’re solving, they’re buying the opportunity in the market. That’s a different way of looking at talking to people, right? We’re not trying to convince them or beg them or barter with them. Like we’re telling them who we are, what problem we’re solving, why it’s important. And we’re giving them the opportunity to say, I want to buy that because that’s going to make an impact and that’s going to change something. And I don’t care who you are from, from what background sales, not sales like that approach I truly believe puts everyone in a position for people to buy them in their idea. Not only in the short-term, but in the longterm.

Cynthia: What’s interesting is in different ways, you both just talked about the why, right? Like you both just talked about the passion. So here’s my question. Precursa, obviously, the platform at its at its very core is about product-market fit. What’s the problem you’re solving, who are you solving it for? And really knowing that there is a viable market there and that you have a viable idea and you can create a viable company out of it. How much of that work should you have done in terms of talking to customers, understanding your MVP, your pro forma, like how much of that stuff do you have to have before you start pitching an investor?

Sarah: A lot. I mean, because at the end of the day you can be passionate about something, but if it’s not a real problem that other people want fixed, it’s not going to go very far. Right. And I think, I think it resonates with people a lot more if you’re like, hey, there’s this whole group of people and they agree, this is a problem. And I want to fix it for them as opposed to like, I think this is cool. I don’t know if anybody else does, but I want to do it. Right. So I think, yeah, you can be passionate about something, but if you don’t really know that anyone needs it, then that’s going to be the first thing an investor sniffs out.

Paige: Yeah. I agree with that wholeheartedly. And I think when you think you have enough go find like 10 or 12 more people to talk to, um, because you’ve probably taken an easier route to the people that have given you feedback and to the individuals you’re asking questions to, or companies you’re asking questions to. So I think the, the critical piece is that, uh, it’s phased, right? And that you do it multiple times as you hone in on the problem, the opportunity, the conversation, the question, it’s a multi-phase approach. So that when you do pitch, uh, you know, to Sarah’s point, you know, the market, you know, other people, and you can present that as, hey, these, these individuals, most of which I’ve never met, said XYZ about the problem that we’re trying to solve. There’s not a more powerful statement, I think, in a pitch than that.

Cynthia: Yeah. What’s interesting is I wish there was a way to do a study to say all of all the VC backed companies that have ultimately failed and not produced a return for their investors, how many of those investors invested, probably the majority of them, but it’s just- because they got almost like FOMO about the founder’s passion. Right. And what’s interesting is it sounds kind of funny to say it that way, but it’s a very powerful thing when you have not only data and research to back up what you’re saying, but you have real stories and you have real people and real quotes from real people that you’ve talked to. Which is why, you know, as you get into the Precursa process, you know, when the platforms available and you know, you, you all go subscribe, which we know you will. You’ll notice that very quickly in the process we have you talking to people. It’s easy to think that the process of developing a startup and being a founder and building a company is all, is really internal and very much like I have to build my idea and I have to, you know, and I’m going to do this thing and then I’ll put it out there and then everybody will just like- build it and they will come. Right. And I almost wonder, because you know, we’ve talked about this a lot because the Crunchbase study in, from 2018 where they found that 42% of startups failed that year because nobody wanted what they were building. They had great teams. They like, but that’s ridiculous. Right? Because you’re like, well, didn’t they ask anyone.

Sarah: So, okay. I think a great example of this is something, an article Paige actually showed me on LinkedIn yesterday. And it’s these guys who decided, kind of, we’re going to get nitty gritty with female stuff here. But they decided taking out tampons was too messy and women needed a pink disposable glove to remove their tampon. And these two men thought it was a fabulous idea. They talked to another group of men who funded them and they went and made this product. And I pretty much guarantee none of them ever actually talked to a woman. Like it’s bad. Right. How did, how did this get so far? And it’s a pink glove with like a heart on it. I mean, it’s, it’s, it is laughable, but I think that’s the perfect example.

Cynthia: How is it, how is it doing? I mean, are they selling, is it what’s happening?

Sarah: No. Who would buy that like, okay, the article I read is like, a, that is not gross and something we need to like protect ourselves from. B, yeah, toilet, paper and water. Has anyone heard of this? Like if you feel like you need a glove, go buy a box at the grocery store, don’t pay three times as much for a pink one. So, I mean, it’s just, yeah. People, I think, I think that’s a great question to ask Cynthia, like of the VCs and PE companies who have not made it, where do they stand on this product-market validation issue?

Paige: Yeah, it’s a, we laughed I think three times as hard reading it yesterday. Um, but they got funded. Right. And I think that goes back to the, the point of sort of passion, wherever their passion for that type of product might have come from. Yeah. And then, you know, but they completely missed the mark because it was made for an audience that they had never talked to for a, for a customer base or consumer base that they have zero personal experience with. Right. And yet, uh, money went. And so can we flip this story? And can we say, no, we will show you why none of those, you know, gender or race or any of that matters. It’s idea and fit in a market to solve a problem. And at the end of the day, again, I’m going to continue to go back to this. You got to have customers. And if you don’t, none of it matters, and no matter how much money you got, you’re still not ever going to be a successful organization.

Cynthia: Yeah. It’s, it’s exactly right. And, and ultimately that’s why it’s a two-part question, which is what’s the problem you’re solving and who are you solving it for? And then the very next piece after that is how does your target audience resonate with what you’re doing? I could have told you long before, but if they would have had 75 or a hundred conversations with women they didn’t know, they never would have built this thing because we all would have been like, are you kidding me?

Sarah: That’s dumb.

Cynthia: That’s ridiculous. Like, do you need a glove to wipe your butt? Cause it’s not any different than that. Pardon me for getting, you know, yeah.

Paige: Sarah, I think your toilet paper and water comment might go down as one of the best so far on the podcast. Period. Like epic.

Sarah: We are bringing the hard hitting stuff here on the Precursa podcast.

Cynthia: That’s right. It’s hard hitting journalism folks. All right. So let’s, let’s talk a little bit here in these last few minutes about our process. What are we doing? I think I mentioned we’re now in the process of getting our pitch back up and running, like solidifying that. We’re working with a couple of people who are in the VC and the angel world to help us really hone that. I know that I’ve been doing a ton of research and reaching out to every investor that I know that I’ve ever said, or that’s ever told me, hey, send me projects when you have them, and saying, here’s what I’ve got. Are you interested? Or do you know someone? I mean, what else is there? Like, what are we actively doing right now to kind of fill our funding gap?

Sarah: I mean, yeah. To your point, we’re looking at all options because I think you just never know where something’s going to go or how someone could be flexible when you don’t expect it. Right. So it’s, it’s always worth a conversation. So we’re talking to investors, we’re looking, we’re talking to bankers as much as we have a hate-hate relationship with them. Um, we’re looking at grant options. We’re looking at, you know, groups that specifically coordinate with SBA loans to kind of help people go through that process. So anything and everything. It’s never going to hurt to know more about what’s out there.

Cynthia: And I think, you know, use whatever advantages you have to your advantage, right? Like, so we’re three female founders. We’re absolutely talking to groups that invest in female founders. Right. Because that’s one w if, you know, if you’re a minority of some kind or if you have a disability or something, like use that to your advantage, because it’s one way to cut through some of the noise of just being another one in the pack.

Paige: Yeah. I mean, I think in this process, you have to find a way to stand out. And for any bankers that are listening to this, we could, we could shift to a love-hate relationship if you’re interested in, interested in giving us money. So just saying. I think the other thing that we’re doing is in, in our messaging in, as we get, you know, Cynthia, to your point earlier, right? Email contacts and people listening to this podcast and reading blogs, et cetera, we’re telling a bigger and bigger story as we go. And so I think we’re continuing to refine our story and the why and the how and the what we solve and why do people, why do they care? And then, you know, that gives us the ability to expand our audience of who we’re possibly talking to. And I think there, there’s a lot of positive things that will come out of this fundraising effort for us. One, yes, we’re going to get the money, but two, right. We have a lot more people in our camp that know what we’re doing, that when we launch, will send it out that, you know, are aware of the impact we’re trying to make. So I look at this effort as this is a part of our launch strategy is that we’re getting, and more people in our corner aware of what we’re doing to exponentially grow the market when we do launch.

Cynthia: Yeah. I love that. So let’s talk about the bank thing for just a second, because if there were bankers or people who, you know, are in that world who are listening and who might wonder, well, why is it so hard, right? The challenge of a startup when you’re talking to a bank and we’ve actually seen this with SBA loans as well, like you don’t have history, you don’t have a past for them to look at, you don’t have. And what’s crazy is even though Paige and Sarah and I all have really successful businesses, I mean, I, I have a, I have an active SaaS in the commercial airline space that operates on like an 80% profit margin. Okay. That’s not enough for them, because what they’re looking at is, well, we’re invest, you’re asking for money for this company. That company has no history. It has no revenue. Well, yeah, that’s because it’s new. Right. So I would say, you know, and I’d like to hear both of your perspectives on this, but I’d say my big, my big beef with banks has always been in the startup realm when you’re starting something new, they’re looking, their metrics aren’t looking at the right things to gauge success, right? So like my, my background of two successful exits before 30, an active SaaS with an 80% profit margin, plus my consulting business, that’s a mid-six figure business, none of that matters. It’s like, I mean, it’s like Paige told a story where, you know, she’s done two acquisitions and she’s got this great company that does cybersecurity consulting, millions of dollars a year. And they’re asking for her resume. And you’re like, are you freaking kidding me? Like, if banks knew what to look for, maybe this wouldn’t be such a challenge, but it’s like, you guys are looking at the wrong things.

Sarah: Yeah. Completely agree. And I mean, again, I realize a lot of this is restrictions put on them and it’s, I have to imagine it’s frustrating for the business development folks at the bank out in the market. Right. Um, but yeah, I mean, Paige and I were told not long ago, hey, listen, banks just, aren’t set up to support companies who are growing quickly, have you considered slowing down and doing maybe more like 15% growth a year

Cynthia: Slow down, you’re moving too fast. You’re making too much money.

Sarah: You’re too successful. We cannot support that as a financial institution. I mean, truly this was a conversation we had in and the guy said, listen, banks just aren’t meant to do that. That’s more of a VC or PE thing. So yeah, that’s, that’s where we stand. And I mean, we, we laughed. Right. And I was just like, yeah, no, we’re not slowing down, um, good day. But it is. I mean, we talk about this all the time. It’s so stupid, right? Like you said, you can have some, some people with proven track records, success, and you can’t do it because the company doesn’t have history. Like you can get turned down because your company is too successful. It’s just, it’s mind boggling. There’s no winning. So yeah. Again, I, I echo Paige, if there’s a banker out there who can actually put money where their mouth is, we would love to talk to you, but I’m going to have to fight through some skepticism.

Paige: Yeah. That was probably one of my favorite days that we, we grew 80% and they were like, can you slow down? And Sarah’s response? No, actually we’re going to grow a hundred percent. Thanks. Yeah. At that point I wanted to crawl under a desk, so that was my, uh, my, my favorite. Yeah. I think, too, the challenge, right, is that when you’re thinking about angel, VC, PE right. They’re very much forward focused, right. They look at projections, they look at forecast, they look at opportunity. Banks very much look in the rear view mirror, right. What did you do last year? What did you do that two or three years prior? And that in my opinion is a fundamental issue on both sides, right? Is that from PE they really don’t look at sort of how the business is structured. What is the real opportunity of it? What’s the fundamentals. They just look at sort of pie in the sky. I’m going to exit for a hundred million, but on the other side, right, banks look I’m, well, you don’t have a positive EBITDA, so there’s no way you could possibly be successful. And so I think it’s, if there’s a way for us, and one of the things that Precursa is committed to do right, is to level this playing field and say, it’s based off of not who you are per se, but on the idea, on the fundamentals in business, and on the opportunity in the market. And that’s really where I want to see finance for me, right? Finance options, banks, loans, angels, PE, VC, whatever. It may be, play a bit more in that middle space, right. Go out the things that are going to be successful regardless of any past history and regardless of any massive exits. Cause I don’t really think they know going in it is too unpredictable and listen at the end of the day, companies start, right? Nothing goes without a plan and nothing ever goes to plan. So you’ve got to go with it and really good founders and then supporting staff around them, that is the way to a successful business. Not necessarily pie in the sky, a hundred million dollar exit.

Cynthia: Yeah. And we talked, we talked the last time we all got together about the whole unicorn phenomenon and how mostly, especially in tech, but across markets, it seems like the unicorn term is used to define billion dollar valuations based on money that you’ve raised or funding that you’ve gotten and has nothing to do with revenue or money that you’re actually making. And again, you know, that is the story that we’re trying to unwind at Precursa and say, no, the definition of success, isn’t a 10 X return in five years, it’s a company that does well and grows and has real customers and real revenue and real profit year over year. Because think about if nine out of 10 VC backed companies were successful, they wouldn’t require these big, huge exits. And so they wouldn’t be looking so far afield and so far forward in, in searching for the diamond, they’d be more interested in investing in a bunch of companies, because if on nine out of 10 companies, you got a two or three X return in five years on your money, that would be amazing. Like that would be great and everybody would be happy. And the way you do that is more money gets funneled to projects that actually are viable. And that’s what, that’s the problem we’re really trying to solve. Both for the entrepreneur, because as I talked about, you know, either last episode or a couple episodes ago, it is demoralizing to fail as an entrepreneur. Like it doesn’t feel good. And if it’s your first time and your failure’s big enough, you may be disincentivized from ever trying again, which means the market may miss out on something really great that you have to offer, but also solving it for the VC side and the PE side and changing that statistic to better their books too.

Sarah: Yeah. I mean, I think, I think that’s a great point. And I think one of the things we see is that, um, the two options we’ve talked about are fundamentally at odds, right? VC and PE get their money when you exit, right? So you’re pushed toward a fast, big exit. And maybe that’s the right path for your company or maybe not. And on the other side, banks get nothing if you exit, right. They’d rather, you just do slow and steady for years and years and years. And again, nothing wrong with that, but maybe that’s not right for your company. And I think we just see that founders don’t have the latitude to make the decisions they want to make. They’re kind of forced into one path or the other. And yeah, our hope is that we can level the playing field. Investors are more strategic. They feel more confident in what they’re investing in. And so the entrepreneur gets to make the choices they want to make and need to make for the business.

Paige: I was just going to say that that’s spot on and the, the financing and funding needs of organizations are going to change as they grow, as they shift as there’s more opportunity in the market, right. M&A activity, et cetera. So having options, I think at the end of the day, it’s critically important for organizations and certainly for entrepreneurs that are growing successful companies.

Cynthia: Awesome. All right. So 30 seconds or less, Sarah, you go first. What is your advice to a founder? Who’s in the fundraising process? Maybe they’re frustrated. Maybe they’re just not sure what to do. Like what’s your best advice.

Sarah: I would say keep going, but also be willing to consider other options. Emily, to find founder we talked about recently, um, I’ll try and keep it to 30 seconds. She’s a great example. She has kind of this path where she can partner with a large company, but we’ve also talked to her about maybe bootstrap for a little bit longer, get some more traction and then you have more leverage when you go to have conversations. Right. So keep all paths open, but push forward and keep believing, like remembering your why.

Cynthia: Mm. All right. Paige.

Paige: Well, here I am with a sales analogy. So in, in, from, for me from a sales perspective, I look at it as the, your best customer is the one you’ve yet to meet. And I think that’s the same philosophy, uh, in raising money. Um, it’s your best investor is the one that you’ve, that you haven’t met yet. And that, you know, someone said this, and we’ve said this together. Like, we don’t think we’re going to get money from somebody we, we met or that we knew. It was, you know, back then. And then sort of one, two, three, we met new people, like, wait, they may be it. And so kind of key to Sarah’s point, keep going, look at options and know that the ones that said no, probably weren’t right in the first place.

Cynthia: Yeah. I love that. And, and I’ll build on, on that by saying, understand and create in your mind the same way that we create user personas for your ideal customer, understand who your ideal investor is and be willing to judge and measure the investors you’re talking to against what you really want an investor. Do you want someone who has industry experience? Do you want someone who can advise or wants to advise or wants to participate in that way? You know, know those things because it’s, you are vetting them just as much as they are vetting you and your idea. And that’s really, really important. And that is what will transition from feeling like I’m begging for money to realizing you are, you are offering an opportunity to other people to get involved with something with you.

Sarah: A hundred percent. And if I can chime in one more thing, I would say to listen to your intuition or your gut or whatever you call it. Right. But I think you will know if the person is right or not. And if they’re not right, I don’t care how desperate you are for money. Don’t do it.

Cynthia: Yep. Brilliant. Brilliant. All right, ladies. Well, as always, it was great having you today. I know that our audience loves when all three of us get together, it’s dynamic, it’s fun. And, um, I really enjoyed having you both today. So we at Precursa are back in fundraising mode. So over the next, you know, couple of weeks and months, we’ll definitely keep you in the loop as to what we’re doing and how that’s going. As always transparency is the key to this podcast. So for now happy entrepreneuring, happy entrepreneuring. And, uh, let’s put the fun back in fundraising y’all. Until next time.

Sarah: Woo.

Paige: See ya!

Thank you for listening to this episode of Precursa: The Startup Journey. If you have an idea for a startup and you want to explore the proven process of turning your idea into a viable business, check us out at precursa.com. Make sure to subscribe to this podcast wherever you listen to podcasts, so you never miss an episode. Until next time…

Cynthia Del'Aria

Cynthia Del'Aria is a serial entrepreneur and tech startup ninja, specializing in product-market fit and idea validation and helping new entrepreneurs reserve their time and money for the idea with the best shot at success. With two successful exits before 30, an active high-profit-margin SaaS in the commercial airline space, and two additional startups in the works, she knows what it takes to traverse the entrepreneur journey, the highs, and the challenges of turning a vision into a successful, viable business.

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  • Denver, Colorado

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Copyright © 2021 Precursa  |  All Rights Reserved  |  Site Created by Natalie Jark

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