Last week, I received an email from a CEO (we’ll call him Adam) that I’ve gotten to know over the past few years. His business is in an adjacent space to Punchbowl, so I’ve taken an interest in watching the company grow.
His email was simple and full of excitement: “Matt: I had to write you. Believe it or not, we closed on our round. I have the badge of perseverance on my shoulder.”
That’s seriously awesome. I’ve watched from afar as he’s worked hard to get traction on his business and it hasn’t been an easy road. He’s the kind of person that others don’t quite understand. He’s been optimistic in the face of terrible odds, and he’s been unwaveringly convinced that his business is going to succeed. I couldn’t be happier for him. Adam: you have a lot to celebrate. I hope you’ll take some time to reflect and realize what a great accomplishment you’ve achieved. Congratulations!
I’ve heard people say that you shouldn’t celebrate raising money. They say that raising capital is a required stepping stone and not something that you should get too excited about. After all, raising money doesn’t equal success — right?
Well, yes and no. Raising money does NOT equal success with your current startup. It’s just a stepping stone that will help you achieve success later on down the road. That’s true. But raising money does mean that as an entrepreneur you’ve achieved something very significant. You are now among the very, very few entrepreneurs that have raised capital from private investors. Depending on which statistics you believe, less than 5% of tech company entrepreneurs will ever get funding. That’s pretty bad odds.
For the uninitiated, here are just a few of the steps that Adam had to go through to go from a person with an idea to an entrepreneur who has raised money:
1) Come up with a business idea: It’s not easy to come up with an idea for a business, let alone one unique enough to be worthy of a company. This step can take weeks, or in the case of Punchbowl — many, many months.
2) Create and refine the pitch: In order to pitch investors, you have to have a very compelling Powerpoint presentation. It’s likely that Adam had dozens of iterations on the pitch as he received feedback.
3) Respond to investor requests: Investors can be demanding. It’s likely that Adam had to respond to many of their requests with spreadsheets or additional Powerpoint slides. It can be a painful process for an entrepreneur.
4) Get traction: You have no chance at landing funding if you don’t have traction on your business. So while you’re pitching you still have to build your business. From nothing to something.
5) Build momentum: It’s not enough to get traction. You have to build momentum for your fund-raising too. To get a term-sheet, you have to multiple investors interested at the same time: a delicate dance of relationship management.
6) Deal negotiation: Once Adam was lucky enough to get a term sheet, he had to learn about all of the different deal terms and work with a lawyer to negotiate terms. Believe me, it’s hard to negotiate and learn at the same time.
7) Close the deal: There’s a wide gulf between getting a commitment for funding and getting the checks in the bank. So many things can go wrong. Just keeping it together is a huge achievement. And oh, the paperwork! Every entrepreneur will tell you there is a surprising amount of paperwork to close financing.
To anyone who has climbed this mountain, I salute you. You’ve chosen a very difficult path, and now you have something tangible to show for it! Even if your current startup fails, you now have lots of useful experience under your belt. You have legitimacy in the eyes of professional investors, your peers, and colleagues. This is definitely something to celebrate.
Hell yes, you should celebrate raising money! You’re now among the very few entrepreneurs that has taken an idea from nothing to something. So go ahead and celebrate this huge achievement You’ve earned it.