- Show Me the Money: 5 Myths Keeping You From Getting Funded - February 4, 2019
Imagine you were an investor in 1977 when the average computer filled a room almost the size of an auditorium and was used only by large corporations. Then, imagine if two young technologists came to you and said they’d built a computer that sits on your desk with a typewriter keyboard. “We call it ‘Apple,’” they said. “We think one day, everyone will have one of these on their desks, but we need $250K to build enough of them to start our company.”
Would you have invested in them?
Or, imagine it’s 1998 and you are the parents of a young Wall Street analyst who has read that the internet is growing by over 2000 percent a year. Your son wants to sell books on the internet. He plans to call his company Amazon, but he needs you to invest most of your life savings with a 70 percent chance you will lose it.
Would you have invested in him?
These are the funding stories behind two of today’s most valuable and iconic companies. With these success stories comes the illusion of how easily these founders raised venture capital for their first companies, long before anyone knew they would become world-changing unicorns.
But for every one of these stories, there are thousands of other less successful ones.
Entrepreneurs and “wantrepreneurs” often operate under misconceptions and myths that have hurt their chances of getting funded. And those challenges are magnified for founders who are women or people of color.
Limited access to funding networks, unintended bias, pattern-matching and cultural differences (among other issues) have created a paradigm that has led to almost insurmountable barriers for most female founders and other underserved and undervalued innovators to raise venture funding.
So, let’s talk about the five common myths keeping you from getting funded, especially as a female founder.
Myth 1: Investors will recognize how cool your idea is (just like your mom did)
Paying customers are the ultimate measure of a company’s worth. If you don’t have customers willing to pay for your product, service or solution, you don’t have a business.
Customers are the ultimate judge of whether an innovation solves their problem or meets their needs at a price they are willing to pay. If you don’t have customers, investors are not likely to give you the time of day. And, make no mistake, you will still have to demonstrate why your idea is cool (i.e.“See, you touch a button on your phone and four minutes later, a car pulls up to take you to your destination”), but having lots of customers line up is the most important proof point.
As an example, Mark Zuckerberg’s original “FaceMash” site attracted 450 visitors and 22,000 photo views in its first four hours online! That’s when he knew he might have an investible idea.
Reality: Investors realize how great your idea is when customers line up to buy it
Myth 2: Now that more women are venture capitalists, your chances of getting funded as a female entrepreneur have greatly improved
According to TechCrunch, only 8 percent of partners in the top 100 VC firms are women. And, if that’s not bad enough, they control less than 5 percent of all the venture capital raised. Only about 2 percent of venture funding went to all-women teams in the U.S. in 2017, and 12 percent to companies with male and female founders.
That said, a slow shift is happening with initiatives such as The Billion Dollar Fund for Women tackling the gender funding gap.
Reality: Women VCs control less than 5 percent of all venture capital raised, up slightly from a decade ago
Myth 3: If you don’t get venture capital, you will never get to grow your business
There are plenty of alternative funding options. This spectrum includes:
- Your own funds from both savings and credit cards
- Customer-driven revenues, the most important type of funding and the one investors value the most
- Friends and family
- Grants, such as the Cartier Women’s Initiative Awards, which awards $100K for each of seven Laureates from all regions of the world, plus $30K for two runners up per region, for a total of over $1 million of awards or non-dilutive grants each year
- Crowdfunding, another good option which has shown some real promise, especially for women. A recent study of rewards-based crowdfunding site Kickstarter found that women were 13 percent more likely than men to meet their Kickstarter goals. This study also found that in technology (an area where women are typically underrepresented), they fared even better.
Other alternative funding sources in the spectrum also include online or bank loans and angel investments.
Reality: Actually, there’s a full spectrum of funding options besides venture capital
Myth 4: The best way to get ready to talk to an investor is to complete your business plan thoroughly
They want to know the answers to five key questions:
- What problem are you solving?
- How BIG is it in dollars and customers?
- What makes your solution unique?
- What is your “go-to-market” strategy?
- How much profit and impact will you have?
These questions are wrapped up in another major consideration, which is how credible you and your team are in delivering on this plan.
Reality: Investors (unlike the teacher you had in third grade) are not interested in how long your business plan document is, but rather the information that it contains
Myth 5: When you complete your seed round of funding, you can return to running your business
Nothing will tank a business faster than a business that has run out of cash because the CEO was so focused on operations that he or she didn’t realize they’d run out of cash, even though the P&L showed a “profit.”
Reality: Managing your finances must be an ongoing priority and a central part of running your business
Contemplating and avoiding these five myths will help you stay focused on the broadest set of options for your growing business.
And should you get discouraged, just remember, Jeff Bezos had to take 60 meetings to raise $1 million for Amazon, giving up 20 percent to early investors.