Let me demystify this complex, confusing strategy they call: Startup Funding Rounds. Yeah, you’ve heard the words thrown around before. “We’re raising our series B”, and “I’m looking for a pre-seed angel investor” or “We’re gearing up for an IPO”... They may as well be talking another language, right?
“Talent is everywhere, opportunity is not”. This is a quote from my latest Escape Velocity Podcast guest, Marvin Liao, formerly a partner at 500 Startups. 500 Startups is a venture capital fund that runs an accelerator in San Francisco and invests in seed rounds for tech startups.
How are angel investors different from venture capitalists? Both invest in businesses. Both can write you big checks. Both have the power to help your business growth with a cash injection you otherwise would never get. Are they the same? Heck no. I found this out the hard way...
Years ago the so-called “secret” to B2B company growth was getting leads. If you got enough email addresses or phone numbers that you could give to your sales team, you were going to make BANK. Not any more. Everyone is on LinkedIn, social media accounts are 1-click away, and business emails get scraped and sold daily. It sucks… but it’s true. The question isn’t how to get leads, it’s “How do I make them stop and listen?”
If I took the pain of early-stage software founders and boiled it down into one question, it’s this: “How do I fund my software business without giving up ownership?” Although I don’t believe that money solves everything, I know that it helps. With enough funding, you can:
Pop quiz: Does a Freemium business model really convert to a growing SaaS? Sure, you get widespread access to potential customers… But are they just there because it’s free? Or do they end up paying?
“If only we had money, we could…” It’s a story I’ve heard a thousand times. Startups heaving a sigh, wishing they had investors to fund the awkward early stages. Scraping to get your software in shape… Working 60+ hour weeks… Can’t afford to hire people so you’re wearing every hat for every department… But the dark side of receiving VC funding is that you lose a massive slice of your company. It can be VERY expensive.
Have you asked anyone working a normal job about their workflow? If you get in the details of their processes, you'll immediately see the optimization opportunities. Just think of all the excel sheet management that goes on in the professional world… This is one of the main reasons why there can never be enough SaaS businesses. There are just countless niches that can deliver great profits.
Years ago I attempted to raise money for my first company, Flowtown, with my co-founder Ethan. You know what we did? We cold emailed investors. We figured “We have a startup, they invest in startups... so surely they want to hear from us”, and hoped our confidence would cut through the noise. It didn’t work. Obviously. They didn’t even bother to reply. So we hunted for advice and came across Naval from AngelList. Everything he said about fundraising just… clicked.
Funding. The day will come when you need it for your SaaS. You’ve grown your startup, got a brilliant team and you’ve got a great product you can actually take to investors as proof. Now it just needs that push. But before you even think about trying to fundraise or approach investors, you’ll need to know how to value your SaaS and decide on how much you should raise.