When we were first starting Fashion Metric we found that just about everyone on the planet wanted to give us fundraising advice. I can still remember being at Cross Campus in Santa Monica after a VC talk and a guy came up to us, “if you guys want to land a VC like that, we should talk.”
We didn’t know what we were doing so it sounded like someone we should talk to. A week later we met him for lunch, he explained that he was a “biz dev” guy with a decade of experience with venture-backed startups. As we dug a bit deeper we learned that he had never actually raised money himself, and when we talked to his references, they said he hadn’t helped them either, he joined long after they raised funding.
This happens to startups all the time and since advice is free (in most cases) don’t be surprised when people are willing to give it. One of the huge benefits of going through an accelerator like Techstars was getting connected with a lot of past founders who had raised money themselves and investors who actively invested in startups.
Looking back I realized there were a lot of people along the way, some who meant well, others who didn’t, all who wanted to be the “expert” in funding. Over the last four years I’ve seen these people fall into three distinct categories:
- The biz dev guy (or gal) – like the example above, this is usually someone who is currently acting as a consultant and claims they can help you raise money. In the end they’ll typically ask for money and equity, and the equity ask is usually insanely high. There’s an easy way to filter for these folks, just ask them to put you in contact with a couple of companies they have helped raise money for. Talk to those founders on the phone (like we did) and find out the truth.
- The lawyer – I can’t tell you how many lawyers told us that part of what they could do is help with fundraising. At the end of the day very few investors lead-source from lawyers but it’s a good hook to make an entrepreneur want to work with one firm over another. Once again, if a lawyer tells you they can help you get connected with investors and raise money, ask for references and talk to them. I’m sure there are some lawyers out there who can help with fundraising but having heard this pitch enough I know it’s not all of them.
- The startup employee – when I worked for Sonos we went from raising $10M to raising over $200M, as an employee there I learned absolutely nothing about raising money since I wasn’t a part of the fundraising process, at all, ever. I knew this about myself when we started our company, but there are plenty of startup employees who think that since they were a part of a startup when it raised money that they know how to raise. Once again, this is an easy one to check, just ask them how many investors they themselves pitched, then talk to those investors to validate. Being a part of a company raising millions of dollars and actually raising the millions of dollars yourself is a whole different can of beans.
At the end of the day there are a lot of wonderful people in the world who would like to help your startup become a success. The most important thing you can do as a founder is to validate who really knows what they are talking about and who doesn’t.
The simple test is (and the question you should ask) if they have raised money themselves for a startup, if not, then their advice is likely based on articles, books, conference talks, etc. You can learn the same yourself by doing the same things, where you can really accelerate your knowledge is by learning from people who have actually done it themselves, because reading about raising venture funding and raising venture funding are two very different things.