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Fundraising for Startups: The Art of Friend-Raising

Thursday, October 28th 2021 (29 days ago)

Fundraising for your startup can prove to be a full-time job. Particularly in the early days of building investor relationships, founders may spend more time growing their network and perfecting pitch decks than running the business.

Securing the right investments to grow your business can make or break the long-term success of your company. Not only do founders need to achieve a specific amount of cash, but founders must also build relationships with investors who will add value beyond dollar signs.

Undoubtedly, fundraising while starting a business from scratch is no small feat. Amidst the chaos, founders tend to further increase their own burdens by taking a transactional approach to building investor relationships. 

Enter the art of “friend-raising.”

In this context, we are not referring to a “friends and family” round. Instead, friend-raising encompasses an alternative mindset to fundraising that focuses on engaging potential investors to build relationships beyond the cash transaction. 

Approach investors as mentors, not piggy banks

When founders first reach out to investors, they often rush to the pitch deck in an attempt to convince investors of their worth. Instead, ask for insight from investors on your business model and growth strategy. Request meetings with investors who have experience within the industry of your startup. Instead of holding a transactional conversation, prepare a list of questions and treat this moment as a mentoring session.

This strategy works because investors typically enjoy the opportunity to share their hard-earned expertise and appreciate a reverent attitude from startup founders.

These mentoring sessions often prove mutually beneficial if founders can glean unique strategies toward success. Angel investors in particular often possess years of startup experience and successful exit strategies to share. As such, identifying investors with applicable industry knowledge can provide pivotal takeaways to apply to your own startup. Use this information to your advantage.

Additionally, these sessions provide founders the opportunity to more organically “pitch” their startups. In order to gain investor advice, you will need to share your product, business model, and likely financial forecasts. Best case scenario, investors feel intrigued by your business – at this point, founders can push the conversation to the next level and pursue fundraising. Even if not, these sessions open the floor for increasingly honest feedback from investors, which can help you manage the conversation more effectively with the next investor.

Keep the angels warm

After these mentor sessions, thank the investors for their bountiful insight and shared knowledge. Secure the contact information you need to stay in touch and add them to your monthly email update. This allows investors to stay in the loop, even if you aren’t ready to fundraise yet.

Reach out to these same investors in more friendly (non-fundraising) settings if possible. Whether this means additional mentorship sessions or networking opportunities, keep the relationship active. Investors who respect the relationship with your team will feel more engaged (read: likely to invest) with your startup.

Ask for money

When the moment finally comes for founders to ask investors for money, a professional relationship already exists. Organic conversations with the investors have proven that you respect their insight, which implies you will respond to their feedback once they own a piece of your business. This foundation you have already built tells investors that the relationship will remain positive after the business transaction.

While these tips do not necessarily lighten the load in preparing for the fundraise, they can dramatically increase your chances for success in securing investor funds. Founders often treat investors like banks and argue to prove that they are worthy of funding. Building professional relationships with investors transcends the value of one successful pitch. “Friend-raising” allows investors to personally experience your value as a founding team, beyond the slide deck. Whether these investors give you money now or later, you can maintain these connections for future fundraising rounds or mentorship opportunities for years to come.

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