Every startup claims to have an all-star founding team. But let’s be brutally honest – if you really had an all-star team of seasoned executives with multiple exits under your belts, you’d (1) be able to fund that million dollar seed round yourselves without needing our little dribs of cash, or (2) you’d be able to call Tim Draper or Peter Thiel or whichever VCs funded your last big IPO and have a check for $10 million in your hands tomorrow. So, okay, you have an all-star team, but it’s the local little league and you need help to reach your World Series dreams.
As we discussed last week, investors claim the only thing that matters is the team. In the seed round, the current business plan you’re pitching is a kind of science-fiction, and the revenue projections and exit strategy pure fantasy. By the time you get to that exit, you’ll have pivoted, adjusted, refined, and revised so many times that the only slide remaining on your current deck will be the founding team.
So here is how to get funded if you’re one of the 99.999% of early stage startups that doesn’t have a team that makes the VC’s drool over their checkbooks:
1. Add an Experienced CEO to the Team
So you’re a couple friends from college with a great idea and boatloads of initiative but you’ve never built a startups through to a successful exit. Consider adding a co-founder CEO who fills in your gaps and adds experience. This isn’t a job posting on ZipRecruiter or even a position for a headhunter. In most cases, the right person is someone already in your network who knows the industry and knows the customers and has connections with investors. Someone whose you not only trust but you’ll enjoy working with (and fighting with) daily.
It can be a difficult decision to give up some control over the business you’ve creative, especially when there are critical decisions about the direction of the company, but with a more experienced team, your chances of success multiply.
I frequently hear, “We’ll bring in someone after Series A when we can afford to hire an experienced leader.” That makes sense for the transactional positions like VP of Sales. But the core team setting the company strategy should be working primarily for equity. Find a CEO who believes in your mission and your ultimate success and add her to the team now. Entrepreneurs are used to working for equity rather than a salary.
2. Build a Killer Advisory Board
Advisors are great, especially if you’re young and inexperienced, and if they believe in you and your mission, they’ll willing to mentor you for free. They can add depth and breadth to your team, can help you navigate the industry, understand customer concerns, avoid making avoidable mistakes, and introduce you to potential investors and customers but… and this is a big but: only if you’re actually taking their advise and not just window dressing.
I’ve seen too many pitches that show a page filled with of august names. Someone who you met once and agreed to be a mentor. While I appreciate the hustled it took to introduce yourself to movers and shakers in your field, but if you put them in your pitch as part of the team, I want to know exactly what they’re doing for the company, and I’ll expect to talk to them during due diligence.
Your first impulse will be to add technical experts, especially if you have a technical product and that’s a great start. But make sure to add people who can provide guidance on marketing, customer acquisition, distribution, legal/intellectual property strategy, financing, team building and all the other areas of the business where you’re lacking experience. And make sure to speak with them regularly and take their advice.
3. Build Market Traction
Investors may insist they invest in the jockey, not the horse, but once you prove you’re saddled atop Secretariat or Sea Biscuit and hanging on to his mane, investors will stop caring that you didn’t go to Harvard and your team doesn’t have eleven previous exits. The vast majority of successful startups are from someone who had a great idea to solve a problem who wasn’t previously a founder of Tesla or employee number four at Snapchat. The problem is that the vast majority of failed startups also came from someone with a great idea to solve a problem. Until you have customer traction, the only thing we have to go on is your track record. Once you have customers, revenues, purchase orders, and reviews, that’s a stronger indicator that you’re on to something good.
The best way forward is to scrimp and save and take as little investment as you can during the early stages, and most if not all of that from friends, family, team members, and acquaintances instead of random investors. Build a team that’s working for equity even if that means some of the team works only weekends and nights, do everything you can yourself to keep your burn rate to a minimum and get into revenue as quickly as possible. Once you can point to a solid MRR, fundraising becomes far easier.