What you will get from this page: Tips from Unity's Kahn Jekarl. Before joining Unity Kahn was co-founder and CEO of Flow State Media, a casual mobile gaming company based in Northern California. During his five years at Flow State, they raised over $1M across multiple rounds of funding, from close childhood friends to global venture capital firms. In this article, you’ll find his top six tips that will help you fundraise in a smart and efficient way so that you can spend as much time as possible on actually developing your product.
Make the product first
Most people highly underestimate the amount of time and effort required to close a round of funding (try tripling your initial estimate!). Get as far along with your product as you can before you start talking with potential investors. Because once you start those conversations, they just won’t end. Work on your product first, iterate on it based on user feedback, make it better and ideally, get to the next tip.
In most cases, you will know the space or genre that you’re in better than the investors that you talk to. They might not appreciate all the amazing insights you’ve uncovered or the exciting things that your product or service does, but they WILL understand traction. This excites investors. It’s worth it to spend your own money, if you can, to build a product and at least do some beta testing to get some metrics: number of users, monthly user growth, total revenues, monthly revenue growth, average revenue per user, retention, and so on.
Soft-launched products with positive metrics have a much better chance of getting funded than products that have yet to be built. Of course, there will be metrics specific to your space, but the more your story is about growth along key metrics, the easier it will be to raise money.
Practice your pitch
I honestly didn’t think I could pitch to investors. I always disliked public speaking. I tried to become a graduation speaker during high school but bombed miserably in front of a room full of teachers and staff. But if you’re seeking investment, someone needs to represent the company, and in our case, that was me.
My first attempts were pretty bad–either getting into way more detail than any investor cared about, or not mentioning the things they expected to hear. But the more you pitch, the better you’ll get at it. You become more familiar with the objections that come up, and you’re better prepared to answer them. Also, record yourself. It can be frightful to see what you really look like, but it’s one of the most illuminating things you can do.
So I highly recommend practicing your pitch. What’s your opening or introduction? At what point do you go to a demo? Keep practicing, and pretty soon, you’ll have it down.
The truth is, the closer the relationship to an investor, the easier it is to secure funding, so start with those options first. And the more fundraising momentum you have, the easier it is to raise more. To get specific, let’s play the role of investor. Someone says to you, “I’m starting a company. I have no commitments from investors yet. Do you want to invest?” Versus: “I’m starting a company. I’ve already collected $500,000 from x, y, z investor. Do you want to invest?” Obviously, the latter is more appealing. You want to get the easy commitments as fast as you can, so when you do meet the investor you barely know, you can say you’ve already got some funds in the bag. Here’s how I’d partition different investors, from easiest to most difficult:
- Friends and family
- School & work colleagues
- Angel investors
- Game publishers (assuming you’re in games)
- Angel groups
- Venture capital firms
Build from the top, gain momentum, and then move on to the next tier. Maybe you never have to go all the way down the list. Great!
After you pound the pavement and gradually secure more and more commitments, the good news is that it gets easier and easier as you approach your target. The more money that’s committed, the more investors know that their investment isn’t “lonely”, it’s got company. This can really be to your advantage as the round is closing. Even if you aren’t at your target amount, but you’re relatively close, you need to stop fundraising.
Set a closing date. And let everyone know that’s committed and everyone on the fence that it’s time. Make sure to ask them if they have any colleagues that might be interested. You’ll find that many times investors like to invest together, so it makes sense to ask. With a hard deadline, you’re forcing people to act, and that’s what you need. Yes, sometimes people are just going to pass, but you’ll also have some fence-sitters come in.
And while you’re letting people know about the deadline, make sure to let them know who else is investing. If I told you Michael Jordan is investing in my basketball shoe company, would you be interested? Talking about prominent investors goes a LONG way in influencing other investors to come in, so be sure to do it if you can. Even go back and talk to people who are already committed, to let them know the good news. It makes them feel better, and they might even want to invest more!
A final point here: the magic word for entrepreneurs is “oversubscribed”. If you can start to tell prospective investors that the round looks like it’s oversubscribed, you’ll get a lot of interest. Simply put, it’s a strong signal you’ve done a great job fundraising, you surpassed your goal, and other investors obviously are committed. So when you’re in that zone, tell people!
If you make it all the way to the end of the investment round, congratulations! You’ll feel really good, and deservedly so. You’ll probably find that the more you close, the easier it is to get more funding secured. But don’t get addicted to that feeling of “closing” too much. Remember why you started fundraising in the first place: to build some sort of product or service, not to fundraise. Your team needs you. Your product needs you. Your service needs you. So when the round is closed, move on and get back to your business.
Now, there is a caveat. Many investors and fellow entrepreneurs will say, “You should always be fundraising!” And there is truth to that. I will say if it will only take one email and one phone call to close an investment, go for it. Get the investment. But if this new investor is asking many questions and needs all the information or financial projections before they come in, just move on. Politely say no, that the round is closed and you’re already back to product development. You’ve raised your round, go ship something!
Hopefully, these tips will help you close your round in an efficient manner. The journey will be harder than you expect, but with the right amount of grit, smarts, and hopefully a sprinkle of good fortune, you’ll close your round unscathed.
Finally, I taped a live session with even more fundraising know-how, you can see it here. Thanks for your time!