Funding funding funding.
- When do you need it?
- How do you get it? Rich friends? Rich uncles? Our network? Where does the damn money come from?
- And also, what can you start doing right now so that when you do need the injection of cash 1-2-3-4-5 years down the liens, there’s people who trust you and are willing to help you get it?
Today, I’m sitting down with Bart Bohn, friend, and serial creator of companies as well as incubators, to answer these questions for entrepreneurs.
He’s the co-founder of ATI Water, Director ATI Wireless, co-founder Build Sec Factory, a cyber security incubator, and board member of 3 Day Startup, a hands-on entrepreneurship program for students. On the company side, he has helped create Embrace and Ravel, which was acquired.
I personally have seen 250+ pitches, having been only a small part of 3 Day Startup, TechMap, and Plan9 in Pakistan, but I cannot imagine the sheer amount, number, and vatieity of entrepreneurs Bart has worked with over the last decade.
This is a smaller episode, but it’s hella packed with some great stuff. If you like it, please leave a review on iTunes and I will sacrifice a goat… or some buy some meat at Trader Joe’s and eat it. Who knows?
Enjoy, and if you ever need to reach out, I am firstname.lastname@example.org.
Moby: Hey, Bart.
Moby: How are you?
Bart: I am glorious this first full day of global roundup.
Moby: Yes. it’s been a large amount of hours.
Bart: It’s fun.
Moby: Nine to five, right?
Bart: It’s a weekend and you hear all day and it can be here till evening times, all of them. It’s great.
Moby: What are people getting, people who come to this conference?
Bart: So it’s one it’s a blast, it’s not the usual boring conference that you go to. Next it’s realistic, tangible content. It’s not lectures of esoteric bullshit. It’s actually stuff that matters that helps you do something tomorrow with your business.
Moby: And these people who are coming they’re mostly early-stage founders, they’re looking to grow or find problem solution fit?
Bart: I think most of them are right at the cusp of potentially being an entrepreneur, they’re proto entrepreneurs where they’ve been through three-day startup or a program like that and they want to jump out there to go do it. Or they just did and they’re now scared, they’re trying to figure out what to do, so looking for some of that guidance.
So a lot of college students, recent grads, young professionals in that category and they’ve just taken those first real steps forward.
Moby: So what I really want to learn from you is an overview of fundraising. At what point would you say an entrepreneur is ready to say, “Hey, I probably need some outside investment.” Why would I need outside investment?
Bart: There tends to be a couple windows early on when that’s the case. When you first decide to go I’m going to be a startup and I’m going to be an entrepreneur and here’s a team. And so usually at that point there’s a window where you can potentially raise. And you’re pitching yourselves as a team and you’re saying, “We don’t know what we’re really going to do. We can tell you some stories, but we don’t know really know. Investor, give us money because it’s us and you know us. Give us some money.”
Or it’s after you’ve actually gone out and tested and validated, you’ve done product market fit and you’ve done that type of discovery, and you think you know how to get more customers. And you think you know how to scale the product. That’s the next kind of point in time when you need to … you really can credibly raise.
There’s plenty of exemptions where you can trickle in money throughout that process. But it’s nickel and dimes really. The big money comes before when it’s complete hope or when you can actually tell a real story.
Moby: And what’s that first stage called FFFs, friends, family and friends and fools?
Bart: Friends, family, fools, yes, which there’s a lot of fools. I’ve seen lots of family members write checks to companies. Like that’s fine. It’s okay. But usually it’s professional network that writes the checks. And that’s really kind of how you get a few hundred thousand dollars at that stage. It’s people have worked with you, they’ve seen you execute, some other members of your founding team.
Moby: So if you were to meet someone who’s really driven right now, who has kind of an inkling of a problem they want to solve and a solution they have in their head, and they’re starting to talk to customers. And they for some reason know that they will need money 12 to 18 months from now, seed stages, say $100,000. How do they start right now to get that check in that time period?
Bart: Yeah, you hear the phrase do risk, do risk, do risk. And a lot of times in Austin or most parts of the country it’s go get early revenues, and start off as a non-scalable product. Just start delivering your quote product and it’s really you and a bunch of monkeys behind the close doors that’s doing the service or whatever, the software, whatever it is.
Moby: The Wizard of Oz thing.
Bart: Yeah, it’s complete Wizard of Oz. But that helps you understand the actual end value. I’m a huge fan of that. The other thing I like to see entrepreneurs do early on is really try to understand if there’s a big, big opportunity and figure out how massive that really could be.
And that’s just some from what I’ve seen a personal experience and from other entrepreneurs go after this. This is really hard. It’s hard to build a business. It’s hard to build a team and keep that team going.
And if you’re going to do this, go after something huge. And don’t kind of do something small especially if you think there’s going to be fundraising required. Whatever it is you have to have something large in that case.
Moby: And how do you start building that network and doesn’t feel odd creating relationships with people that you know you’re going to ask money from?
Bart: Yes, I’m terrible at it. It’s frustrating. One of the things you realize quickly as the founder, no matter what your role as a founder you are a salesperson and all you can do is sell. And so the sales process the sales capability for fundraising it’s what you describe, it’s I’m building relationship with this person, I’m asking for advice, which is valuable. But in reality you’re also trying to set them up for that future investment. Or say, “All right, you’re not going to write me a check, but I know you have lots of rich friends where you have an in at this investor, in this professional investor.”
And that just kind of … That’s weird because what makes a lot of entrepreneurs really effective particularly on the team side and on the customer side is a sense of authenticity. And going to potential investors in what is being set up as a very inauthentic engagement, that doesn’t work, and it feels weird. And you’re internally aware of that. And so you can self-sabotage that.
And so you either have to learn how to make it an authentic engagement or just live with that disconnect inside your head. Try to do authentic version, it always works better. But sometimes it’s weird like you’re describing, yeah.
Moby: Don’t lie. What are situations in which an entrepreneur should realize that their need to raise outside funding it’s honestly just external pressure and they don’t actually need to go outside for funding?
Bart: Oh, that’s … There’s some deep, deep layers to that one. That’s a very challenging one. So normally I’d say the only good reason to raise outside money is because there’s a change in the market window, or you need a slug of cash to rapidly change the economics of some part of your business.
And so sometimes the market window is competitors are coming on and they’re well-funded, so you know they can execute fast. You can see a channel partner emerging and you have to go take advantage of that. You can see a window of a customer base that is potentially going to be open for a short period of time; you need to go do a land grab.
And so those are kind of market driven windows or you’re worried about regulation, either good or bad. The economics one is sometimes if you can just put a million dollars against the problem suddenly you can cut that cost in half. And so as you’re selling your product or you’re acquiring new customers, those economic suddenly work whereas they don’t work today. And so that’s kind of the only two reasons.
But to do the second one you’re doing the economics game, you have to know that you’re going to spend a million bucks or ten million bucks, or whatever the amount of money is in what you think the impact is going to be.
And so like all this self-doubt, so like your question began with – I as the founder think I have to go raise this money. And you feel the social pressure which is a real thing, like it’s imposter syndrome, social pressure, they got a shiny card, they have all new Apple computer monitors, whatever fancy stuff, right? And you feel like I want to do that.
Moby: I want to have press.
Bart: I want all that. It’s really hard to separate yourself from that side of it, but you have to.
Moby: The bling-bling of it all.
Bart: Oh, it’s real.
Moby: I’d love to get into that, what would you say to people who are getting seduced by that that, “Oh, my God. I want to speak at conference. I want my name on every press article. I want people to know I’m a CEO.” Like what would you slap them the face with like in words?
Bart: Eventually you slap in the face is all the failed people who have taken that strategy or all the failed businesses where the founders took that strategy. There is a time when the CEO or the founder becomes that cheap visionary evangelist.
And you feel like you’re doing that early on because you have to get your idea out there to build momentum and build community around you. But there’s a very fine line for indulging yourself for ego in need versus a tactical momentum and ecosystem engagement. And people fall on the other side all the time.
Usually you end up pointing out metrics like customer attraction or attrition, customers quitting, all those kind of things are huge red flags for spending too much time outside.
Moby: The summary is focus on shit that actually matters.
Bart: Shocking insight, isn’t it?
Moby: Right. Who knew, right? Thank you, Bart, for doing this. This was helpful to me and this is going to be certainly helpful for the people listening.
Bart: Great. Thanks, man.