We are very proud to be funded by one of the best early-stage investors in Germany and Europe, the High-Tech Gründerfonds. In this article, I summarize my experience from five years of fundraising and show you how to make it to the one percent of applicants who receive funding.
Let me say at the outset that we have failed with financing RAIDBOXES have already failed several times. The insights in this article are therefore not necessarily new, but in my opinion essential. They made the difference between multiple failures and a half million euro seed investment. Be sure to check out our original HTGF pitch deck as well.
Capital acquisition only after product market fit
Very many founders make the mistake and go looking for capital before they even know if their product is capable of meaningfully fixing an existing problem. Too bad! Because so many founders concentrate on the preparation of business plans and pitch decks without actually having a fundable product.
We also made this mistake with our first company and did not wait for the product market fit. For us, that meant wasting four months of working time. At RAIDBOXES we defined 100 paying customers as the limit for our product market fit. Before that, we were practically forbidden to deal with financing.
"You have product market fit, when there is a real emotional connection to your customers"
Leo already describes it very aptly with this quote: The emotional bond is then an outflow of the problem-solving power of your idea. At RAIDBOXES this moment manifested itself in the fact that we received fan mail from our customers (honestly, fan mail!) who wanted to send us beer and pizza to the office several times. Such enthusiasm is always a good sign and at the same time very important to grow by word of mouth.
- RAIDBOXES (@RAIDBOXES) February 9, 2017
If you as a business graduate are only surrounded by business graduates, you cannot build a good founding team.
In our previous WordPress projects, we were always missing an important component: a CTO who doesn't just work for money, but for the chance to work on something big and develop a great product. With Marcel we have found exactly this person. Conversely, with Torben (design & marketing) and me (business administration), Marcel has found exactly the components that he was missing in his previous WordPress projects. We complement each other perfectly as a founding team.
The most important question in this context: How do I find my founder dream team? We ended up being lucky enough to work together in a coworking space. And we were in the right place at the right time. We had each seen each other's work before in different contexts, so we could judge its quality. The insight at this point: Push your luck! Network in the startup environment, be willing to experiment, take chances and deliver good work to get noticed.
In any case, your team is miscast if you, as a business student, are only surrounded by business students. And that's only because they are also interested in founding a company and happened to sit in the same lecture as you. First and foremost, this means: go on a search, be proactive and leave your comfort zone. Because an investor needs a team that can achieve results on its own and without buying in outside services.
Numbers say more than a thousand words - prove your growth potential in the pitch deck
This point is the sum of the previous two points. If you have managed to build a good team and achieve the product market fit together, then you can also prove a certain growth. And that's exactly what you have to do: visualize your successes so far and forecast the future of your product!
Many founders set out with an idea in search of a seed investment. De facto, however, an idea is worth nothing. Only with the implementation of this idea the wheat is separated from the chaff. Of course, investors know this too. And presenting a mere idea in the pitch deck will then primarily lead to you showing a potential investor: we don't have any results to show yet.
The TV show "Höhle der Löwen" supports this statement. Here, almost exclusively founders who have already achieved results receive an investment. The absolute result only plays a limited role. More decisive is how the growth will develop. As a rule of thumb, sales or user numbers should grow by at least 5 percent per month.
"You guys have a great product and a great team. But the pitch was sh****!"
All your work - the product development, the team building, the hard work to get the company off the ground - it's all for nothing if you fail at the moment of the pitch. Because you usually have just five minutes.
That's exactly what happened to me during our first pitch at HTGF. The feedback from those present was unanimous: "You have a great product and a great team. But the pitch was sh****!". If our investment manager hadn't thoroughly checked our numbers beforehand, we would have been out at this point.
Our core mistake at this point was not showing our traction and simply ignoring certain best practices in slide design and presentation techniques. A classic example of this is a competition matrix in which your company (who's surprised :-)) is at the top right or a presentation on market potential. At a certain stage, however, it's also worth working on little things in the pitch deck, such as "talking" slide headings.
Check out our original pitch deck for High-Tech Gründerfonds
You can download our pitch deck from May 2016 here. And that's with the original numbers. I've taken out a few points, of course; I've also changed the investment amount. But 85 percent of the slides are identical to the original pitch. You are welcome to use the structure of the presentation and the slides for your own pitch deck. They are based on the HTGF guidelines and general pitch standards.
Conclusion: Results must be at the centre of your efforts
Congratulations! You've nailed it! In fact, I'm very sure that - if you get the four points above right - you should have no trouble finding seed investment. So note that you first thoroughly flesh out your idea and get it to product market fit, that you have a complementary team that can deliver very good results, and that your pitch is the pitch of a lifetime - with real and relevant numbers.
Sounds easy, but it's not 😉 After all, you have to achieve the results first. In the end, financing brings more peace of mind and finally the opportunity to professionalize your work and dedicate yourself fully to your passion.
Ultimately, however, it is nothing more than a leap of faith. The investor trusts that you will continue to achieve results in the future. And one thing is for sure: every investor turns off the tap at some point if the results fail to meet the milestones.
With this in mind, have fun at work and good luck acquiring your half million euros!
You need more material or information about pitching or investor acquisition? Then feel free to leave a comment below.