THE BLOG

Startup Seed Funding for the Rest of Us

03/18/2015 09:21 am ET | Updated May 16, 2015

Last week, I jumped at the opportunity to download Mike Belsito's book Startup Seed Funding For the Rest of Us. I guess he likes open sourcing knowledge, or is just a really cool guy, but he made the book free for its first few days on Amazon. I wasn't surprised to see it jump to the top of the list of free startup books -- it is that good. If you've ever tried raising money outside the valley, especially in an area without a well-developed startup culture with an appetite for risk (like here in Mike and I's home of Ohio), then you know what it feels like to be "the rest of us."

A few years ago, I spent a lot of time working on an app called Flutter with my co-founder Michael Mitrakos (he's since gone on to better things at the late-stage startup Gigya). We had some pretty new-for-the-time ideas about a social app focused on things to do and places to go out with your friends. Those ideas are pretty much now features in Swarm or entire apps like WiGo.

Here's three lessons the book teaches you, that we learned the hard way.

1: Build Your Team First
When you set out to raise money, you think you're doing it based on the strength of your ideas, but most investors are looking equally if not mostly at the team.

I think this was especially true for Michael and I in the generally risk-averse investing climate in Ohio. There is of course some risk investors take on all the time out here, but when you're nose-deep reading about what kinds of startups investors in Silicon Valley are investing in, it's a rude awakening when you try pitching out here. We set out to fundraise before we ever had the strong team we eventually got, and that was a huge mistake.

Doing pitches without a team investors can believe in means your pitch is dead before you even get to the meeting. By working hard and networking I was able to land opportunities to actually meet with investors or investment groups and give them a full pitch, but those ultimately fell flat because I was doing these before I had a development team or even a prototype. A part of that was because it was a very risky startup outside of the kind they normally invest in, but most crucially: there wasn't a team behind it that they had reason to believe could pull it off.

2: Know Why Your Startup Exists
This one is kind of hard to get until you've done it the wrong way a few times. Usually, you walk into a pitch or you're applying to some accelerator, and you're asked some variation of: Tell us about your startup, what do you do? The way it's phrased makes you think you should go ahead and tell them what you're making. The short version is: you're doing it wrong. They only care the bare minimum about what the product actually does right now.

Even successful companies go through evolutions in their product. The investor wants to know if there's a problem worth solving. This is the reason your company ostensibly exists--to solve this important problem. The better you can sell them on the why, the better off you'll be. Investors understand that customers and talent for your company are there for the why, and if you fail to sell that then it's going to be tough to walk away from the pitch with an offer.

In most every pitch I've done, I've been laser-focused on selling the what when I should have been selling the why. It showed up in the questions we'd get after the pitch, which were almost always about the market and whether there was even a business opportunity in it. These questions would pop up even when pitching for markets that clearly have some opportunity for a successful company to monetize, like social (at scale) or on-demand delivery.

We tend to think investors have a magic crystal ball. If they had one, they'd go start your startup themselves and not have to bother with waiting for you to pitch. Never assume they know your problem is worth solving. Get really good at pitching the why before you worry about the what.

3: Build a Prototype
Seriously. Unless you've got a Steve Jobs-like reality-distortion field, save yourself a lot of frustration and build a prototype of whatever it is you want to build. Give people something to look at, and if you've got the chops make a prototype they can play with.

There are really great tools for this. Sketch or Invision can help you make a visual of what the product might be, and Origami can get you one that actually runs on a phone.

Doing this sends a great signal to investors. It shows you're serious, first of all. If you're a non-technical founding team and all you've got is a napkin of ideas, you're not much better than a million other people out there who've got "great" ideas but no willingness to execute on them. So do yourself a favor and build something investors can look at. As Mike says, investors don't invest in ideas. They need to know there's an actual business there. So if it's not possible to start taking money or users, show them there's the potential to get those things by giving them a prototype to wrap their heads around.

Besides being a great signal to investors it can be also useful if you've taken the advice to start building a great team. They're going to have a lot of questions that you can answer by showing them exactly what you're envisioning (or a rough approximation). It's especially easy to accidentally turn away talent if you've got a vision or product that's hard to understand without a visual aid.

I'm not saying if you do all these things you'll get funded. These are just a few mistakes you can learn from me, and not have to repeat.

This post originally appeared in long form on Medium. You can follow me there to get pieces not shortened for the masses.