I was honored this week to be asked to speak by my alma mater during Commencement weekend, along with several other amazing social entrepreneurs and investors. We were asked to share our top lessons in raising capital for our ventures. I find the timing of this speech to be fascinating. On the one hand, we just raised a round, with plenty of lessons learned already.
But like every entrepreneur on the planet, I’ve spent much of this week contemplating what happens if we can not access capital going forward given the market conditions. Perhaps this is where losing a company during the ‘00 meltdown and navigating one through the ‘08 great recession helps. It’s like hitting Class V rapids on a river. If you aren’t careful, you will capsize. But if you make the right decisions and navigate through, you emerge stronger on the other side. Here is what I shared.
1. Match Your Capital Source to Your Business Trajectory
The most important part of attracting capital is being realistic about the kind of venture you are in and the most likely trajectory and outcome. Otherwise, you are going to waste a ton of time. Very few entrepreneurs, particularly social entrepreneurs, should actually be looking at traditional venture capital for funding. It’s not often a great match. I never really raised from a “traditional” venture firm for WeSpire. I went from angel funding to family offices with strategic investors, quasi public/private funds and debt, then skipped to private equity. Venture capital looks for highly scalable, multi-billion dollar markets and opportunities. It wasn’t obvious we had that market opportunity in the early days. Now it’s clearer. But incredible social ventures are built that are not venture capital backed, and there are numerous other sources of capital, from government and foundation grants to impact angel groups and crowdfunding.
2. Capital is Personal. Choose Wisely.
I have been incredibly fortunate to raise millions of dollars from people, in general, that I really, really like and respect. With a few notable exceptions, they’ve stood by when times got tough. They’ve provided sage advice and leaned in to help. But they also hold up a mirror and suggest ways to improve, often when we need that tough love.
My investors sit on our board. Ultimately, they are part of the team that I, as CEO, report to. In other words, when you raise capital, you are often selecting your boss. So when you have the luxury of choice, choose wisely.
3. Capital Can Be Biased
It’s a sober reality that women and minority entrepreneurs need to face and one reason I joined #FoundersForChange. Capital decisions, especially in the early days, can have a lot of bias in them. That doesn’t mean that women and underrepresented minorities can’t raise capital. Clearly we can, and there are firms who work hard to support a diverse group of founders. But it is a hard process in general and at least for us, it’s even harder. So just be prepared that it may take twice as long, and you may have to figure out how to build your business on half as much.
4. Always Have a Plan B
WeSpire would not be here today if I didn’t make some very tough decisions in 2017 and figure out how to survive on very, very little capital, while we expanded our product from a sustainability only engagement platform to an ESG engagement platform. What that experience taught me is to maintain two business plans. The first is your “abundance mindset” plan. In this plan, you are nailing your sales targets, the market conditions are good, and you are likely to be able to raise more capital if you need it. The second is your “scarcity mindset” plan. In this plan, the market is turning, you are missing your sales goals, potentially by a lot, and you aren’t likely to have access to capital. What do you do? Given everything going on right now, my strong recommendation is to make sure you have that scarcity plan ready. Just remember that some of the most successful ventures started during recessions - including WeSpire!
Last, but certainly not least, when and if you succeed, turn around and invest back into that next generation of innovators. Your time, your talent and your treasure will be as catalytic to them as your funders were to you.
Quote of the Week: Bootstrap for as long as you can.