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Heading into my first pitch for pre-seed funding, I was less nervous than you might expect. I had concerns, of course: was I prepared for the questions I’d be asked? Had I focused on the right selling points? But, as a former corporate consultant, I was used to presenting to executives in high-pressure situations and was confident in my ability to disarm and build rapport within a room.
Going into that first pitch, I felt lucky to have the opportunity to talk to credible investors, particularly at a time when funding was more scarce. Yet now, with our pre-seed round freshly closed, I’ve come to realize there’s an alternative mindset to embrace. As I reflect on my experience of raising during a downturn, here are three lessons I wish I’d known sooner.
Equalize the power
There’s no arguing investment is harder to come by than it was even a year ago. According to CB Insights, funding for Silicon Valley startups fell by 40% year-over-year in 2022 and the downtrend isn’t slowing.
The recent collapse of Silicon Valley Bank — America’s 16th largest bank and a favorite among tech startups — is a testament, in part, to the mindset of financial scarcity that has rocked the tech sector amid mass layoffs and rising interest rates.
Regardless of the economic climate, however, going into a pitch thinking an investor has more to offer you than the opportunity you’re presenting them with, will only hinder your chances of securing funding and finding the right partners.
In a down economy, it’s easy to adopt a scarcity mindset, but it’s critical you understand your own value. If you don’t believe in yourself and your business, no one else will.
When I started researching investors for my startup — there was an industry heavyweight at the top of my list. An entrepreneur herself, I knew she would understand the problem we were solving, but I didn’t have a warm intro to her.
So, I got tickets to a pitch event she was judging and signed up to present. Had I not been confident in my pitch, I likely wouldn’t have mustered the courage to track her down and I certainly wouldn’t have landed a second meeting with her, which eventually led to her investing.
If confidence is an issue, find a coach, get trained in public speaking and/or surround yourself with a team that hypes you up — having confidence will help equalize the power balance between you and the investors you’re pitching.
Build traction first
In this recessionary environment, startups that don’t have a shininess to them — a founding team with big names or an industry that’s trending in the press — but have numbers to back up their business are now attractive to investors.
With VC funding down 37% in Q3 of 2022 from Q2, EY reported investors with dry powder are favoring entrepreneurs who show customer growth and retention while demonstrating a clear path to profitability. This sobering return to the basics of business may be a stark departure from the glory days of easy money, but it isn’t a bad thing for founders.
For example, our startup operates in the treasury space — not exactly a captivating industry by mainstream standards — but because we’ve tapped into a double-sided marketplace and fixed inefficiencies on both sides, we’ve been able to generate significant traction.
Approaching investors when your startup already has traction also allows you to negotiate a fair valuation and favorable terms at a time when investors are more discerning. Not to mention, it can serve as a litmus test for whether or not you’re ready to scale while boosting your confidence in securing the right investors.
Ask for feedback
It can be hard to hear “no,” when you’re pitching your company, particularly when funding is more scarce. Rather than focusing on the rejection, however, try to uncover why an investor has passed on the opportunity.
Every investor is looking at your company from a unique lens and there are many reasons behind a “no.” For example an investor may be looking at later-stage startups or have a minimum check size that is too large. It could be they don’t have the right expertise for your market or there’s a conflict in their portfolio. The point is you won’t know why an investor has passed on the opportunity unless you ask for feedback.
After every pitch, I ask investors what resonated and what didn’t. I make it clear I view their candidness as a gesture of kindness, as it allows me to refine my pitch. This has allowed me to improve how I communicate my company’s value proposition. For example, I learned early on that I was too focused on my company’s short-term trajectory and not painting a clear enough picture of our longer-term strategy.
Getting feedback from investors can also help determine who you want to work with down the road. Just because an investor passes, doesn’t mean they may not be a good partner for your next round.
I also use feedback as a tool to cross-evaluate investors. If someone takes the time to specifically communicate why they’ve passed on the opportunity, for instance, it’s a good indication of what kind of partner they would be — if they’re putting in the effort to help a startup they’re passing on, imagine what kind of energy they’re giving to their existing portfolio.
Raising money during a downturn comes with a unique set of challenges, but it’s not all bleak. Founders who focus on building viable businesses and look for investors who add strategic value to their companies will ultimately emerge stronger when the economic headwinds change.
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