3 Reasons Why Not Raising Money Yourself Causes Entrepreneurs to Fail

“Tell your friend he should quit his job and find another startup,” I said.

I had a friend call me about a friend of his who is working for a startup. He wanted to know if it would be OK for him to connect us.

“I have a friend who is working as the business development manager for a startup,” he said.

“What do you mean by business development manager?” I asked.

He said, “He is responsible for finding investors who may be interested in investing in the startup.”

“What? That’s the founder’s job,” I said.

“But the founder is busy building the business,” he said.

“How big is the business?” I asked.

“They are doing about $40k per month and are cash flow positive as I understand it,” he said.

“So your friend is representing a business doing $500k per year. How much is he supposed to raise?” I asked.

I was thinking maybe they are looking for a line of credit.

“He told me the company needs to raise one to two million dollars to achieve the next stage of growth,” he said.

This is when I told my friend to tell his friend to quit his job today. “He will fail, no doubt about it.”

“Why will he fail?” he asked.

“Because investors in startups are investing in founders,” I said.

As startups become more in vogue, I’m seeing more of these business development people. Being part of a startup is now “cool.”

Raising money is hard. So some founders think they can outsource this part of their job. They can’t!

Here are three reasons you, as a founder, must do your own fundraising.

  1. Fundraising clarifies your vision.
  2. Fundraising sharpens your strategy.
  3. Fundraising builds key investor relationships.

Boredom Brings Clarification

The more investors you get in front of, the harder you work on your message.

Raising money starts with talking to those you know and eventually leads to those you don’t know.

These strangers don’t have the same tolerance as your friends when listening to your pitch.

If it takes too long to describe the problem your company solves, you’ll see these strangers check out. This causes you to refine your pitch.

Eventually, you’ll be able to describe your vision in a way that people understand immediately. This can only come by continually getting in front of people and seeing how they react firsthand.

The founder can’t coach someone to do this. The founder must do it.

Doubts Sharpen Strategy

You think you know how you are going to build a business which will be worth a ton of money. Then you talk to the first investor and are not so sure.

Investors see lots of startup presentations. They have seen what works and what doesn’t work. Their objections to your business plan are rooted in experience. When you hear doubts or concerns about your strategy, you need to listen and learn.

The process of pitching your investment opportunity will help you build a better strategy. If someone else is doing it for you, they will have the valuable strategy conversation, not you.

By the time this information is related back to you, your response will be, “They don’t understand. Find someone else to pitch.”

You can’t outsource this valuable learning process.

Build Investor Relationships

You cannot outsource investor relationship building. Investors invest in you. Not people who work for you. You are the founder.

Investors know investors. When you talk to the investors in the community, you are building relationships. You become part of the talk of the community. People know you, and you know them. This results in personal credibility, which will lead to funding.

If you don’t think I am important enough to contact personally, then I’m not interested in hearing about your company. Simple as that.

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2 thoughts on “3 Reasons Why Not Raising Money Yourself Causes Entrepreneurs to Fail

  1. A former boss of mine once taught me, “Don’t let a consultant wish your problems away.” It’s easy to do that with fundraising because fundraising just sucks. Lots of rejection and potential repudiation of your business and your vision. It’s like working a second job with very little validation. Which is why the people who do so successfully and build a business are filthy rich – because it’s really hard.

    • Great comment and well written as usual. You are right on. Raising money is really hard. It tests the entrepreneur’s commitment as you are peppered with ignorant comments, well intentioned advice and unbelief. So, it is hard and they do deserve the accolades when it all works!