How Do I Raise Seed Capital If I Don’t Know Any Investors? – Part 1

by Scott Edward Walker on October 13th, 2010

Introduction

As a corporate lawyer for entrepreneurs, I am constantly asked by first-time entrepreneurs: “How do I raise seed capital if I don’t know any investors?”  That’s a good question, which I’m going to answer in three parts.  This post is part 1 – hustle and build relationships.

Hustle and Build Relationships

Simply put, if you’re looking for seed capital, but don’t know any investors (and don’t have any family members or friends to help you out), you need to hustle and build relationships.  The goal is to get “warm” introductions to investors – i.e., an introductory phone call or email from a middleman whom the investor trusts and respects.  It takes tenacity and resourcefulness – qualities that every great entrepreneur possesses.

As Gagan Biyani, the Co-Founder and President of Udemy (and a very impressive entrepreneur) explains in his post, “Udemy’s $1M Fundraising: Lessons Learned about Pitching Investors from a First-Time Entrepreneur”:

I went to every conference I could and literally killed myself while there.  I attended tons of networking events and met as many entrepreneurs and investors as I could. While at events/conferences, I rarely ate dinner because I was too busy schmoozing and grabbing business cards.  During the weekdays, I’d spend hours e-mailing potential [investors] to start using Udemy. . . .

Though nobody could tell, this was one of the hardest times in my life. We had just failed at raising money and I had barely 6 months until I’d be out of cash. Nobody in the tech community knew who we were and we were getting little traction with users. I never went out; rarely saw my friends or family and sat in front of a computer all day and night. It was tough.

David Hornik, a partner at August Capital and a very smart investor, confirms this approach in his recent interview on Sprouter:

So if you are new to the area or to entrepreneurship, how do you get the right . . . intros? What you need to do is build relationships from the bottom up.  Spend a ton of time meeting people, talking with them about what they are working on, and sharing what you are working on.  Over time you will find people with whom your idea resonates and they will introduce you to folks with whom they are close.

Indeed, in his book “Mastering the VC Game,” Jeffrey Bussgang, a general partner at Flybridge Capital Partners, explains how he got an introduction to superstar VC John Doerr of Kleiner Perkins when he was a first-time entrepreneur:

[W]hen we started Upromise, Michael Bronner and I knew we wanted to get to John Doerr.  We networked to him through three sources – one of my [Harvard Business School] professors who knew him well, a Silicon Valley CEO friend of Michael’s who knew him, and a Fortune 500 CEO with whom Michael was friendly.  After hearing from us from these trusted sources, even a guy as busy as John Doerr decided it was worth taking a meeting.

Conclusion

I hope the foregoing is helpful.  I love the quote from Gary Vaynerchuk (the founder of Wine Library TV and the so-called “Social Media Sommelier”) in his speech at the Web 2.0 Expo in New York: “Hustle is the most important word – ever.”  That says it all.  Gary goes on to explain that: “I used to work in a liquor store from 7 in the morning until 10 at night for seven straight years, and the only days-off I took were to watch the New York Jets.” [starting @ 3:16 mark]

That’s the kind of effort it’s going to take to raise money and execute your business model.  Next week, in part 2, I will discuss applying to mentorship programs such as Y Combinator, TechStars and the Founder Institute, which also provide seed capital to startups.  If you have any questions, please feel free to call me directly at 415-979-9998.  Many thanks, Scott

Tags: , , , , , , , , , ,

2 Responses to “How Do I Raise Seed Capital If I Don’t Know Any Investors? – Part 1”

  1. Richard Fawal says:

    Great post Scott! There’s no substitute for hustle – even if you do know investors. Raising seed capital is hard work no matter who you know. I work at it 24/7, and consider every conversation an opportunity to get closer to an investor. You never know who might know somebody who is an investor – your neighbor, your dentist, or the woman in line behind you at the grocery store. A good entrepreneur never stops looking for opportunities.

    How do you know when an entrepreneur is pitching? His mouth is moving.