Ten years ago, I was a network engineer at Vodafone dreaming about my future. Today, I am the proud co-founder and CEO of Preply, a global marketplace for online language learning that connects 40,000 tutors teaching over 50 languages to over 100,000 students every month.
A lot can happen in ten years.
As a company, we can credit our success to many factors: an incredible team, a great product and many hours of hard work. But we wouldn’t be where we are today without capital. Preply raised $1.3M (nearly €1.16M) in 2016; $4M (€3.30M) in 2018; and $10M (approx €8.26M) in 2020. Our investors are just as diverse as the languages we teach on our platform, ranging from Polish and German to British and French.
I’ve learned a lot along the way. Today, I’m sharing nine things every entrepreneur should know, do and think about as they begin the exciting-yet-stressful fundraising process.
Fundraising isn’t for the weak of heart. You need thick skin, no questions asked. Your company will be under a microscope and picked apart from every angle. And most of the time, the answer you get is “No.” Sure, it stings. Yes, you should think about why an investor decided to pass. But you cannot let rejection stand in your way or distract you from your ultimate goal. When you’re no longer afraid of being turned down, your mind will be clear, focused and most importantly, positive. This will help you keep going, which is the only option if you want to succeed. Finally, sometimes the word “no” can actually mean “maybe” down the line when the timing is right. Don’t burn bridges or swear off ever reaching out again.
Don’t Be Defensive
You can’t have a meeting with an investor without facing a barrage of questions. It’s critical that you reframe your perspective on questions — tough questions — and think of them as a gift. You are most likely meeting with smart, seasoned professionals who talk to different companies day-in and day-out. Take every single question as an opportunity to learn, gain a fresh perspective and view your business in a new light. Maybe you’ll take it a step further and make a life-changing adjustment to your business that will pay off in the end. No matter what comes out of it, you should write all of these questions down in one document, which you can then turn into a super useful Q&A to share with future investors. This, my friend, is an asset. Trust me.
Remember: You’re Not That Special
Sure, once in a while you get such an innovative service or one-of-a-kind product…but that’s rare. Most of the time, a company is building upon something that exists but is improving how it works. Not to mention, there are more startups than ever before. The market is flooded with entrepreneurs with big dreams. So why is your idea special? It sounds harsh but you must give this serious consideration. You can prepare all the presentations, financial plans and SWOT analyses in the world. But they don’t mean anything if you haven’t crafted a succinct statement about why they should invest in you. This must be articulated in a brief-but-brilliant way. Can you explain why your business is different in one sentence?
What’s Your Story?
So much of the fundraising process is focused on the financials. Fund + raising, that makes sense! But what really moves the needle is good, old fashioned storytelling. This is particularly important during the seed round, when there are no numbers to share. You don’t have any meaningful data yet, so it’s really about the product and early customers. When you’re raising on Series A/B/C, it’s mostly about data, your cohorts, your retention, your growth rate, etc, and how you look against competitors. Whether you’re raising $1,000 or $1,000,000, you need to craft a compelling narrative that demonstrates your company’s value and brings it to life. For example, do you have any anecdotes about how your product has changed someone’s life?
Geography is a very important factor for many investors, even though we are in a remote, 24/7 digital world. Let’s say you want to raise from German investors. In my experience, you have a better chance of raising those funds if your company has a presence in Germany. Conversely, we have heard from many US investors — especially those in Silicon Valley — that it would be difficult to work with us since Preply is not in San Francisco. It makes sense: their core network is there. Think carefully about where you want to be headquartered. And then start thinking about secondary offices: are they in cities that have a strong startup scene? Does that city have a developed ecosystem? Preply opened its second office in Barcelona because we knew that if we wanted to attract top talent, we had to be in a desirable location.
Don’t Play Hard to Get
The moment has come: you finally have a term sheet from a potential partner. You’ve discussed the opportunity together and now it’s formally been sent over. You need to make your move. But if you take more than two weeks to answer, chances are you’ve already soured the relationship. When you’re slow in responding, you’re signalling that you’re second-guessing bringing this investor on board and you’re still seeking out other alternatives. You’ve come this far, so don’t blow it.
Warm is Better Than Cold
Let’s face it: funds are busy. They receive endless emails and phone calls. So how do you get through? A warm introduction from a credible source. This is why networking is so critical. Let’s say you have an industry peer who has a substantial relationship to a fund you have your eye on. Your chances of getting a reply are 10x better if that person makes an introduction, rather than if you just cold-called yourself. At the end of the day, fundraising is about building and leveraging solid relationships.
Find the Sweet Spot
Be very conscious of how much money you’re asking for, from the get-go. Research the fund and look at past investments they’ve made. Personally, I always start raising smaller amounts. Why? Because you could get a “No” from someone who would actually say “Yes” to a lower figure. Start small, build interest and when there’s enough of it on the table, you can start increasing the round and get back to the valuation question.
Don’t Name Drop
Did your parents ever tell you not to gossip? In the startup world, keep your fundraising activities to yourself. Don’t talk about other investors with the investor who’s right in front of you. It’s poor form. The moment you expose who you are talking to, there may be unexpected situations and dynamics happening behind-the-scenes that you’re not privy to. Own your conversations; keep them private; and most importantly, do not mix them up.
In the end, fundraising isn’t only about raising funds. It’s about learning from the entire process: preparing your data, crafting your story and answering tough questions. After all, is said and done, your business strategy will be stronger than ever, and you’ll be even more capable of leading your company to success.