VCs guide to raising money for your startup in a down economy
This is a guest post by KP Reddy, Founder and CEO of Shadow Ventures. KP has built and exited multiple companies, in addition to running one of the oldest tech incubators in the country. Yet, as a venture capitalist, has never taken VC funding.
As we all know, global startup has been falling since the beginning of this year. According to CB Insights, global corporate venture (CVC)-backed funding reaches a 5-year low, falling 44% year-over-year (YoY) from a record high. In this piece, KP shares insights from his experience as a founder, CEO, and now VC, on how startups can raise money in a down economy. Enjoy!
When an entrepreneur has a great idea, the first thought that crosses through their mind is how am I going to fund this? If you were to ask a founder where they will get the funding, the most common answer would be venture capital. If not VC money, they might go private equity or money from friends and family.
However, instead of focusing on where to get that big check, I’d argue it’s more critical that you focus on sharing your vision through a strong mission with conviction. This is the single most important thing you can do for your business as you’ll be able to capture the hearts and minds of investors, employees, partners, and customers. Think about it in this way: your grandma gives you money because she loves you. It’s an entrepreneur’s job to get others to believe in what they are building or selling.
Once you have your mission, vision, and conviction, the real work to gain traction can begin. This starts with understanding your path forward and creating a detailed plan. Where are all the places you need help? Do you need support with a deck? Or what about legal advice? Think about your network and how you can tap into the people you know and trust. Can you buy someone a couple of drinks and offer some stock options in exchange for some of the work you need? We’ve all helped a friend or old colleague out in the past, but it’s much easier to get support if they buy into your mission.
The same goes for potential partners/vendors: once they are bought into your vision, you are more likely to be able to create a contract that would offer an upside for them once you reach key milestones like signing a big customer or raising a round of funding. This not only incentives them to complete the work more quickly, but drives focus on what is being accomplished. This is similar to a model we’ve seen used in startups – offering lower salaries but the potential for a large upside in the form of equity.
The mission and vision are also critical for gaining traction with customers. Getting your customer to not only buy what you are selling but become a true partner can be critical in the early days. Can you offer an exclusive window where you won’t sell to their competitors? How can you become an integral part of their offering? Engaging with customers will make them feel valued, become more invested, and go out of their way to support you to be successful.
While these aren’t direct ways to raise funding, they shift an entrepreneur’s focus on gaining traction to build a sustainable business. And as an entrepreneur, I never raised money from a VC firm for my previous companies. Instead, I leveraged my network, built partnerships, and gained traction with key customers.
As the founder of a VC firm, there is a time and a place for VC investments, but it’s also important to realize that great ideas can flourish independently of venture capital.
Author Bio: KP Reddy is the Founder and CEO of Shadow Ventures, a seed-stage technology investment firm. He is a globally recognized authority in AEC environments, AI, robotics, automation, mobile applications, and cloud computing. KP is a Civil Engineer by background (BS, Georgia Institute of Technology) and wrote the textbook on BIM with his book: BIM for Building Owners and Developers. He is a frequent lecturer at the Georgia Institute of Technology and is a sought-after subject matter expert, frequently speaking worldwide on BIM and the built environment. KP has exited three technology companies. Cereus Technology Partners which had an IPO on NASDAQ and has since sold to Verso (NASDAQ: VRSO) at a 35x Multiple, RCMS which was sold to ARC (NYSE: ARC), and Ampirix (sold to The Combine). KP formerly ran Enterprise Transformation at Gehry Technologies (started by world-renowned architect Frank Gehry) which exited to Trimble (NASDAQ: TRMB). He was also the General Manager of ATDC at Georgia Tech, one of the oldest technology incubators in the country.