Nobody Is Coming to Save You
Notes and experiences from a startup fundraising journey
I’ve been meaning to write this post for a while, but have been waiting for our startup fundraising to reach somewhat of a conclusion.
Over the past 12 months, we’ve tried to fundraise with little to no success. Going into the fundraising process this was our expectation but we hoped to at least have some success.
When fundraising as a Pre-seed (pre-product, pre-revenue) startup your options are quite limited as most startup investments are done by Venture Capitalists and most VCs invest in post-product, and ideally, post-revenue startups. So the dilemma you have as a founder is how do you get to post-product and post-revenue without any funding to kick start your startup?
For some founders this challenge is harder than for others. If you have access to a high net-worth individuals (family, friends, network) you can raise an angel or friends and family round relatively easily, however for black founders this remains challenging. Hopefully we’ll be the next generation’s friends and family round.
The current fundraising market is extremely challenging even for established post-revenue startups. In this post I’ll share some notes on our fundraising journey with the hopes of helping any other founders who might be going through the process.
Accelerators
Accelerators are a great option for early stage startups. Y Combinator is the main accelerator most founders would have heard of. However as an African founder your chances of getting into YC are extremely limited, especially if you don’t have traction (users, revenue). Look at the number of African startups accepted in the latest YC batch. Godspeed.
We applied to YC twice and never made it to the interview stage. I used to joke with my co-founder that we had a better chance of winning the lottery than getting into YC. Granted, we never had a product or traction when we applied.
We also applied to a few other accelerators and managed to get into Future Africa’s pre-accelerator. It’s important to note that quite a few accelerators offer credits and support/networking, but no funding. As a founder, you have to weigh the time commitment against the benefit you’ll receive.
Taking part in such accelerators will in theory help you get into the bigger accelerators like YC and Techstars, but again there are no guarantees.
Key takeaway 1: Get traction before applying to YC.
Key takeaway 2: Don’t apply to accelerators that don’t offer funding. Credits and support is great, but they don’t pay the rent.
Some recommended accelerators based on our experience:
VC Funding
This was the most challenging fundraising experience for a number of reasons. It takes up a lot of the founders time (emails, meetings, pitches, due diligence etc.) and the constant rejections can be demotivating. When it comes to fundraising, VC is by far the hardest level.
We found that very few VC write checks for Pre-seed African startups. Even VCs who specifically focus on Pre-seed funding still want to see some traction. Go figure.
At times this felt like a one sided experience, where only one side was putting in effort. Maybe it feels the same for VCs with some founders, it's possible. Understandably VCs are busy folks with many startups pitching to them but oftentimes we’d end up waiting weeks for replies or a final answer.
We met some really great VCs and built great relationships, but ultimately we were unable to secure any funding. In future, we may look at VC funding again at the Seed stage.
Key takeaway 3: Get traction (users, revenue) before approaching VCs.
Key takeaway 4: There are no Pre-seed VCs in (South) Africa.
Key takeaway 5: Warm intros help a lot. The best experiences we had came from warm intros.
Venture Studios
Venture Studios effectively help founders build the startup in exchange for equity and funding. This level of support goes beyond what accelerators offer, where they would even assist founders with product development for example.
This is an option we skipped completely so can’t provide too many insights. We skipped this as an option because we felt the equity terms were not always the most founder friendly. However, some founders that I know spoke highly that these programs (e.g. Founders Factory & Baobab Network) were fundamental to their startup’s success.
Key takeaway 6: Worth a shot if you’re open to the equity structure and need the product development support.
Grants & Bootcamps
Another option we considered were bootcamps and grants. The premise here is generally that a foundation gives you some funding in return for building on their platform or supporting their causes. Similar to some accelerators, some grant programs only offer the possibility of maybe getting funding at the end of the program.
Unfortunately the grant program we applied to decided not to fund us, and we ended up spending 2 months building on their platform without any grant funding.
Another downside with this option is that the grant funding amount is often quite low, sometimes as low as $5K - $10K. The time commitment vs funding amount is not always a fair trade off. We’ve seen many African startups get stuck in the grants & bootcamp cycle. Switching from one grant bootcamp to another in order to access grant funding.
A big advantage of the grant funding option is that it’s usually non-dilutive, which means you get funding without giving away equity.
There are too many programs to list, but it’s quite easy to find grant programs relevant to your startup’s focus area with a quick Google Search.
Key takeaway 7: Secure the grant funding first before you commit to building for a foundation.
Key takeaway 8: Building on a foundation’s platform/cause because they give you a grant is not the best product strategy.
Angel Investors
This was our favourite fund raising experience, because it felt more mutual and angels actually bought into our vision. It was also not nearly as time consuming as other options, with no back and forth emails, programs, meetings and pitches. Angels are usually friends and family and not professional investors, so they invest more based on the relationship.
We ended up raising a small amount from 1 angel only, and honestly without their funding we would not have been able to achieve what we did. We’ll forever be grateful for that early belief and support.
The main challenge for founders with angel investments is access to high net-worth individuals. The angel who invested in us was not somebody we knew well personally, so we got a bit lucky. Importantly founders should also clearly communicate the risks of startup investing to angels.
Key takeaway 9: Angels will be our first true believers. They are awesome humans.
Key takeaway 10: Don’t take funding from angels without clearly communicating the risk (losing their entire investment) to them.
Nobody is Coming to Save You
The key takeaway from our fundraising experience is that nobody is coming to save you. Although this was something we knew coming in as both of us had spent the previous 2 years bootstrapping a different startup, it was a sober reminder.
Building a startup that can sustain itself is ultimately the best approach for founders. The easiest way to raise funding is by not needing it.
If you’re a founder currently fundraising, good luck and I’m happy to chat and share experiences.