Startup Fundraising: The Good, The Bad, and The Ugly

One year ago today, Smart Office Energy Solutions closed a $1.3M angel round of funding. We’ve accomplished a great deal since then – expanded the team, finished gen-1 product development, obtained all the requisite certifications for our hardware, and built a large sales pipeline – but I find anniversaries to be a good time to pause and reflect.

This is a presentation on startup fundraising I gave a few days ago to entrepreneurship students at the University of Wyoming. In it, I review the pros and cons of several different startup fundraising strategies, using Smart OES and my previous startups as specific case studies.

Toward the end of the presentation, I take a deep dive into Smart OES’s three rounds. The quantitative analysis provides some interesting insights:

• We had a 0% success rate trying to raise funds from people who were not part of our networks. 100% of our investment came from people we knew or people to whom we were introduced.
• Former colleagues invested the most (in total invested, mean investment size, and median investment size) in my venture. The trust developed by working with or for someone is a real asset in early-stage fundraising.
• A similar trust clearly is formed in the academic setting as well because a good deal of our investment came through my school networks. Interestingly, Rice contacts invested more (in total invested, mean investment size, and median investment size) than did IMD contacts.
• Second-degree contacts became much more likely to invest over time. It is helpful, therefore, for startup founders to engage “smart” money (in this case, investors with connections to other investors) early on.
• Similarly, the value of repeat investors increased over time, demonstrating the value of engaging investors with the capacity to follow on.
• Geographically, investors in Texas out-invested investors in Switzerland 2:1. However, using my LinkedIn network size (1,100 contacts in Texas; 250 contacts in Switzerland) as a denominator, the Swiss outperformed the Texans on a per capita basis. Most disappointingly, we didn’t raise a penny from North Carolina (where I have 300 contacts!) – and not for lack of trying.
• Unsurprisingly phone calls and in-person meetings were more effective than emailing or messaging on social networks in leading to investment.