Priori CEO and Co-Fouder Basha Rubin on creating a business plan, vetting investors and more
Priori CEO and Co-Founder Basha Rubin recently sat down with the Centre for Legal Innovation (CLI) to share some tips on startup fundraising as part of their Women Legal Business Founders and Leaders Series. She was joined by Jannaya James, Partner – Financial Advisory at Grant Thornton Australia, and Terri Mottershead, Executive Director at CLI, for a discussion that covered business planning, the particular issues women and minorities face in the funding space and much more. Below are some tips from the discussion and you can view it in full below.
#1 Figure Out Your Goals From the Beginning
For many startup founders, their first thoughts about fundraising go to venture capital (VC) financing. VC financing dominates the prevailing narratives about startup funding, but it may not be right for every business and limits options down the road. Whether it’s the right route for you comes down to what your business is and how you see it growing.
“I encourage founders to think seriously about the business they’re trying to build, what their goals are, what capital they need and what their exit plan is,” Rubin explained during the CLI session. VCs often want to see a path from a pre-revenue business to 9-figures of annual revenue. “If you can’t articulate a path there … venture may not be the right route for you.”
Even if you’ve determined your company does have the path and could be attractive to VC investors, you still need to ask yourself whether that’s what you want. You might wind up with a similar financial outcome by owning 100% of a business worth $10M as you would by owning 1% of a business worth $1B. There is a significant difference in the experience of running these businesses.
It really comes back to the purpose behind your company. Rubin recommends clearly establishing your goals and then raising no more money than you need to achieve them, because every time you raise money you are not only diluting your equity in the company, but you’re also bringing in external stakeholders who may have a say in its future direction.
#2 Early Funding is More Art than Science
Early stage funding—pre-seed and even seed rounds—are often about factors beyond your business plan. While you need clear and buttoned-up financial and business plans that show you understand the market, investors are limited in the diligence they can do because your company is at such an early stage. This means investors are often making funding decisions based on the founder(s) and whether they see them as leaders who can grow a large business and have the wherewithal to get the business to that level.
In part because of this, startup fundraising may be especially inaccessible to women and minorities. A 2017 Harvard Business Review article pointed out that while women owned 38% of businesses, they only received about 2% of VC funding.
Rubin pointed to the HBR article and its discussion of how male and female founders are sometimes treated differently in the VC space. The article explains “that venture capitalists posed different types of questions to male and female entrepreneurs: They tended to ask men questions about the potential for gains and women about the potential for losses.” Rubin mentioned that the HBR article resonated with some of Priori’s fundraising experiences in the early days. “The kinds of questions that women were asked were fundamentally different from the questions men were asked,” said Rubin. “Men were asked questions like ‘What’s your vision?’ … and women were asked ‘How can you justify this or that expense?’”
The unfortunate result of this bias is that women and minorities routinely report lower valuations in early stage rounds. And this not only affects the early stage but also has implications down the road, making it harder to have follow-on capital at every stage, because it’s more impactful to equity ownership.
#3 Do Your Due Diligence on Potential Partners
Of course investors are going to do their due diligence on you as a founder, but you want to make sure that you’re vetting them as much as they’re vetting you. Rubin highlights five qualities that you should look for in an investor. They should be someone:
Whose vision aligns with yours
Who you like to spend time with
Whose advice you value and think is useful
Who comes with subject matter expertise that is relevant to the business you’re building
About whom you know what other businesses they’ve invested in and what experiences the founders have had working with the investors
She notes that this is especially important if they’ll be on your board. “If they’re getting a board seat in particular, I would highly encourage you to [check out their references]. They expect you to ask to speak to a couple of other companies that they’re on the board of and if they’re not happy to provide that, that should be a pretty significant red flag.”
#4 Be Prepared: Resilience is Key
If there’s one tip you take away from the discussion, it should be this: Startup fundraising can be hard. The prevailing narrative on VC funding is written by the people who’ve been the most successful, and may make it seem like money is raining down from VCs to funders daily. However, the truth is fundraising alone can be a full-time job, and that’s in addition to your role as founder of your company. You need to be ready for rejection—a lot of it. That being said, the good news is that it only takes one deal, so with resilience your efforts will pay off.
“I wish someone had told me how hard it was when we started because you go in and you hear that narrative about [founders] in the garage building something and then it just ‘poof’ clicks into place,” said Rubin. “I think that if you did a survey of 100 founders you would find that’s not how it happened for 99 of them…It was all about grit and perseverance.”
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