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If you're asking somebody for a million dollars, ask yourself, would you give yourself a million dollars? Hey, everyone, I'm Morgan Debon, a passionate entrepreneur and life advisor. With the Journey podcast, you'll discover that success isn't about the destination, it's about the journey. I'm sharing stories of amazing people who've taken control of their lives. Join me on my own journey to discover the secret sauce behind reaching success. With permission from no one else, in today's episode, we are talking all about venture funding and my secrets to to helping you raise money. First things first, we have to talk about if you should raise money at all. My personal opinion nine times out of ten, is that you shouldn't raise money, but for that one time that it is. That's what we're going to get into today. If you're curious if you should raise money, I actually do have a workshop on this, so you can go to my website and look for the workshop on if you should raise venture funding. So go check that out after this episode if you're curious if it's right for you. Alrighty. So if you want to raise venture funding in 2024, first, I just want to acknowledge that it's difficult and that it's a really tough market right now because if you're feeling that way, then you're right. All right, there's already friction right now. So there are five different phases of venture funding. When you first raise your round of funding, you are typically starting out with a friends and family round or angel round. Friends and family is when you ask your mom, your cousin, your, your college professor to invest 10k in your business to help you get your idea off the ground. Angel investors are typically wealthy individuals, typically people who have over $250,000 in assets that are able to invest in your business. You can find angel investors all over the place. You can find angel investors within your social network, people you went to college with. You can find angel investors by going on things like angel list. I'm actually an angel investor in an angel investor mint platform called Cherub. And it's an amazing place for you to submit your pitch, submit your company and then it's, it's circulated a bunch, a variety of angel investors. Typically, angel investors are also people who are founders or previous exited founders or sometimes athletes or celebrities. There's a lot of advantages when you add an angel investor onto your board or into your cap table because that will help them potentially advocate for you, promote your product and service, do introductions to other high net worth Individuals. So it's really good to consider having three to four angels in my business. I have an angel named Mike Rothman. He was a founder of a company called Fatherly that was exited. And it was so helpful for him to put money in the company. Not just because of the money. I mean the money was good. But more importantly because he was making a commitment of time. So I meet with Mike probably like two, three times a year to this day, and we talk about everything, who to hire. He gives me referrals for executive coaches, he gives me referrals for like agencies to use. He was helpful with getting our first sets of clients. And it can just be really nice to have other founders that are invested in you early on because angel investment is kind of just like a signal of like, I care and I'm committed to you being successful. So don't think of them as just money. Once you have your angel round done, that typically is enough money to like get your product out into the world. They're not really going to ask for that many metrics. Like let's say you're doing 50k in revenue, 100k in revenue. It's really hard to raise money when you've got zero traction. And when I say traction, traction in the startup world means some sort of signifier that you are hitting product market fit, some sort of signifier that you are providing value to your, your customers, your clients, your consumers, whoever you're targeting. And then they agree that this is a problem that they need solving for. So you have your first purchase order, so you have your product out and there's a wait list, you have a hundred thousand email subscribers, you know, some sort of signifier that, that things are working and that you have something out into the world. Now I know what you're going to say, well, Morgan, I don't have enough money to get the thing off the ground because that's why I'm raising money. And my response to you is it has never been easier to build something from scratch. It doesn't have to be perfect. But I typically do not recommend that people try to raise money if they've literally done nothing. Why would somebody want to give you money if you haven't invested in yourself, you know what I'm saying? And you can invest in yourself in sweat equity. It doesn't have to be cash. You can invest yourself in sweat equity and that still counts. Like when I hear meet a founder and they say, hey, I've been working on this for two years and I work on a nights and weekends and I built this product to this thing. Or like I'm shipping out of my kitchen still, like, I'm like, okay, cool. That's like sweat equity. Like, let's go. But when I hear a founder and they're like, well, I saw my full time job and like, I really just want to raise money because I want to cover my salary immediately, that says to me that you weren't willing to be uncomfortable. And startup life is incredibly uncomfortable for long periods of time. And so when I'm looking for an angel investment, I'm looking to see who has the grit to be resilient through this 7 to 10 year journey. Not somebody who's like going to give up, you know, the first time they miss payroll. Because you will. Once you get your, your angel round, you've got your like, product is kind of out into the world. You've got great feedback, good reviews, maybe, maybe a limited launch, then you have more traction and you raise what is called a seed round. A seed round is typically anywhere between $500,000 to 2 million. If you're like an artificial intelligence company or something really, really technical financial services to company, maybe you raise 3 million, 5 million. But typically the average company is raising, you know, a million dollars. Nothing too insane. And your seed round, you typically will have what we call a lead investor. Your lead investor is the person who is setting the terms. They are looking at your company. They're getting into the weeds with you. They're looking at your financials, your customer list. They might call your customers, and that's what we call diligence. They're doing their due diligence on your company. And through their due diligence, you need to be prepared to answer every single question quickly. And you need to know your shit like you need to know your numbers like the back of your hand. You need to have your projections ready. You need to have your legal paperwork organized. You know, your company needs to be incorporated. A Delaware C corp is typically what most venture funds will require. That you have to even consider you serious. You need to have separate bank accounts. No commingling funds. No commingling funds. Friends. Okay? I made that mistake. Do not do what I did. Okay? One of the biggest mistakes that I made when I raised my seed round was we were, I was nickel and diming the process so much that I hired just an okay lawyer. The law firm was actually really good, but the lawyer himself didn't really care about me or care about the company or the process. So my paperwork wound up being very Mediocre. But it was so bad that actually during my series a process, I had to hire a new lawyer and a new law firm, move everything over, and then they had to rewrite all of my documents and re get signatures from all of my investors, which is a bit embarrassing. Luckily, everyone was really understanding, but it was not cute. So if I were you, I would spend the money. Legal fees are really expensive. I think my lawyer is like, up to over $2,500, like an hour. You know, I'm like, dude, don't even text me. I'm not interested in seeing this bill at all. But if you don't do it the right way the first time, then you're going to wind up spending a lot of money the second time. And if you're running out of money, that can just, like, mentally be kind of hard to do. Now, the good thing is the best law firms are typically not going to charge you until after you're done fundraising. So they are also taking a bet on you. And if you have people who are trying to take money to help you fundraise or like, trying to take money before you actually get the process done, they're probably not a good fit. The best VCs, the best legal firms, the best advisors, like, understand the process and typically only send the bill when you're done with the process. Now, if your process is taking five years and you've racked up this huge bill, then like, fine. But I oftentimes see that there's kind of this predatory ecosystem around founders, particularly black founders, where, you know, people are charging for their advice and help and things like that as it relates to fundraising, and you just. That's just not typically how it's done. So word to the west, what you're really selling at the seed stage is like, okay, this is a real business. Like, we are really building something. I'm committed to this in the long run. And I'm no longer just like, testing things like, I'm really committed to this. I want to hire employees. I want to grow this thing. And you need to paint the vision of how this business is going to become $100 million company. When you're a venture fund or a venture capitalist and you're investing in someone's seed round, you are saying, if I give you a million dollars, I'm going to expect that I get anywhere between 7 to 10 million dollars back. So for me to get 7 to 10 million dollars back back, then they start to do the math and, you know, maybe you need to exit at 50 million or 100 million. So they need to believe that this opportunity that you're going after is sizable. That is the number one mistake that I see people make when they're fundraising. They have a hard time sizing their market and showcasing how their business is uniquely positioned to tackle that market. Either they go too broad and they're like, I'm serving everyone, I'm serving all women. Or I'm like, I'm serving all people in the United States. And that's just so broad to have a total market that large. Or their business isn't venture backable at all. They're just super, like a super narrow, it's a narrow thing. Like if you tell me, well, I'm building a mail, a smart mailbox company for people who have mailboxes in the state of California, because there's some weird state of California regulation about mailboxes, I would be like, okay, a smart mailbox is probably a really good idea. But like, why just California? You know, why not say, I'm revolutionizing mailboxes, period, right? You want to paint a big, big vision. And then you can say, but we're starting with California and here's why, right? And there's these trends and these insights. And in fact, I've actually already started in West Hollywood, in this neighborhood. And in West Hollywood, I already have 10% adoption of all the mailboxes in West Hollywood. I'm making it up. Actually, someone should actually do this, do this, please. I want. Give me $5 if you do it, please let me. Because I would definitely pay for somebody to figure out how to manage my mail. You get the point. You want to pay to large vision. You want to narrow it down to say, we're going to tackle this first. I'm raising money to, to expand my existing experiment. And these are the inputs that I already have. So you go through your seed round, you close a million dollars, you might have a lead investor, they maybe gave you 50, $500,000 or $750,000. Then you take, you know, two to three angels, anywhere between 10 to $50,000, maybe friends and family, and maybe one more other VC that put in like a hundred K. Then you go away for like 12 months and you work, okay? And you're working to fulfill the commitment that you said you were going to do. And that's really, really important in the VC world because everyone is watching all the people who said no to you when you fundraise, they're going to want to know if you did what you said. You were going to do even though they said no, because they also want to know if they messed up and if they missed out on this opportunity. And everyone who invested is like, give me the updates. Are, did you spend the money on the things you said you were going to spend the money on? What was the return on that investment? And that's the best way to get more money is to show that you hit the milestones, is what we call them. You hit the milestones that you committed to when you were fundraising. So let's say you hit those milestones, and typically you need to hit them within, like, six to nine months. You don't really have that long. So you hit them in six to nine months, and then you start fundraising again. Fundraising takes anywhere between six to nine months as well. So if you need money, if you're going to run out of money in a year, which is what we call a Runway, if your Runway is only a year, then you actually have to start fundraising, like, after six months, which means your traction and your milestones need to be hit within those six months, because that's what you're building your deck on. And that's what I think a lot of people mess up on. They wait too long to take action after they fundraise. And you need to be sprinting for your life. Okay? You need to be sprinting for your employees. You need to be sprinting for your future. You cannot just, like, raise the money and then go on vacation. I know you're tired. I get it. But you need to raise money and hit it, hit it hard. Because that momentum is what you're going to leverage to raise your next round. If you raise money and then you're just kind of like maintaining for three to six months because you're exhausted. And then you kind of do one thing and maybe you grow a little bit, and you do another thing, you grow a little bit, and you've only grown like 40% or 30% from the last time they saw you. And it's been nine months. Nobody's going to give you more money. Venture capital is like fast growth. Growth that looks like an up and to the right graph. Okay? Too often I see people take it easy after they raise, and again, it's because they're tired, because it's a lot of work to build a company. But this is the life you signed up for. Once you take that money, you gotta go. So you're raising your seed round, and this is actually typically what happens. Typically you're sprinting and you're like, oh, I need more time and I need more money. And what I thought was true, we got hit with a lawsuit, I have an unexpected expense, and now that a million dollars all of a sudden feels like nothing, and you're like, I should have raised $2 million. You haven't successfully hit the milestones you needed to hit to get to your next round, which is called a Series A. And so a lot of times what happens is that people do this thing called a series seed or a seed extension, an extension of the terms that they already set so they won't go back out. And they say, well, I'm gonna need a little bit more money. And they either raise the price just slightly, they give people discounts. There's all these types of mechanisms that you can do, but that's more often than not what happens. You know, you're not able to get it done as like you thought you would. Stuff happens. Life happens. And that's actually nothing to be ashamed of. I would say that happens again more often than not. If you feel like you're like, I need an extension. I need more money, do that sooner rather than because you just don't want your back up against the wall. If you wait too long to do this, then people might take advantage of that and give you really bad terms. And if you're about to run out of money, then you take those terms, and the result is that you typically wind up diluting yourself, either in power because they asked for a board seat or they ask for some sort of information rights, or literally they dilute you even more as the founder. And, you know, I know people who, by the time they are raising their Series A, they only own like, 30% of their business. You know, you're basically an employee at this point, and you're, like, nowhere near the end of the fundraising journey. And it sucks. It sucks for them. It's demotivating. It's not great. It's not a great outcome. You get through that, you raise your series seed and. Or your extension, and now you are raising your Series A. Now your Series A is when you're like, I'm big time now. I got good money. Revenue is coming in. It's semi predictable. You typically have some sort of engine. Like, you know that if you hire more salespeople, you'll get this kind of outcome. You know, if you spend more money on marketing and advertising, you get this kind of return. You know, if you create these 17 features, the wait list for that product offering will result in this many clients and new contracts. And this is the value of those new contracts. That is the sweet spot. That's where your Series A comes in. And that's where the big money comes in. That's when you can go out to these name brand venture capitalists that we all know and love and say, hey, look at me. For me, I went after typically media venture capitalists. When I was raising my Series A, I wound up having Google Ventures GV lead my Series A. And it was a really long process. I think it took like nine months for me to raise and like get in front of them. And then it took me another like three months to actually close the round. And that's something else that I think a lot of people don't plan for. I certainly didn't plan for it, which is when they say, yes, we're going to invest. And you're like, yes, oh my God, I'm so excited. I get $5 million. And then they're like, but we need you to fix all of these things. We need you to update all of these documents. We have to go through our legal team. Then your legal team and my legal team have to argue about a little bunch of little things. And then we're going to wire you the money. When I tell you I almost ran out of money like multiple times because I just. You're right. You're at the end of the road, right? If Your Runway is 12 months and you get it done, but then it takes another three months for them to wire the money, it can put you in a tight spot. So again, just budget in more time than you think. When you're raising these bigger rounds now you're going to hear in the news about these big companies that raise $20 million, $50 million, you know, and then they come back six months later and raise again. That's why they're in the news. It's an anomaly. So do not be biased by what you see in TechCrunch and all these newsletters, Venture Beat and things like that, because they are anomalies. And the average like time to fundraise is not that fast. It takes time. After that is your Series B. Now when you have a Series B, typically it's because you have really good revenue, you have really good solid business. Like at this point, you could like stop raising and you would still be a really good company. You're a company at this point. You've got hr, you've got people ops, you got benefits. Like you are a full blown corporation. Okay? And Series B is really a indicator of this is a strong company, a strong business and we have an opportunity to be worth 200, 300, $400 million, which means your revenue is generally for SaaS companies over 15 million, for consumer companies, over 20 million. SAS companies maybe could get away with a little bit less depending on what their product offering is. But the point is it's a real, it's a juicy thing. You know, you're running, you're running a real corporation, you got money problems, so you're raising big money. Series B is also a moment in which you, you evaluate do I want to sell the company, does it make sense for me to keep raising or does it make sense for me to, to position us for an exit? So you see a lot of things happen at the Series B phase, but once you kind of raise that Series B, then you're on a trajectory to keep going. Series C to exit to ipo, you know, that's when you're really making that decision that you are going to continue down this financial services capital world because there's a lot of other outcomes that are available to you and financing available to you at that stage. You can take out a huge loan, you can take out which is debt, right? You can sell a minority stake. I mean there's just a lot of options at that point. So I'll stop at Series B. But the hard work, frankly, in my opinion, is at seed. That's a make or break stage for most startups and most startups do not make it out of their seed round. So let's say you've decided that you're raising money and you're going on this journey and you want to prepare yourself for the time commitment. One of the most challenging things is that you have to continue to operate your company and hit the metrics that those VCs are looking at and you have to go out and raise money, which is also a full time job. So my advice, take this to someone who didn't do this for the first few rounds, is that you actually give away your day to day responsibilities to one of your co founders or to your most senior employee. It's really hard to maintain and be available and be fully focused on being that highly confident, always present, always on available founder who's fundraising. It really is a different mindset. I have to embody a different Persona when I'm going out to fundraise. I have to embody a more masculine Persona. I have to embody a more powerful Persona, a more like take it or leave it, this is my shit. And either you're lucky to be here. Persona I have to embody that which is very different than the Persona I have at work, which is more empathetic, more listen, like listening to my employees being decisive but also like getting buy in from people. So it is difficult to code switch. And having done that for so long when I was first fundraising, it can take a toll on you emotionally and physically and mentally. And so if you can, if you have the privilege to have someone else on your team who can help with the day to day, delegate to them because it will make you a more balanced fundraiser and also likely increase your resilience and ability to like really hit the ground and go hard for that time period in which you're fundraising. A couple of things that I recommend for you, check out Y Combinator website. They have the best resources for fundraising. A lot of free resources, free legal documents for the very entry level fundraising so you don't have to actually spend that much on your first set of documents. It's your seed round where you really need to hire a lawyer. Really great pitch deck templates. I have a pitch deck template as well that you can have access to if you go to morgandebond.com and sign up for my free Worksmart Community Community. You can read the books, but I would stay away from the news and stay away from the books because it can really mess with your mind. Just focus on you, build a great deck, make sure your numbers are right and make sure you actually want to raise venture funding. So if this episode was helpful for you, leave a note, leave a comment, leave a review. Subscribe to the podcast on Spotify and Apple and I'll see you next episode. Thanks for listening to the Journey podcast. If you enjoyed this episode, make sure you leave a review and head to our Instagram and YouTube to leave a comment. I look forward to hearing how this podcast has made an impact on your own journey.