The Beginner’s Guide to Fundraising with Diana Melencio
Diana Melencio is a 2x entrepreneur, having built and scaled two retail technology companies: securing funding and successfully leading major partnerships; most notably with the Hudson's Bay Company, MasterCard, Neiman Marcus, and Marie Claire. Prior to starting her companies, Diana spent 9 years investing and consulting in Consumer and Retail companies for reputable $12B+ funds. During her time in Wall Street, she was a top ranking analyst in the Specialty Retail sector, as named by the Financial Times. With such an impressive background, we tapped Diana to give a few pieces of advise on fundraising, from someone who has been on both sides of the table. Below is her selective wisdom for those currently going through or thinking about the fundraise process.
I’m fond of saying that a entrepreneur’s path is a singular one, one where you must have been in the trenches yourself to truly understand all of it’s ups and downs. Many of the downs occur at the hands of investors and the fundraising process. It is TOUGH and rare to hear of founders who reached their fundraising goals with regards to amount, terms, and timing.
I recently shared some of the insights on fundraising at a panel for the NYU Female Founders. Fortunately for those that couldn’t make the event, I gladly share the lessons with you now.
Lesson # 1: It ALWAYS takes longer to raise money than you plan
Long gone are the days where you can fundraise on an idea. Do some research around what metrics you need to raise the amount you need. For example, to raise a $1M seed In the business to consumer (B2C) space it’s approximately $30K - $50K of monthly revenue run rate (MRR), growing at approximately 20% - 30%.
When you think about how much funding you need to reach the next milestone - also think and plan for what happens if it takes twice as long to raise funds or you fall short of the amount you want to raise. Many founders do pitch competitions ($10K - $50K) and apply to accelerators (up to $250K) as alternative ways to continue to fund their projects and lengthen their runway.
Lesson # 2 Target investors that have invested or know your industry
The hardest thing in business to do is to educate a consumer, the same goes for the entrepreneur trying to teach an investor about the market opportunity in an industry they are not familiar with. If they only invest in SaaS companies or healthcare and you’re in retail tech, or only in Series A or B and you’re raising a seed, save yourself time and sanity and cross them off your target investor list. This doesn’t mean it’s not worth a conversation if you happen to be at the same event as they may be able to provide a helpful introduction, but you do not need to seek them out. Focus on investors with precedence in your space.
Note: Cold emails do not work. Go on LinkedIn, find out if / how you’re connected and get to them that way. Or go on Twitter and follow them, they will often announce events they are attending.
Lesson # 3 Find advocates in the investment and start-up community
Investors, industry leaders and fellow founders are the best in-bound sources of deals for an investor. Attend events, join online and in-person communities, build authentic relationships and try to be helpful. I have 2-to-1 give ratio where I try to give twice as much as I ask --- and has been the driver in introductions which ultimately has led to investments, partnerships, professional growth, and friendships.
For female founders, there are Facebook groups dedicated to entrepreneurs: SheWorx, Dreamers & Doers, Global Tech Women, and more. Join them, go to an event, and build your network.
Lesson # 4 The ultimate trump card is TRACTION
Nearly all questions can be answered by traction. This can be in the form of users (for apps), signed pilots (SaaS), pre-orders and revenue (everyone). Numbers talk and when you say you’re growing over 20% month over month, they do all the fundraising you need.
Who’s going to use your app? We have 10K followers. Who are you customers? We signed a pilot with Walmart. What is your customer acquisition strategy? We have 10K pre-orders. How are you going to scale? Our revenues are growing 20% month over month.
In the end, it’s going to be about your passion for your company and your belief that you will succeed. Short of this, no amount of research and preparation can cover up for lack of passion.