5 Things You Need to Know Before Raising Money for Your Startup
Asking for money is rarely fun. But it’s especially tough—and often futile—for women. Why? We’re less likely to get a raise at work, even though we ask at the same rate as men. And we’re especially unlikely to get money for our startups since only 2.2% of all venture capital goes to female founders. (The percentages are even worse for women of color.)
Even for those women who successfully ask this question, it’s as I write in my book Startup Money Made Easy: The Inc. Guide to Every Financial Question About Starting, Running, and Growing Your Business, “seeking outside money is a daunting, grinding, tedious process.” It can go horribly wrong. But raising money can also go tremendously well if you do your homework, network like crazy, and get lucky.
Over the course of nearly five years of reporting and editing money coverage at Inc., I’ve interviewed many successful women founders. Some of them avoided raising outside money entirely; others have raised tens of millions of dollars. So if you’re ready to take the VC plunge—or to start off by asking friends and family to back your business.
Here are five things to know about raising money for your startup.
You don’t necessarily need to do it.
VC-backed startups like Uber, WeWork, and Airbnb get a lot of the headlines, but most startups never ask outside investors for money and many thrive regardless. Take S’well: Founder and CEO Sarah Kauss turned her high-design water bottles into a $100 million business without ever taking outside investment.
There’s an increasing number of women funding women.
While traditional VC has a long way to go to close the gender gap, there is a growing number of investment firms focused on women-led startups. Some examples are Arlan Hamilton’s Backstage Capital, Susan Lyne’s BBG Ventures, and Anu Duggal’s Female Founders Fund. Women founders, meanwhile, told Inc. that female investors often better understand their target markets.
Still, it’s often a slog.
“When you see company after company raising money, you get the outside-in perception: ‘It's not that difficult if they can do it.‘ But this is not the case,” Policygenius co-founder and CEO Jennifer Fitzgerald told me about her initial fundraising expectations. “It was a very fruitless and frustrating few months,” she adds. Fitzgerald and her co-founder eventually raised their seed round through small checks from about 50 friends and family members, “which is a painful way to do it, but we had to get it done,” she recalled.
It can also be exhilarating.
“Raising money was a year and a half of my life, and I loved every minute of it. Boy, was it grinding and difficult,” Christina Tosi, the pastry chef who’s now the founder and CEO of Milk Bar, told me last year. “You're going to war … and not necessarily in a negative way. It doesn't have to be argumentative.”
It matters who your partners are.
Don’t accept just any investment. As your business grows, you’ll want to make sure you and your investors can agree on what’s best for the business (unless you want to try to buy them out). As Tosi put it, “You can't do a good deal with bad people, and you can't do a bad deal with good people.”
About the author: Maria Aspan is an award-winning business journalist and an editor-at-large at Inc. Magazine, where she oversees money coverage and writes about startups, technology, finance, and gender. She has also covered business and finance for The New York Times, Thomson Reuters, and American Banker. At the latter, she served as national editor and covered the 2008 financial crisis and its aftermath.
This post was originally published on March 11, 2019, and has since been updated.