There are 3 questions you need to answer in a fundraise process.
Why this problem?
For first time founders, the ‘Why You?’ question can be the most challenging to overcome.
This is particularly true of pre-product, or early product companies that have very little traction to prove the market opportunity.
Ideas are worthless for most first time founders…it’s all about the execution.
This may not seem fair. Founders that have successfully built companies and delivered an exit for investors (and even some that flamed out spectacularly), can raise millions for the second or third company with little more than an idea sketched on a napkin.
But you’re not that person. You might have some domain expertise, which allows you to answer the questions “Why this problem?” and “Why Now?” with a high degree of certainty. Which is great.
But most investors know how hard it is to build a company from nothing, get through multiple rounds of funding, and find a path to an exit. An unproven founder dramatically raises the risk of an investment.
The best way to deal with the “Why You” problem is to get to an MVP of your offering and prove the market. This means bootstrapping your way to proof of concept. It can mean slower growth at the beginning to get to a place where you have enough validation to successfully raise money to fuel further investment in your product.
There are a number of scrappy ways to go about solving the Why You problem, and the approach can vary industry to industry.
Here’s a link to a recent episode of How I Built This, with the founder of Stacy’s Pita Chips. This is what smart and scrappy looks like. It’s years of hard work with an awesome payoff.
I meet with far too many aspiring entrepreneurs who haven’t solved the “Why You” problem, and want advice on how to successfully raise money for their project. I always try to convince them to slow down and do the hard work of proving themselves and the market opportunity for their idea.
The alternative is to waste valuable time in a long shot fundraising effort that ultimately fails. Or worse, raising on lousy terms that can negatively impact your ability to get to the next round of funding, while pouring money into your venture with no clear path to finding product-market fit.
Slow down. Get scrappy. Do the hard work that answers the question “Why You”.