2 Colorado tech veterans talk myths (and truths) of funding

by James Risley
July 13, 2016

Raising funding is a mysterious beast, and just like the chupacabra or sasquatch, there are plenty of myths that surround how you fund your startup. And while many of those myths can be safely ignored, there are a few that hold true. We talked to two veterans of Colorado’s tech funding scene about the myths (and truths) of raising capital for your tech startup.

Myth: Being an "Uber for..." is a good way to market your company to investors

Perhaps the biggest myth is that funding should be your goal.

“That any founder should be trying to gear their model and their vision around what they think investors want to hear [is crazy],” said Brian Egan, the co-founder of Evolve Vacation Rental Network, which recently announced $5.5 million in funding.

Egan also has experience from the other side of the funding equation, with a background as a lawyer helping to put together funding for startups in Silicon Valley. 

“I see this happen a lot, where you see founders trying to use the language that investors use, trying to fit into the 'we're X for Y' type of model,” he said. “And I understand why. I mean look, investors are busy people and it's hard, if you don't provide them with any framework ... then that's not going to be successful either.”

But he said good investors steer clear of highly derivative companies. “They're looking not for somebody who's saying Uber for flower delivery, they're looking for someone to say 'We're going to change the way that this industry works.'"

Myth: Investors only provide funding

You want to treat investors like mentors, not banks, according to BridgeVC founder and president Matt Harbert. He helps technology companies find office space and works to connect investors from outside Colorado with local startups.

“If you're in a really good place with your startup, you'll have options,” he said. “You really want to look for someone who's going to offer a lot of value.”

That investor should provide more than just money; they should also guide a startup through various stages of growth and provide valuable advice and criticisms that a novice team may miss.

Myth: You'll have to give up control of your company if you want the money

Likewise, the investor shouldn’t want too much control.

“Good venture capitalists understand that if they take too much of a company, and entrepreneur is much less motivated,” Harbert said. “Good VCs won't give you too much money where you get complacent. ... They'll give you just enough where you're still really hungry and wanting to get to the next level, but have enough capital to actually get there.”

Egan agrees, noting that bigger isn’t always better.

“Raising less money at lower valuations from the best people to work with in an industry and doing so at terms that are as close to plain vanilla as possible is a far better outcome than the headline-grabbing, eye-popping $50 million round,” he said.

That huge round probably comes with strings attached, and they'll be pulled hard to get a return on the investment. 

Myth: Your investor's advice is always right

Finding an investor that has smart ideas for the company is just the first step; it's still up to your team to analyze the feedback they give and implement it in a way that's true to your company.

“You're going to be given all of this feedback and all of this constructive criticism, much of it in the form of 'I'm going to pass on the funding because of X, Y and Z reasons,’” Egan said. “And what ends up happening is that some kernel of that is actually totally right, and you really do need to listen, but then 99 percent of it is just total noise and you're best just to ignore it.”

Truth: Investors won't always give you a hard no

It can be frustratingly difficult to get a real no from an investor, leaving you to wonder if you should follow up again or just cut your losses with that investor.

“For most investors, there's no upside for them in telling you no, and so they won't do it,” Egan said. “They don't want to close doors.”

Instead, an investor may give you a "maybe," waiting until others commit to your company or you gain some traction. VCs don’t want to miss a chance to invest in a hit app just because you didn’t do a good job pitching it.

“Really good VCs try to say no as soon as possible, but it's hard to get,” Harbert said.

Truth: The money is not yours until it's in the bank

On the other hand, you also shouldn’t celebrate funding too early.

“When someone commits money, I think it's pretty true that you don't have the money until it's in the bank,” Harbert said. “And someone will say 'I'm in for $50,000,' and you think you already have it, then no one else comes in, that person is not in for $50,000 until you find other people that are putting money in the deal.”

Truth: Smart people will say no

But don't get discouraged. If there's one truth, it's that some really smart people will say no to even the best projects. 

"It is not a myth that you will be turned down by eight or nine out of 10 really smart investors, but you're going to be turned down by them for lots of different reasons. Some of it is going to be that they just don't totally get it, some of it is going to be what else is going on in their world," he said. "If you have an idea that is really right, you will absolutely be told no by really, really smart people."

Images via investors/Shutterstock

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