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Monday, October 19, 2009

How I Got Investors to Write Checks this Year

from Wil Schroter





Wil Schroter is the CEO and founder of Santa Monica-based Affordit, and founded Go Big Network, an online community for entrepreneurs. He recently landed a round of funding, and posted this on his blog about his experience. He gave us permission to repost his article here.

Before you start bitching about investors not writing checks in this economy let me just say this – bullshit.

I just finished our capital raise for our new company, Affordit.com and can tell you first hand that I've never seen more people eager to write checks.

Does that mean it's raining cash like a Fat Joe video?  No.

But it does mean that the capital markets are alive and well and you shouldn't be afraid of them.

So let's get right to it – what are investors buying?

Smaller Deals

The hottest thing right now is smaller deals.  I'm talking $50k - $100k.  It's a combination of people needing less money and investors having less money, but it's real. 

Just about every VC I spoke to either has put together a small-deal fund or is contemplating it.  That's a real sign of the times considering how big their funds are.

Guys like Ron Conway are making a killing in this space, eating up deals left and right.  Dave Mclure over at Founder's Fund is managing a similar fund and finding all kinds of gold over there.

Since the cost of creating a Web company has dropped so dramatically, investors are expecting a lot more traction from a lot less cash.

More Traction

Which leads me to the next point.  Investors expect some traction.  Showing up with a basic idea and hopes to get funding to build it just doesn't cut it anymore. 

Some angels I've spoken to even go so far as to say they are using traction as the first sign of an entrepreneur's competence.  This is nothing new, but sets the tone for what kind of response you should expect if you don't even have a functioning prototype.

At Affordit.com people can hop on our site, buy a Playstation for $18 per week, and go.  Investors looked at our site, knew it worked, and wrote checks.  Our fortune without even a basic site would have not been the same.

Real Revenue

The gig is up on ad-based revenue models.  Adsense won't save you. 

In fact you'll look like a tool if you even try to say you'll figure out later with ads.  Investors want real revenues today. 

That's what we call a “business”. 

Investors are going to ask you a real simple question - “When will you make real money?”  You should have a really good answer.

Meaningful Numbers

Anyone can get a million visitors to a site these days.  Want to toss around stats like “billions of pageviews” or “trillions of impressions”?  No one gives a shit. 

We've all figured out by now that those numbers don't guarantee any kind of revenue, much less a sustainable business.  They made sense back before social networks and user generated content because they were hard to achieve.  Now what's hard to achieve is a revenue model.

Real Experience

The Web isn't a novelty act anymore.  Just being the one guy that understands technology doesn't give you Doogie Howser credentials.  Everyone understands technology.  The differentiator now is how you use it.

That doesn't mean you can't be young and somewhat in-experienced and still get funded.  Of course you can. 

But nowadays you've got guys (like me) that have 15 years of experience specifically building Web companies.  That didn't exist 15 years ago, and so now there are lots and lots of people with industry experience to compete with.

It also means if you're not particularly Web savvy, but have a great deal of domain experience, there are a lot of people you can team up with to credibly put you in front of investors.

Get That Dough

So if you're not actively pitching, dust off your PowerPoint deck and get back out there.  The money is flowing again, friends.  I can tell you first hand.


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