Raising Capital for a Start-up? What to Know Before Meeting With Investors
Raising capital for a start-up can be the most daunting — and confusing — task for any small business.
Kirsten Green, founding partner of Forerunner Ventures — a venture capital firm that’s invested in a number of fashion, beauty and lifestyle brands, including Glossier, Outdoor Voices, Dollar Shave Club, Warby Parker and Reformation, among others — offered steps to simplify the process at the WWD Beauty Summit on June 3, giving an inside look on how she goes about finding businesses to invest in.
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“I think one of the first conversations we have with entrepreneurs is really aligning on what are your dreams, what does success look like for you, what do you want this business to be and then trying to think about what are the right ways to capitalize your business,” she said during her talk.
Here, Green’s key steps to financial success for any small business.
1. Turn an Idea Into Action
“When you’re at a seed stage, what you really need to do is demonstrate that you can get an idea and turn it into action and that there is some early recognition in the market that what you’re doing is resonating with consumers,” she said. “Let’s say it’s taking your PowerPoint presentation and putting it online, putting it in-store, putting a product behind it and showing me that someone wants to buy it and that you can attract a couple of people to your team. That probably sets you up for Series A consideration.”
2. Build Momentum
“Now your job really is to start building a little bit more infrastructure, but more importantly, driving metrics,” she said. “Starting to drive toward traction, using the little bit of resources that you have to experiment here and there to lean in here and to start to get some momentum going. Momentum can be, I have more users to my site, I have more clicks to cart, I have more checkout, I have more products, I increased my repeat purchases, or all of those things depending on what category you’re in. By that time you’re going for a Series B.”
3. Have a Financial Vision
“The investor at this point can take comfort that the founder has been able to get a few critical team members in place and has been able to deploy, let’s call it somewhere between $5 million and $10 million in an efficient way and has a real vision for what needs to happen with this next chunk of money,” she said. “Let’s loosely say that half of it is going to go to keep growing the things you have and half of it is going [toward] uncovering that last part of the model. Then when you get to a growth stage, it’s really about putting more money against what you’re already doing and so you have a model that’s working and you’re like, now we want to go out and increase our marketing by this, or we want to grow our team like this. The specifics at each stage are a bit of a moving bar.”
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