Fundraising isn’t about asking for money.
It’s about selling investors on the idea of reduced risk.
When an investor can put their money into near-zero risk treasury bonds and earn 4%, the upside of investing in your idea needs to be significantly better for the amount of risk an investor is taking.
That’s why less than 1% of all startups raise outside capital.
Of those that do raise outside capital, 38% do so through family and friends.
Fundraising is a “which comes first” challenge.
Founders that can’t bootstrap need capital.
While investors are looking for strong teams and significant traction in the form of live products and paying customers.
For pre-revenue founders, traction and milestones are your currency, and accelerators are your bank.
The Fundable Zone
In the early stages of a startup, when traction is limited, risk is high and your valuation is minimal at best.
With each milestone you accomplish you are reducing the risk and increasing your valuation.
Eventually, your valuation crosses over, or exceeds, the risk. I call this the “Fundable Zone.”
Milestones Matter
Pre-revenue doesn’t mean, shouldn’t mean, pre-traction.
In today’s world, for most business models, there is no excuse for not having a live product.
This is especially true if you are building software, where vibe coding solutions can help you have an MVP live in minutes.
In the absence of cash flow, investors look for proxies of success.
When I led due diligence for a large angel syndicate we ranked those proxies like this - 1) Team Completeness - can you build what you sell?; 2) Waitlist Velocity - are people lining up?; 3) IP - do you have issued, not pending, patents.
Why Accelerators Are a Pre-Revenue Startup’s Best Chance
While venture capital money is abundant, its hard to access until your startup has significant traction.
Angel investors are more accessible, but they may provide less support beyond capital.
Accelerators fill the “Goldilocks Zone,” by providing capital, networks, mentorship, and access to future-stage investors.
With accelerators, you are often being admitted based on your idea and its potential.
That’s never the case with other investors - remember, risk versus valuation.
Startups accepted into accelerators can get quite a lift - a 2.5x higher survival rate, three months faster in fundraising, a 15% improvement in equity dilution, and a 64% increase in follow-on funding.
How Accelerators Work
If you are accepted into an accelerator, here’s what you can expect:
- They are typically 3-4 months long
- Most are virtual, but some require in person attendance (usually for select meetings; like the demo day)
- You should expect to receive small amounts of capital in exchange for a small equity stake in your startup, ex. 5-8% equity for $5k-$100k, depending on the accelerator and its popularity
- Beyond capital, accelerators often have guest speakers and/or participants such as designers, attorneys, accountants, coaches, etc.
An Accelerator Opportunity
I often talk to multiple founders per week that are pre-revenue and looking to fundraise.
Everything I’ve shared with you today is what I tell them to expect.
Fundraising is hard and accelerators are often their best chance at getting resources.
I’m considering launching my own accelerator, to apply complete the form at the link below.
P.S. Everything in this post is also available for free download. Just head here to get the guide.