Editor’s note: Joe Procopio is the Chief Product Officer at Get Spiffy and the founder of teachingstartup.com. Joe has a long entrepreneurial history in the Triangle that includes Automated Insights, ExitEvent, and Intrepid Media. He writes a weekly column exclusively for WRAL TechWire. It’s published on Tuesdays.

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RESEARCH TRIANGLE PARK – There are a million challenges when starting a business, and one of the earliest is finding the funding to get your business off the ground. I’ve been an entrepreneur for over 20 years, and in the last half of my career, I’ve spent a ton of time helping all kinds of entrepreneurs go from idea to growth to exit. I still get at least one email a week that goes something like this:

“We’ve got this game-changing/billion-dollar/can’t-fail startup. Our problem is investors won’t talk to us. Can you help us make some connections?”

First of all, let me assure you that there’s nothing inherently wrong with that question. You are one of a million entrepreneurs, myself included, facing the same issue. And even when you get out of the idea stage and have made something tangible to sell to customers, you’re likely to get stuck among the vast majority of startups that can’t get traction. Then once you get traction, how the hell are you going to be able to scale?

Joe Procopio (Photo courtesy of Joe Procopio)

That said, there might be some very valid reasons why your startup isn’t getting funding:

Mistake No. 1: Using the wrong approach.

When you ask, “Can you help us make some connections?” the answer you’re probably going to get is “No.”

There are a couple reasons for this, and they’re important.

For one thing, that’s not what I do. While I have connections to all sorts of cool and wonderful people, they aren’t the kind I would trade, because I don’t make these connections to be traded.

I’m always happy to make an introduction whenever it makes sense, but it has to make sense. That’s the primary reason I don’t make these kinds of introductions. A blind introduction from an entrepreneur I barely know to an investor I’ve known for 20 years isn’t going to result in anything but the same silence the entrepreneur is getting on their own. And now the investor will be annoyed at me for wasting their time.

I get all sorts of offers for access to my connections — everything from a free beer to cash to equity — and while those offers are flattering, they’re also part of the problem.

If someone is offering me cash or equity, or even a beer, to make an introduction to an investor, it implies that there’s some sort of secret handshake at the investor level that’s keeping the common entrepreneur out of the loop. That is not the case.

Almost every investor has a website with contact information, a thesis (which is a statement laying out what they typically invest in), and usually instructions for how to pitch them. They (or an associate) read everything that comes in. Investors need deal flow as badly as you need investment. They don’t want to miss a good opportunity. The problem is they get tons of pitches by email, and a lot of those pitches, as you might imagine, are not good opportunities.

With such a system, you may worry that your amazing startup is just getting lost in a pile of slush, and maybe it is. But my relationship with that investor isn’t going to change that for you.

That said, there is one kind of relationship that will get you in.

Mistake No. 2: Neglecting to build relationships.

No good relationship ever started out by asking someone for money. No good startup investment ever came about without a relationship already in place.

I often tell first-timers looking for funding that they should step back and start building these relationships without even asking for investment, asking to pitch, or asking for that brain-picking 15-minute phone call. Just ask if you can add them to your investor update email, where you communicate progress and updates — without marketing or pitches. If you’re building a good company and they’re a fit, at some point, the opportunity will come up to start a conversation.

The percentage of investors I know who ultimately decided to invest in me or a startup I was associated with is tiny. In other words, I have way many more relationships with investors than my company has investors. Just as investors have to wade through tons of emails to find a promising investment, you need to build tons of relationships to get just one investment. One of the reasons second-time entrepreneurs are way more successful at landing investment than first-time entrepreneurs is because they already have relationships with dozens or even hundreds of investors who didn’t invest in them the first time around.

Mistake No. 3: Focusing on the wrong things.

Deciding whether or not to raise money for your startup should be a very difficult decision reached only after considering a number of factors. One of those factors should not be the desire to build the next billion-dollar startup. Think about it this way: If you’re asking someone to invest in a small round that will get you to a bigger round, you’re essentially warning them that the value of their investment is going to get diluted pretty quickly.

The vast majority of investable startups don’t need investment. Often, the line between companies that can generate revenue on their own and companies that need investment to succeed is pretty thin.

Thus, in order to become an attractive investment, you don’t necessarily have to show revenue (although, believe me — it helps), but you do have to show a clear path to a return on investment, which requires a no-brainer path to revenue. Then you have to show exactly how that investment is going to accelerate that revenue and reduce the resources needed to generate it — in other words, how the money you raise will increase margins and allow for scale.

Consider this: An investment isn’t a kickstarter, it’s an accelerator. So check your pitch and make sure you come across as such.

Any entrepreneur with a spreadsheet can show acceleration, but, in my experience, here are the top reasons that acceleration isn’t the no-brainer investors need to see:

  • You don’t have any intellectual property or any one idea that separates your solution from existing solutions.
  • The field of new entrants is incredibly crowded, and there are already winners-in-waiting.
  • The market you’re focusing on isn’t big enough to sustain growth.
  • The problem you’re solving isn’t well-stated or is imagined, leading to an exaggerated top line.
  • You are ignoring or underestimating your true costs, leading to an outsized (but imaginary) bottom line.

If you can uncheck all those boxes, then make sure you’re communicating that correctly and succinctly, it moves from point to point, and it’s cohesive.

If you can do all that, what you’re looking for in return is not a binary yes or no. What you’re looking for are questions, which imply curiosity. Then you want to provide honest answers, which builds trust. And trust is the foundation of good relationships.

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