Funding the Early Stages of Your Venture

If you’re new to the fundraising game, fear of the unknown might be keeping you awake at night. This book will help you navigate the fundraising journey while also helping make sense of the chaos and frustrations you will likely face during the process. The long list of valuable insights and genuine aha moments you’ll discover should dramatically improve your odds of fundraising success.

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About the Author

Gordon Daugherty is a seasoned business executive, entrepreneur, startup advisor, and investor. A proud native Texan, Gordon grew up in a small town and graduated from Baylor University with a computer science degree. He spent the first 10 years of his career in brand name companies such as IBM and Compaq and then progressively gravitated towards early stage and high-growth companies. Gordon spent eight years in the videoconferencing industry, including four years as president of an Israeli company that grew from $5 million to $36 million in a short few years and went public on the Euronext Stock Market.

Gordon oversaw most company functions while serving in executive capacities, but his primary focus was on strategy, marketing, sales, business development, and M&A. He was a senior executive for Austin-based NetQoS, which grew rapidly to more than $55 million in revenue before being acquired by CA Technologies for $200 million, and he was a founding advisor for digital advertising pioneer MediaMind, which reached $65 million in revenue and a NASDAQ IPO in 2010.

Gordon has vast experience with early-stage fundraising from both sides of the table. As a venture fund manager and angel investor, he has made more than 200 investments. He has also helped raise more than $80 million in growth and venture capital as a company executive, fund manager, board director, and active advisor.

Through his content creation practice, Shockwave Innovations, and as co-founder and president of Austin’s Capital Factory, Gordon now spends 100 percent of his time educating, advising, and investing in tech startups. He serves on the board of directors for several Austin-based technology companies and is a managing director at SoftMatch, a corporate innovation advisory firm.

Over the years, Gordon has given personal advice to several hundred entrepreneurs, and more than 1,000 startup founders have completed his Founders Academy boot camp. He has published more than 150 startup advice articles and is the producer of a video library with 50 streaming titles of educational content for startup founders.

Now having raised three daughters, Gordon and his wife of more than 25 years enjoy spending time at their beach house on the Texas coast or at some global destination they’ve never been before.

Read the Introduction

In this day and age, it takes almost nothing to start a startup. After some coffee shop meetings with an equally passionate co-founder, you discover that you have a lot of ideas, an outline of a business plan, and a willingness to spend nights and weekends doing really hard work. Congratulations; you’ve got yourself a startup.

It also takes very little funding capital for most types of startup ventures to reach interesting milestones of achievement. Decades ago, we had to raise millions of dollars just to get a v1.0 software product built and only then discover whether the world suffered enough from a particular problem to actually pay to have it solved. Today, due to things like open-source software, inexpensive hosting services, and coworking spaces, we can often achieve those same initial milestones by spending only tens or hundreds of thousands of dollars.

Although this book is all about funding the early stages of your venture, the amount of money you raise over time should not be your measure of success; building a great company is. In fact, you might ultimately decide that you don’t want or need to raise money for your startup venture in order to achieve your goals. That is perfectly OK. When you hear other entrepreneurs brag about how much money they’ve raised instead of bragging about how many happy, paying customers they have or how much revenue they’ve generated, don’t mimic their behavior. In fact, the definition of great company doesn’t even have to mean huge or with a unicorn valuation. Instead, it can mean having a significant social impact or employing 50 people who are all passionate about solving a particular problem and absolutely love working for your company. Many startups never reach even $10 million in revenues, but that doesn’t mean they can’t become sustainable and provide satisfaction and value to their founders, employees, and customers.

Fundraising is a personal choice. It’s one that is sometimes driven by want and other times by need. There is also a choice of when to first raise funding from external sources. Injections of funding do typically cause a business to grow faster and accomplish more in a given period of time. But with that comes a new set of obligations and accountability—to the investors that provided the capital. Some founders choose to delay that until they’ve at least built their product and gained paying customers, whereas other founders decide to take on funding earlier. Again, it’s a personal choice. This book will help you make your own decisions about fundraising over time. So, as you read about the various stages of fundraising and their associated attributes and recommended best practices, don’t interpret that as a requirement for pursuing the same path; the choice is yours.

You will quickly learn that your most valuable resource is actually time (i.e., runway). Think of it like an hourglass. When the last grains of sand drop from the top to the bottom, you have to pack up your toys and go home. The game is over. Fundraising is one way to flip the hourglass over to gain more time, but not the only way. So are crowdfunding presales, government grants, and even large customer contracts with an up-front payment. With enough time, you can adjust and adapt until you eventually build a great team and identify a viable business model that enables you to become sustainable and—hopefully—also scalable.

With this focus on optimizing for time comes the development of unbelievable survival strengths and the ability to stare at a diminishing bank account without totally freaking out. You will get good at both throwing and catching Hail Mary passes while maintaining a smile on your face and a spring in your step, so that investors and others conclude that you and your business venture are both amazing.

I will describe this book by first telling you what it is not. It is not a cookbook, but certainly includes many ingredients for success. It is not a step-by-step guide, but is organized based on a logical sequence of events. It is also not a reference guide for every possible fundraising legal term or for fully decoding an investment term sheet. Basically, I decided to write something that best exploits the gray in my hair and the hard lessons I’ve learned.

My personal goal is to help you best plan for and navigate the fundraising journey while also helping make sense of the regular chaos and frustrations you will face (or are already facing) during the process. Said a different way, I want to deliver you a long list of valuable insights and genuine aha moments that will dramatically improve your odds of fundraising success.

Most of the concepts in this book are written from the perspective of funding an early-stage technology venture, and many of the examples you will see are for a subscription software company. But don’t let that distract or discourage you if you’re building a different type of business. Most of the described concepts and best practices apply to early-stage ventures of all types—hardware, services, consumer packaged goods (CPG), and more.

Armed with this new knowledge that gets supplemented with progressive experience as you embark on your fundraising journey, you will quickly realize there is no single scenario that is perfect. There are best practices for certain aspects of the fundraising journey, and that is the focus of this book. Rounds of funding involve multiple players with respective motivations and personalities, trade-offs of risk and reward, and plenty of legal terms. The combinations are endless. Your mission is not to find the perfect scenario but, rather, a reasonable one that lets you continue the pursuit of your vision.

The chapters that follow represent numerous fundraising insights, tips, hints, and tricks I’ve discovered and refined over my professional career, from the hundreds of early-stage investments I’ve been involved in making as an investor, and from more than 19 years of mentoring and advising tons of startup founders. Some of the concepts you’ll learn about are unique, whereas others are established best practices. You will also learn about numerous tools that will help minimize the chaos and streamline the time frame for getting funded. I hope you find the information in the pages that follow enlightening, actionable, and encouraging.

Let’s find some of those aha moments together. And best of luck starting and building a great company!

Available in print, eBook and audio book

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Book Contents

Setting the Stage

Fundraising Strategy

Planning Your Campaign

Your Fundraising Toolkit

Demystifying Convertible Securities

The Seed Fundraising Dance

Series A Fundraising

Interacting with Investors

Negotiating Valuation

Closing Thoughts