When Darrius Thompson went to raise Series A funding for his startup, he made sure to go with the investor who put him on the spot.
“For us it came down to finding the investor that resonated with us,” said the co-founder of Open Candy Inc., which delivers distribution and revenue to software developers.
For Thompson, that person was the only one who asked extremely tough questions about his pitch: David Cowan of Bessemer Venture Partners.
“He was so abrasive during our meeting, asking hard questions. I recognized that is the type of person I want to be part of the company,” Thompson said. “We won him over and he won us over."
Thompson and four other panelists shared funding tips on April 16 at 6 Degrees' networking breakfast at the Estancia La Jolla.
"You need someone who doesn’t [drink] the Kool-Aid your organization does," Thompson said. "Someone on the outside that is going to be very open to you is pretty powerful.”
Liz Gasser, vice president of business operations at Qualcomm Labs, sits on the investor side of the table and agrees with that mentality.
“Someone is engaged and ready to have a good-spirited debate on why you think it’s right, and why you can pull it off. Someone is trying to understand and get on your side and figure out how to support you," she said.
The Qualcomm Inc. (Nasdaq: QCOM) subsidiary focuses on building young companies around early-stage products and technologies.
"Qualcomm Labs is investing and doing what we are doing because there are spaces and opportunities we believe need help to grow," Gasser said.
That includes the unchartered territory of wireless technology in health care, which has a variety of untapped applications.
"The market may not be there yet, and further development will get us to a better place,” she said.
Startups should use a filtering process in the search for their perfect investor, Thompson said. That means targeting the types of firms interested in their product and then narrowing it down to individuals within those firms.
“Find specific investors in those firms you think have experience and values most beneficial to your company," Thompson said. "Find any way to get in front of that investor.”
Practice makes perfect, and instead of just pitching business plans to friends, he suggests practicing in front of those investors that might not be the best fit.
“You go in with less stress. Pitching 24 hours a day, trying to raise a round is a warm-up. You learn a lot from that," he said.
For Jon Carder, securing financing for his restaurant rewards company Mogl was as simple as having lunch with an investor.
But it was the critical years leading up to that lunch when he needed to prove himself to the investment community. When one of the ventures he started hit a rough patch on year two, he scoured the California coastline for money, working the Tech Coast Angels network.
“I went to every single angel group there is," Carder said. "I spent every waking minute driving to different angel groups. I hustled through it.”
Toward the end of that four-month period, he finally found a venture capitalist who took a chance on his company.
“It worked well. We raised money and turned that company around,” Carder said.
Fast forward to his lunchtime pitch to Steve Tomlin, managing director of Avalon Ventures, about investing in his newest venture at the time: Mogl.
“He loved the idea and saw my track record," Carder said.
A VC term sheet was soon in his hands and two weeks after that he raised $2.5 million for a pre-product launch. Nine months later, Mogl raised $15 million.
“We are just about to do another round to put us above $20 million. It looks easy when you look at Mogl, but it took so much time hustling and bootstrapping getting to that point," Carder said.
Building up a network is the tough part.
“I started from square one, joining organizations and trying everything to see what fit," said Rebecca Boudreaux, president of Oberon Fuels. "You have to plant a lot of seeds and see those seeds start to blossom. It does get easier as you go down the road.”
In her quest for cash, she learned to treat an investor like a teammate.
“What you are looking for is a partner -- strategic, financial or VC," she said. "If someone doesn’t fundamentally believe in what you are doing, you can tell in the first few minutes. You aren’t going to convince them.”
Her clean alternative diesel company focuses on heavy-duty trucking for its initial target market and is currently building its first production unit in Imperial Valley.
“I’m not a trucker. I don’t know a lot about trucks,” she admitted.
Linking up with trucking companies that have decades of experience in the field and a strong customer base was key.
“Part of you wants control -- it’s your baby. Finding ways to partner with people who lend expertise -- not necessarily control -- and credibility in the community is crucial for building your company,” she said.
Raising angel capital is momentum driven, said Rory Moore, president of CommNexus, a nonprofit technology industry association.
“It’s hard to find friends and family that understand the business and domain,” Moore said.
It's unlikely that investor group will come back for another round, he added.
Instead, seek out a couple individuals in the angel space that are domain experts, he advises.
"The other investors will trust their judgment. It’s huge credibility for you," Moore said.
Those other investors -- the high-net worth risk takers -- then gain confidence to take the plunge and write the check.
“In the back of their mind they want someone else to say, ‘It’s OK to invest. I’ve done due diligence,’” he said.
That method takes time, but it pays off.
“You’ve got to keep the momentum going with investors that other investors trust," Moore said.
The rollercoaster ride of fundraising is what keeps entrepreneurs hungry.
“You really enjoy the extremely high highs you get because your lows are so, so low. When you are on that high it’s a phenomenal experience and feeling," Thompson said.