The Challenge of Raising Money as a Solopreneur

What is the minimum team size when raising capital for your high-potential venture? Greater than one.

With few exceptions, early-stage investors are looking to back startup teams that will transform their investments into high-impact, high-growth businesses. This makes it challenging for a solopreneur (a single-person startup) to raise money. Yet the solopreneur is often quick to excuse the lack of a team:

• “But I cannot find someone willing to take the risk with me!”
  
  
• “I cannot pay enough when I am bootstrapping to build a team.”
  
  
• “Why can’t investors understand that I have figured out how to tackle all the pieces to achieve success?”

However, these excuses are reasons for an investor to hesitate and tell you to come back after you have made more progress because these excuses are signals of a lack of what is needed to successfully build a startup. When you think about backing startup teams from the perspective of investors, it makes sense as a business risk reduction strategy because:

• Investors know that startups are complex company-building problem-solving endeavors. A small, high-performing team best accomplishes such problem-solving. At the early stages of a startup, the team you can assemble and what you can achieve says a lot about your potential future success as a business and as an investment. The inability to recruit a team dramatically raises the risk of failure.

• A co-founding team brings complementary skill sets that enable collaborative problem-solving, help avoid mistakes, and allow dividing and conquering to get more done faster. Co-founders bring different skills and experiences to the startup, allowing them to balance out each others’ strengths and weaknesses. For example, a classic co-founder pairing is to combine an innovative technologist with an experienced business person. It makes sense because few individuals can span the full spectrum of skills needed to lead in both domains.
  
  
• The ability of a business-minded startup CEO to recruit the right team to realize the startup’s vision is an indicator that they have the “right stuff” to build a startup. Investors know that this early demonstration of those vital leadership skills – getting others to follow you – is imperative to solving the problems of startup building, including recruiting team members, funding, customers, and all the other supporters needed to accomplish the goal.
  
  
• A team brings multiple track records to bear on the current venture, including experience understanding the particulars of the target customers’ problem, the capability of developing an innovative product to solve that problem effectively, and critical experience building a business. By assembling the right team for your stage you can dramatically reduce investors’ risk.

While it is true that investors do expect that much of the money that they are putting into an early-sage venture will be to build the team, they are also looking for evidence that the founding leader knows what skill sets they need, can find and recruit them, and has the management skills to drive the project forward. So, for startup founders, here are some tips on how to tackle the problem of gathering a minimally viable team for your venture in preparation for fundraising:

• For a founding team, perhaps the most essential experience you should look to have early are those who understand the journey you are on and can bring a track record of successful startup leadership experience to bear. Experience that includes starting a past project from scratch, growing it to sustainability, and delivering a return to that project’s investors will go a long way in helping investors get excited to fund your present venture. Ideally, the startup CEO has this expertise. Alternatively, look for part-time co-founders, advisors, and early angels to strengthen your case.
  
  
• Think through the most immediate critical problems to be solved and what skill sets are needed for that effort. This depends on where you are in the startup’s development, but think about technical, creative, product, operations, financial, marketing, and sales. Building a well-rounded team appropriate for your stage will inspire investor confidence that you either have or can recruit the right mix of skills to do the job. You need to have already identified and recruited the right individuals or, for skill sets needed later, be prepared to explain how you plan to build out the team over time.
  
  
• Few investors want to invest in just a concept. Recruiting a team, even of part-time members, to accomplish some initial concept development, prototyping, customer discovery, and other early milestones can provide evidence for demonstrating progress in developing the startup and assembling the team capable of successfully carrying it forward.
  
  
• If some of your team members have worked together before, highlight those past joint successes. One of the common failure points in a startup is unresolvable friction in the team. Working together successfully in the past helps mitigate that concern.
  
  
• Remember that investors will be looking for team members who demonstrate commitment to the venture and, if not possible now, are willing to commit full-time when more money is raised. Investors will likely ask about and see your team’s substantial time commitment as a signal of your venture’s seriousness and likelihood of success, as well as a reflection of your co-founders’ ability to bring together and motivate a team.
  
  
• Be prepared to get creative in structuring relationships with early team members who may not be independently wealthy to enable them to contribute substantially at the earliest stages while still keeping a roof over their heads and meals on the table. This can sometimes take the form of sharing founders’ equity stakes (with vesting, of course!), enabling part-time work on evenings or weekends while they maintain other gainful employment (be smart about intellectual property risks and restrictions), and scrounging to take advantage of early-stage competitions, grants, and other resources to help provide some support. This is the “scrappy” part of being a founder who wants to demonstrate commitment and creativity to investors.

• Experienced investors will look for startup experience as well as functional expertise when assessing a team’s skill sets because they know that big company experience does not necessarily translate into the all-hands-on-deck environment of a startup.

• Be specific in highlighting your team’s track record of success from many different angles to demonstrate how each team member’s experiences in their area of expertise increase the startup’s chances of achieving traction and growth. Be clear on how their contributions contributed to past successes since this is one place where the past does predict future performance.

Always keep in mind that investors will mentally benchmark your team against the many others that come to them for funding. The maxim that an “A” team is the most critical predictor of startup success resonates strongly. You and the investors you can persuade to back you know that you increase your chances of success when you can get a team to coalesce around you, so try hard not to be a solopreneur if you need to fundraise to achieve your startup dream.