In this month’s blog, we talk with Founder and CEO of Bridge Financial Technology, Rasheed Hammouda, and ask him a few questions about fundraising for his company.
Question #1: How do you start the process of fundraising?
I know as an early-stage founder, I didn’t think about it a lot. I mainly just started doing it, which seems to be the case in the startup world. As a result of that, the first time we went to the market to raise funds we were unsuccessful and started bootstrapping. During our second, more calculated attempt, we had a little bit of success. Our most successful attempt at fundraising was our first official round last November. It was a more thought out and detailed process. We began identifying funds in advance and staggering our outreach to those funds. You can't put all of your eggs in the first basket, because you will refine your pitch and get better over time. This creates the ability to create urgency with each new batch of funds you start talking to.
The most important thing is knowing you need to raise money. Running out of money is certainly the most urgent situation in needing to raise funds, but you don't want to seem desperate. You need to identify what the money is going to be used for and what kind of company you are going to be. This can be difficult in the beginning, but you need to create a realistic time horizon that will align with investment outcomes of the funds. Some funds are only interested in companies with billion dollar outcomes, while some are more interested in safe bets with lower exits. Those outcomes are very different investment profiles. You need to rid your pitch of misalignment with the investors.
Question #2: How do you think about finding the ideal capital source and how has that changed over your different rounds of fundraising?
They say finding an investor is like getting married, and you really want to make sure that there is a match in as many areas as you can. You need to know what is important for your business at a given time. For us, early on, we were focused on old school outbound sales techniques and finding an investor who understood our customer acquisition model was very important. If we are talking to an investor who only does marketing and channel partnerships, our goals wouldn't have aligned with them. There is no better substitute to your own sales team. There are things that can add to and compliment it, but it's hard to replace your own team. Now in our company, it's about going from a small and lean team to a larger team. You now have to deal with scaling challenges. Things have changed over time since we launched Bridge. For instance, having the option for a venture debt piece in our fundraising wouldn't have been an option when we started. Right now is a good time to start companies. Especially if you are in capital heavy areas.
Question #3: Do you think it makes it harder or easier to close, given the proliferation of capital sources in the industry?
The number one thing that will help you close a deal fast is having a company that people want to invest in. It sounds so obvious, but for founders there is a lot of pressure to be visible. I do think those trends are starting to slow down. For some traditional VC funds the “pray and spray” approach can be successful if you have a defined process, but investors are starting to look under the hood a little bit more. It’s making those with capital more selective. Finding investors that can get on board with our focus in building a better company and not being afraid to spend a little money is key. I think a lot of founders get hung up on valuation, but the deal structure is so much more important. There are other ways to get levered if you’re not careful. Having a nice term sheet is much more advantageous. You have to think, what does the fund want to see over a time horizon and what type of company do we need to make that happen. If you have an explosive growth company you can set whatever terms you want. However, most companies don't look like that because you are trying to figure out very important parts of the business. You need some humility around what your business looks like.
To learn more about Bridge Financial Technology, visit their website at www.bridgeft.com.