Luke Fishback is a smart guy. After graduating college with an engineering degree, he got a job at Lockheed Martin. But within a few years, he had had enough.
Well, Luke realized he was an entrepreneur at heart, and needed to start his own company. In fact, Luke had been an entrepreneur earlier in his life. When he was just 14 years old, he started Luke's Garbage Service, a waste disposal and recycling service for a rural community in Georgia.
So Luke started a company called PlotWatt. The company creates technology that helps people reduce their energy bills by providing customized money-saving recommendations.
But there was one thing Luke was missing: money. Luke needed money to build his team, develop his technology, and start marketing his company.
Fortunately Luke didn't follow the failed path that most entrepreneurs take; which is to try to secure millions of dollars in venture capital right away.
Rather, Luke understood the Funding Pyramid -- the fact that 1) some sources of funding are much easier to get than others, and 2) once you get the easier sources of money and progress your business, it's MUCH easier to raise the harder (and bigger) sources.
So, Luke entered PlotWatt in GE's Ecomagination Challenge competition in early 2011. And he won!
Now while the Ecomagination prize was only $100,000 (not chump change, but not as much as Luke needed), it was just the catalyst he needed.
The $100,000 allowed him to make progress in building his technology and team, and the press from the award elevated his company's profile.
As a result of this, Luke and PlotWatt were quickly able to assemble a $1 million seed round of funding. And now they're off to the races.
Importantly, Luke's story illustrates 5 keys to raising money for your company today:
1. Know that funding is a progression. No matter how cool your company or idea, you're generally not going to receive a $10 million check from the get go. Rather, you will typically raise several "rounds" of capital. You start with smaller amounts, and then as your business makes progress (and your valuation increases), you are eligible for larger rounds of funding.
2. Find the right sources of funding for now. As mentioned above, some forms of funding are much easier to raise than others. And based on your stage of development (e.g., startup vs. established business ready to scale), different forms of funding are more relevant. The key is to go after the right sources. No matter how good your venture is, if you go after the wrong funding sources, you'll fail. Even Google failed when it initially targeted venture capitalists (Google then successfully raised funding from angel investors, and went back to venture capitalists thereafter).
3. Cultivate relationships early. Even though you won't get the $10 million venture capital check today (if you haven't raised money before), you CAN start forming relationships with venture capitalists who can write you a $10 million check tomorrow. According to Fred Wilson of Union Square Ventures, "The perfect entrepreneur/VC relationship is one where each has established respect and trust with the other well before an investment transaction is broached."
4. Create your business plan now and keep it up-to-date. Your business is always changing. And as it changes, different forms of funding become available, and you'll come across different types of lenders and investors. Importantly, when you meet a lender or investor, you must be able to give them your business plan in a timely manner. So finish your plan now, and keep it up-to-date, so you can send it off at a moment's notice.
5. Always be a marketer. In raising money, the best company doesn't always win (in fact it often doesn't win). Rather, the best marketers win. That is, the entrepreneurs that are best able to market their companies to lenders and investors are the ones who raise the money. In Luke and PlotWatt's case, their marketing efforts were aided by the PR they received from winning GE's Ecomagination Challenge. In many other cases, it's the entrepreneur marketing themselves via networking, sending emails, making telephone calls, getting and leveraging Advisors, etc.
Six months ago, Luke Fishback was bootstrapping PlotWatt. The company was making progress, but funding was holding back its potential. Today, the company has a million dollars in the bank and is poised for phenomenal growth. Funding can do that for you; so go out and get it.
Would more funding allow you to significantly grow your company?
Then you need to figure out which sources of funding you can raise today. The key to this is understanding and accessing the Funding Pyramid.
Watch this video to see the Funding Pyramid in action.