How do you approach fundraising as a solo founder?

Question

Do you think it is harder to raise capital as a solo founder? 
What are some things you should keep in mind?
Any tips for applying to accelerators etc. as an early-stage solo founder?

Stephane Ibos · Accepted Answer

Personally I have mixed feelings about this.

I've been blessed with completing several funding rounds for my previous startup (finally one was our IPO on London Stock Exchange) and the current one (Both times with my co-founder). Now I am also an investor and selection jury for Station F in France (Startup incubator).

From the point of view of an investor or an incubator, we usually prefer seeing 2 or 3 co-founders. @ethar_alali  summarises some good key points as to why. @pauloblob  also has a very good point.

I would add to these another aspect: as a solo founder, it is probably easier to get down the rabbit hole on your own, without having any internal debate/challenging on your views. And this is not necessarily a good thing as for us founders, it can be easy to loose ourselves in "our" vision of the world, which can be a wishful distortion of reality.

On the other hand, an idea carried with passion, spotless execution, resulting in showing great metrics - whichever KPIs matter to your business - will attract investors and incubators attention, as @assembletv evidenced.

The thing is that to get to that meaningful state of business as a solo founder may take you more time and energy than with co-founders. And investors will still consider:
1- Do you still have enough "juice" to go the distance, knowing the harder is yet ahead of you?
2 - Why did you choose not to have a co-founder? Can you take challenging your views? Can you share leadership?

All in all in my experience (sorry for a long comment), I find that YES, it is harder to raise or get into an incubator as a solo founder, albeit not impossible.

Mr Ethar Alali · Answer

As a rule, yes it's much harder for several reasons.

1. The investors need to see a team as doing all of it yourself, means a single point of failure.
2. If you are a technologist, then who does the marketing and sales? 
3. Exit prices are much lower for solopreneurs.

In general, in the investment calculations there is a coefficient that multiplies annual revenue, to get the valuation. For teams it is 4x annual, for solopreneurs, it's 2.5x. That basically factors for the solo nature of it.

The other way to look at it, is if you get a poor 50:50 co-founder, that adds no value, then you are both getting 2x annual revenue, which for a solopreneur, means they are effectively losing 0.5x annual revenue for themselves, even though they did all the valuable work.

Nate Watkin · Answer

I'm a solo founder and have successfully raised 7 figures and was accepted into 500 Startups. I've never seen it as a crutch and to me I approach it as a competitive advantage that enables the company to make decisions and move faster. With that being said, when you have strong early revenue and a clear vision like we did a lot of those concerns around number of founders go out the window. Prove that your business is already working and growing and investors will become much more comfortable with a solopreneur. With that being said, I've recently made some of my top teammates co-founders as well and given them equity stakes, so technically speaking I'm no longer "solo".

Dhruv Bhatia · Answer

@ethar_alali Solo founder doesn't mean "doing all of it yourself" though, right? You can hire early team members, give them equity along with a salary. This also answers point 2, the goal is not necessarily to be a solopreneur or to be the only one in the company.

Very interesting point about the exit price. However, co-founder conflict is one of the biggest reasons for the death of startups, and in that scenario it won't be 2x/2x but 0 effectively.

Paulo Tenorio · Answer

I would not go fundraising.
There's venture debt and other ways to fund your business.
Fundraise means partnership. Most investor will look at this as a high risk. 
One example: you get sick. or you decide not to move forward. puff goes the business.

Mr Ethar Alali · Answer

@ethar_alali @dhruv_bhatia Solopreneurs aren't just the founder and this is where one difference between the solopreneur and entrepreneur. As both can end up in the same situation. Entrepreneurs don't have to have partners, but they naturally delegate a lot more, because their focus is typically the exit. Solopreneurs are much more in the weeds and like it there Sure, both delegate, and delegation is fine and of course, you can flip it.

However, when I say "team" I mean an executive that are personally well invested and have the ability to execute the idea. I don't mean staff you give minor shares to later. They often won't join you in a pitch :)

David T. Kim · Answer

It's totally possible, but the scale is different. If you have a business idea that's validated and don't mind growing slowly overtime, then angels sometimes invest in you.

But the following is a must.
- Get minimum traction and revenue by yourself

If you don't really care about becoming a unicorn, it's not impossible.

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Dhruv Bhatia · Answer

@javier_garmart Yes, there certainly are quite a few incubators that promise to help find co-founders.

Tatiana Kukova, PhD · Answer

These days, many investors want to see that you are solid. In other words, that you have a prototype that is working, customers that are interested in your product (i.e. customer reviews), early traction = numbers which point to growth. If you are applying to top accelerators (e.g., Y Combinator, Techstars, 500 Start-ups, Seedcamp, Wayra, etc.), be aware of the fact that most of their members are not solo founders. The reason for that is that they want to make sure that you can deliver; they want to see that at least one member of your executive team has the technical skills and can develop a product/service. From my point of view, you should have everything ready, and everything sorted to be considered and accepted.

Remember, advisors, mentors, and investors who are part of the accelerator will be involved in the selection process. They usually decide in favour of teams. You may also notice a trend in favour of mixed teams to reflect diversity and inclusion. For instance, teams with women founders and co-founders, teams with black male and female founders and co-founders.

Below, I would like to outline the most typical questions that investors often ask start-up founders. You may get these questions when you apply to accelerators, when you pitch them to get in, or when there is 'Demo Day' and you have a whole audience of interested investors (angel investors, mentors, coaches, advisors) present. (Investors are coaches and mentors and advisors.) You may have heard of VCs or venture partners. Nevertheless, it is too early at this stage to meet and greet them. Venture capital partners come later, usually as soon as you have finished your accelerator programme. This year, you may notice that Demo Days are being held online. Despite that, the principles are the same in the new normal.

1. Solving a problem. Does the product, technology or service address a real challenge in the market or society? What is the pain you are solving? (as a solo founder, it is harder to convince the selection committee at a given accelerator to have faith in you – that you can single-handedly solve a major problem). What you can do is to bring a co-founder a bit later. For example, apply as a solo but present a track record of your co-founder who may join the company a bit later.
2. Disruptive. Do you have a disruptive business model to make a real impact in the marketplace or establish your own niche? (As a solo founder, you may go with the niche first.)
3. Protected. Does the product or technology have identifiable intellectual property? This may be patentable (i.e. copyright). Again, you need to get this sorted well in advance. 
4. What is your competition? (As a solo founder, you already know that there are teams of various kinds which are competing with you. If you pitch your investors, acknowledge it.)
5.  What is your main competitive advantage? (Your credentials matter, even if you hear some investors say that they are not important. For example, if you come across a famous venture partner who says that he or she does not want to hear about degrees, and wants to see traction and evidence of prior funding from a reputable VC firm, do not believe them. There is a reason why they say that. Always be proud of your achievements. As a solo founder, the main thing is to connect what you have accomplished so far with your idea for a start-up. Also, look carefully at the accelerator's alumni members. Who are they? What companies do they fund? Looks like yours? No? Be scrupulous in your checking of whom they fund and think whether you have comparable unique selling points. It is not as obvious as it seems, because at first, you may think that you are suitable everywhere. Is it not true, even if others "like you" have applied and been accepted. That is why it is tough to convince investors to part with their money, especially being solo. 
6. What is your revenue? Pre-revenue? Do you have clear identifiable revenue streams?
7. Can you scale the business alone? (At this point, the answer is always 'no'. You need partnerships. You need a team. They need to know that you are self-sustainable.)
8. Have you proven the proof of concept? (To put it differently, that there is a need for your product, and that you have early customers. Is there product-market fit?)
9. What is the size of your market? (Remember, investors love start-ups because there is an opportunity to scale and address a certain need in a large market. Smaller or niche markets may be fine as a starting point, but then they will want you to scale. 
10. Do you have an exit strategy? (What are you aiming for? Selling the business? Merging with an established company? Going public?)

Moreover, investors would like to be sure that you won't be alone at the time of crisis. Co-founders may support each other, may bounce ideas off each other. Despite that, I do not believe that solo founders always need lots of people around them. Maybe you feel comfortable working on your own. Maybe you've had unpleasant experiences with co-founders in the past and want to go solo this time. Maybe you have an impressive track record of past achievements and know exactly what it takes to collaborate with industry partners. These are all valid reasons. In this case, highlight your strengths and why you do it alone. Ultimately, what you are developing will speak for itself, and you will get all the support you need from the accelerator programme and its mentors.

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Gilad Uziely · Answer

@ethar_alali For your last point - that's exactly why people use reverse vesting.

Tatiana Kukova, PhD · Answer

@assembletv Thank you for sharing your story. Much appreciated.

Dhruv Bhatia · Answer

@assembletv Very inspiring :), exactly the trajectory I hope I can achieve some day

Mr Ethar Alali · Answer

@ethar_alali @gilad_uziely it's one vehicle, sure. Though it has to be well structured, because the nightmare scenario sees the lazy then buy up all the worker's shares at bargain basement prices, THEN actually do the work to sell it. There are other ways, including Convertible Loan Notes, which ensures the worker actually gets something and there is an incentive to get it sold and stop paying the loan.

How do you approach fundraising as a solo founder?

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