Dan Martell - How to Raise Money Without Investors

00:00:00.040 Should you raise money from your customer

00:00:02.820 or a big strategic investor

00:00:05.360 that could buy your business into the future?

00:00:07.960 I'm gonna share with you the three things

00:00:09.860 to consider and to look out for

00:00:11.940 because you think it's all upside,

00:00:13.820 it's money in the bank,

00:00:14.940 but the truth is, is there's a lot of downside

00:00:16.900 that you need to be aware

00:00:18.640 so you can go into this eyes wide open.

00:00:21.120 Should you take the money

00:00:22.120 or should you run the do's and don'ts,

00:00:24.560 the pros and cons?

00:00:25.520 Let's get into it.

00:00:26.340 number one is information rights so when you take money from an investor you can decide if there is

00:00:36.820 information rights part of that deal now a really big investor is going to want that they're going

00:00:42.380 to want access to your numbers and your financials and your strategy and your board deck and all

00:00:47.040 these different things but you can decide because here's the challenge is that just because somebody

00:00:52.100 writes you a check if they're a customer do you want that customer to know that you've got three

00:00:57.860 months worth of runway left in the bank nope you think there's a possibility if they even saw that

00:01:03.220 trend line six months five months four months three months that they might be talking to other

00:01:08.580 vendors and trying to move as fast as possible to jump off your platform yep so when you're thinking

00:01:14.340 of raising money from an existing customer you got to understand is that you need to create some

00:01:20.500 space you have to create arms length away that they don't have access to the information if

00:01:27.060 they don't ask for it i would highly recommend you don't provide it you know i had a client once he

00:01:32.260 had a software in the analytics space and one of his investors somehow now they never could prove

00:01:39.460 it but they were sharing with me that it is weird every time they have a board meeting it seems like

00:01:44.820 their competitors marketing team would start executing the exact same growth playbooks that

00:01:51.140 they were using to grow the business they were pretty sure that that customer that they took

00:01:56.180 the money from was also feeding some of this to their competitor because they were trying to play

00:02:01.060 both they were not a hundred percent competitive but they were in the same market and they knew

00:02:06.500 that they were trying to get on their good graces to potentially invest in them as well

00:02:10.500 now they may not have said like oh this is what we're seeing this company do

00:02:14.260 but they might be like, hey, have you considered this?

00:02:16.880 We've heard that that works really well.

00:02:19.280 So information rights is something

00:02:21.060 you want to keep close to the chest.

00:02:23.320 You do not wanna make available for everybody

00:02:25.440 if they don't ask for it.

00:02:27.020 So if you do take their money,

00:02:28.380 make sure that you protect the internals of your business.

00:02:31.360 They only need to know what's coming out publicly.

00:02:33.840 They do not need to know the internals.

00:02:36.120 Number two is they'll dictate the roadmap.

00:02:38.960 This is the pros and cons is that you might have a customer

00:02:41.420 that's like, hey, we love what you're doing.

00:02:43.180 We think it's awesome.

00:02:44.260 we have these kind of like custom needs that your software could solve for us and it'd be really

00:02:50.180 great if we're going to make a commitment in you know multiple year contract that maybe we also

00:02:55.940 invest and part of that investment gets us some custom development and one of my clients in the

00:03:01.940 security space they had this software and that was the exact conversation they had with the client

00:03:06.740 before i showed up before we started working together i remember them saying to me we have an

00:03:10.420 issue with one of our customers and i'm like what's going on and they explained to me well

00:03:14.820 we took a million dollar investment and 50 of that went in as equity and the other 50 is kind of like

00:03:22.420 you know in-kind services right so like custom configuration but when they took the money there

00:03:28.260 was conversations around alignment with the roadmap meaning that like the customer was

00:03:33.460 supposed to pay to pull forward to advance features that they were going to build anyways

00:03:39.620 they were just like pulling them forward maybe six months or 12 months or 16 months but what

00:03:43.620 happened was is the statement of work started to tweak and change and not only did they start

00:03:49.460 requesting for features that they were never going to build they were going to be one-offs

00:03:53.380 now they have to support it all of a sudden now the amount of custom development which was i think

00:03:58.660 build out at 150 an hour like they kept changing the statement of work and changing the scope and

00:04:03.940 nobody on the team was really like holding the customer to the constraint because you know they're

00:04:08.820 also a major investor in our business and they're also a major customer and they allow us to use

00:04:13.140 them in our marketing and they speak at our event and there was all these like

00:04:16.740 concerns amongst the team of like pushing back and saying no we are not going to build that

00:04:21.220 and it ended up getting to a place where the code base was a bit of a rat's nest because

00:04:25.780 you have like this part that everybody uses and then this other little small part that like nobody

00:04:30.820 really maintains or focus on and every time you launch new versions it creates bugs and defects

00:04:35.860 and issues with the code base that is the risk is that you become a very cheap custom deb shop

00:04:43.300 for that customer you think it's a good idea i'm going to take their money but here's the reality

00:04:47.940 in my experience if you have optionality you're better off getting the customer to sign a multi-year

00:04:54.020 contract that gets them committed part of that is a co-marketing agreement meaning they give you

00:04:58.820 permission to use their name in your marketing get that value set aside and then go find the money

00:05:05.460 Go find somebody to invest in the business for just equity

00:05:09.580 that's not gonna tell you how to build the product

00:05:11.520 or change your roadmap.

00:05:12.900 Number three is block an acquisition.

00:05:15.660 Now, a lot of founders have never done this before,

00:05:17.920 have never considered what does the future look like?

00:05:21.140 If I go raise a bunch of money from Google,

00:05:23.240 or I raise a bunch of money from Salesforce,

00:05:25.140 or I raise a bunch of money from Facebook,

00:05:26.740 or whoever it is, when I go to potentially exit,

00:05:30.380 obviously these venture divisions of these companies

00:05:33.640 are investing because they like what you're doing.

00:05:36.040 They're like, hey, we see the world the same way

00:05:37.840 and there's a good chance that where you're going

00:05:40.120 and how you're building this

00:05:41.040 is something that we'll probably wanna do.

00:05:43.500 And if at that point you guys decide

00:05:45.420 that it's better for us to partner together,

00:05:46.720 we wanna entertain that optionality.

00:05:49.280 What people don't realize is that

00:05:51.320 when you go through that process,

00:05:53.320 especially if they have information rights

00:05:55.040 and they're aware of what's going on in your business,

00:05:57.820 especially if they're aware

00:05:58.800 that you only have two or three months of runway left,

00:06:00.780 they may drop information in the market,

00:06:05.940 kind of like poison pill-ish,

00:06:07.880 where they'll tell a competitor that you guys,

00:06:11.520 the technology isn't good,

00:06:12.720 or they'll just make sure that that's heard

00:06:14.700 because they would rather buy you.

00:06:16.600 So you gotta understand that.

00:06:17.720 If they've invested, they have information rights,

00:06:19.980 or even if they've invested and they've heard

00:06:21.580 you guys are looking to exit

00:06:22.640 and they're competing against you,

00:06:25.880 they may leak information to your competitors

00:06:28.840 that they don't know where that information comes from,

00:06:31.680 but they might just like decide,

00:06:33.380 oh, okay, well, we're not gonna invest.

00:06:34.880 Or because you've taken money from Salesforce

00:06:37.440 or Google or whoever,

00:06:39.800 they don't wanna make their competitor any money.

00:06:42.480 So that might be a deal breaker.

00:06:44.260 And that's the reality.

00:06:45.160 I've seen this happen probably about 25 times

00:06:48.040 where a company was getting acquired,

00:06:50.700 but because that company raised money

00:06:53.020 from the acquirer's competitor,

00:06:55.020 they decide that is just a no-go.

00:06:57.280 We don't do those kinds of deals.

00:06:58.980 We don't want to support our competitor

00:07:01.060 for making any extra money.

00:07:02.980 And they may push things to be super unfavorable

00:07:07.840 for everybody involved

00:07:08.860 if you want to make the deal happen, et cetera.

00:07:11.460 They just make it a lot harder.

00:07:12.940 So you can do it.

00:07:14.600 Just know that that'll be an area of challenge

00:07:18.520 that you're going to have to overcome

00:07:19.880 in the event of an exit.

00:07:22.460 So should you raise money from a customer

00:07:24.520 or a strategic investor?

00:07:26.020 Maybe if one, you don't give them information, right?

00:07:29.740 Two, you ensure they don't dictate your roadmap.

00:07:33.000 And three, that they don't create a conflict

00:07:35.880 in a potential acquirer because they compete against somebody

00:07:38.700 that is also on your target list of buyers.

00:07:41.680 If those things are all mitigated and understood upfront,

00:07:44.680 then take the money, hashtag money in the bank,

00:07:48.380 make it rain, get the capital, keep building the business

00:07:52.000 and take your SaaS company to the next level.

00:07:55.640 That is my suggestion to you.

00:07:57.300 I just wanted to share those thoughts,

00:07:58.900 those concepts so that you can be incredibly strategic

00:08:02.120 as you go raise your money.

00:08:03.760 Hope this finds you incredibly well.

00:08:05.040 If you want more strategies,

00:08:06.640 check out Fundraising Like a Pro.

00:08:08.560 The link is below.

00:08:09.900 It is literally my three-phase process

00:08:12.300 that I've helped all of my clients

00:08:13.760 raise over $500 million using this methodology.

00:08:17.520 Check out the pre-marketing phase.

00:08:19.260 Most people don't even know this is an area of focus

00:08:21.880 and just how to connect with investors.

00:08:24.080 Just click the link below.

00:08:25.280 fundraising like a pro it is my gift to you i hope this finds you awesome boom and i'll see you next

00:08:31.260 week

Dan Martell - February 06, 2023

How to Raise Money Without Investors

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