How to fundraise for a mission-driven startup

28. Apr, 2015 No comments Author:

Since my company’s launch, dozens of people, ranging from childhood friends to those I’ve never met, have reached out to express enthusiasm for our mission.

More than a few of these folks are aspiring social entrepreneurs, who share our desire to do well by doing good. Many don’t have a nest egg to bootstrap their startup, and they want to know about fundraising for a mission-driven startup. How did you balance your mission with investors’ financial expectations? Where did you meet your investors? What traction did you have when you raised?

After having this conversation a few times, I realized that, while there’s great general advice available on fundraising (find warm intros, try to create competition, etc.), I haven’t read anything specific to mission-driven startups before. So here are the five key lessons I learned from raising venture capital for a mission-driven startup:

1. Decide if your company should be venture-backed

Many people feel they have to raise venture capital. But only a minority of companies, particularly among mission-driven ones, are well-suited for venture. Raising venture capital puts you under intense pressure to grow quickly and to build a business that can ultimately be self-funded. To go the venture route, a reasonable rule of thumb is that you should believe that your company can reach $100 million in revenue and be profitable within seven years. (These are common IPO targets.)

venture backed mission-driven startup

Many mission-driven startups are not well-suited to hit these hurdles (and many social entrepreneurs have different priorities). If that’s the case, there are other financing options: forming a 501(c)(3) with donors, raising money from friends and family, or applying for grants.

2. Find investors who are familiar with your mission

If you decide to go the venture route, the first step is to find the right investors. For a mission-driven startup, the “right” investors are those that are already familiar with the problem. Why? Because they’re predisposed to want you to succeed, and their knowledge accelerates the conversation, both of which dramatically increase your likelihood of success.

Practically, this means two things. First, find these folks. The right investors are looking for someone like you; you just need to get on their radar. Doing this is less difficult than you think — it just requires hustle. Here are a few ways to find the right people:

* Talk to friends about your business (you’ll be amazed by how powerful your second degree network is)
* Blog about the problem and why it needs to be solved.
* Look on for get-togethers that are relevant to your mission.
* Go to conferences and introduce yourself to speakers.
* Send high-profile thinkers in the space cold emails and try to chat with them (side note: don’t send investors cold emails; academics often respond, investors do not).
* If there are comparable companies out there, look at who their investors are, use LinkedIn to find people you know in common, and ask for a warm intro from those mutual connections.

Second, when you meet investors who don’t get it, end the conversations politely but quickly. After a few meetings, you’ll know how to tell the difference. Those that “get it” ask much better questions, the kind that you constantly think (and worry) about. Those that don’t may still ask questions and follow up; they’ll just be more surface concerns. We did not follow this advice at all; in our enthusiasm to find a lead, we responded to every investor’s questions as diligently as we could. Ultimately, we spent tens of hours with investors who didn’t get it, hoping for a term sheet that never came. We should have invested that time talking to clients or building our product.

3. Make the solution inevitable

Investors often talk about startup risk in terms of market, product, and team. Great venture investors like Andy Rachleff and Marc Andreessen believe that, of these, market risk is the most important. The best way to remove market risk for an investor is to create a sense of inevitability around the solution. If you can show them that someone will solve the problem — which is much easier for a mission-driven startup than for, say, a live video-sharing app — you only have to prove that you will win. That is a much easier task.

solve the mission-driven startup difficulties

So how do you create a sense of inevitability? One path is to show that the status quo cannot continue. I imagine this is a common part of any clean tech pitch: The world cannot continue to burn fossil fuels as it has for the past century, and someone has to come up with a solution. Alternatively, you can show that the transformation is already taking place and that you are riding a wave that must continue.

4. Prove customer demand

The number one reason social startups fail is due to a lack of demand. Whether it’s healthcare, energy, or education, there are many products that would benefit the world but that don’t provide end users with enough value to buy or even to use them. Google Health fits squarely into this bucket: Saving your health records in a safe and convenient place sounds great (and think of the insights we could glean from that data!). Unfortunately, few people saw enough benefit to collecting and uploading their health data in the first place, leading to its downfall.

So, even if they believe in the market, investors will want to see demonstrated demand for your service. This does not mean that you have to build and sell a full product to raise money; you just have to show that people want it. Omada Health — a mission-driven startup I love — recruited over 200 beta users from Craigslist to participate in a study with a barebones product. And Robinhood, which has a no-fee stock trading platform, collected over 50,000 emails by setting up a waitlist before launching. This data was the cornerstone of financing for both companies (Omada their seed, Robinhood their Series A). In each case, the team proved customer demand without building the full product. It also had the added benefit of showing how scrappy and hardworking the entrepreneurs were.

5. Stick to your mission

Many founders have confided in me a fear that, eventually, they’ll have to choose between their mission and their business. I don’t believe that’s the case. The most successful mission-driven startups are financially successful because of their dedication to their mission. Peter Thiel has spoken about how the vast majority of a startup’s value exists in the far future (say 10+ years out). In fact, this is true for almost all companies, which are valued at a multiple of the next year’s cash flow. As a result, the decisions made today should not optimize today’s profit; they should optimize the value of the business in the future. (Per #1, this isn’t an excuse to never be profitable.)

stick to your mission

Investors get this, so you just need to align with what will drive the value of the business in the future. For a mission-driven startup, it’s often closely tied to your mission (at Joyable, for instance, it is delivering great outcomes to our clients). If you’re not sure, the key stat is likely customer satisfaction or the thing that most drives customer satisfaction. Once you’ve found this stat, frame all your answers around it. When asked about unit economics, for instance, we knew our numbers, but we spoke of them in terms of what we needed to do to drive great client outcomes.

Then go execute against this metric (and always report on it!). If you’ve picked the right metric, it should build your brand, generate customer loyalty, and improve awareness of your product, all of which will serve your mission and generate a great return for your investors.

Source:, text by Peter Shalek

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