by Paul Ford, founder of DS9 Capital
One thing has been abundantly clear over the last several years, there is an abundance of capital waiting for opportunities to attract those dollars. This is evidenced by the surging public markets, young companies attracting high valuations, companies going public via IPO or SPAC while disclaiming they may not be profitable for the next 5 – 7 years. This environment however can be puzzling to founders and upstart businesses that may look in the mirror after seeing another headline announcing a round of funding, or some other milestone and saying to themselves, “Our product/service is just as good as that company’s. Why are we struggling to get our first investor?”
One thing is certain, there has never been a time like the current market that has capital parked and allocated across every area of focus, niche, and thesis one can imagine. However, where does a founder begin their fundraising journey? It may sound simple and almost juvenile, but the answer is, “At the beginning.” If a founder or founders set off to start a venture, one must ask why? What signals did the founding team receive from the market encouraging them to move forward? We are not talking about a parent, uncle, or a business coach on Instagram, but mentors, focus groups, customers, etc. There is an undeniable truth found in traction. If a purchaser, corporate development officer, an investor, a company give feedback that is signaling you to take another step forward they should be willing to guide the founder to others that would see value, put their money where their mouth is and invest, or sign up as a customer, or offer to be an adviser.
The Social Capital
Founders must realize the capital needed to power a business is not just financial capital or cash. Social capital that unlocks interest in the business, creates thought leadership, and credibility; all accrete towards revenues which are born from customer confidence that is high enough in the venture that the consumer is no longer reserving their dollars for something else. Oftentimes, what founders experience is a result of not having proper social capital they have generated to parlay into financial capital and revenues from customer adoption. This is the optimal type of capital that enables founders to retain control of their company and attract less dilutive forms of financial capital.
The paradox that founders should embrace but often run from is when a founding team is bullish and optimistic regarding their future and capabilities, but they run from debt structures. For most investors, this is the only red flag an investor needs to walk away from a deal. If there is legitimate confidence in what a founding team is doing and their trajectory, debt is financed from the success of the company and its performance. Debt is non-dilutive, and it is readily available from a wider pool of capital looking for a home to nest, and help a company grow.
Another, more recent evolution of capital raising is from the SEC’s ruling and allowance for crowdfunding platforms that have opened a new asset class for investors to invest their capital, without being an accredited investor. The SEC regulates this newer capital vehicle to protect investors. This platform enables a founder to raise capital and name terms and be in the driver’s seat. The market’s response tests the viability of the fundraising effort and the company itself.
The bottom-line is that even during the pandemic, this remains to be a market with capital available to fund great founders and businesses as evidenced by The Great Resignation. As a founder, losing control of your business and balancing the capital needed to run your business is always top of mind. Founders who recognize the difference between financial capital and social capital and how the two interplay will have more success attracting capital to their venture.
Paul Ford founded DS9 Capital, a portfolio management company focused on insurtech, fintech & healthtech, and Traffk, a digital insurance platform, in 2015, serving as CEO and founder of both. He also served as an Advisory Board Member to HSBlox, Inc., in the blockchain industry. With an eye on AI, predictive analytics and digital transformation, he founded Qloud Health in 2014 and OrchestraRX in 2015. Paul has held executive roles at leading insurance companies and management consulting firms.