What every first time entrepreneur should know about raising money from investors

Tawanda Kembo Avatar

My company, BitFinance, has raised over $50k from 4 different investors over the last 2 years and as we’re preparing to go for another round of fundraising, I’ve been reflecting on the things that have worked for us, the lessons we’ve learnt and how much easier it would have been if someone had written a blog post that is like the one you’re reading right now.

Obviously I can’t go back in time to give my younger self this advice but I hope these 13 lessons that I’ve learnt over the years will be helpful to the person who is where I was 3 years ago – I’ve open sourced some documents that we spent thousands of dollars on lawyers for and I’ve put in some negotiation tactics that I think every first time entrepreneur should know before they sit on the negotiation table.

I will say now that this is the stuff that has worked for me but YMMV.

#1 There is no shortage of investors

Only small percentage of entrepreneurs seeking funding actually get the funding so it’s easy to think that there is not enough money around for companies seeking funding. I’ve learnt that investors find there to be a shortage of good companies to invest in as well and they are actively looking for the next sexy company to put their money in. However, make no mistake about it, raising money in hard.

#2 Fundraising is hard

Raising money is going to be harder than you think and it’s going to take longer than you think. And even if you take my advice into account, it’s still going to take longer than you now think. You’ll see.

#3 You’re wasting your time pitching (unless you’re the exception)

I have pitched investors more times than you (I have probably wrote more cold emails than you did too) but investors didn’t beat the path to my door like I thought initially. In fact, the investors that ended up putting money into our company were the ones that I built relationships with over many months.

When I look back and reflect, I realise that the startups that make the best investments for investors are really bad ideas that have been executed very well by some talented people. Two things that make pitching hard are that:

  • If you’ve got a great startup idea, it probably won’t make sense to most people
  • You’re a first time entrepreneur who is still very early stage and not ready to raise money yet and writing to someone who gets tens of cold emails every day.

#4 Traction is not negotiable & no one is going to invest in your company out of sympathy

I stole that first sentence from Tendai Sixpense (don’t tell him 😉 ). When you start fundraising, you’ll not only see how true that statement is, but how much harder it is to raise money with no traction.

There are a few reasons why it’s hard to raise money with no traction:

  1. With no traction, the investor can’t trust you – and let’s face it: there is really no way to demonstrate that once she gives you her money you will put it in that project you’re pitching. But traction allows you to get her trust.
  2. With no traction, there is no way to demonstrate that you have what it takes to run your business successfully – in fact, if you want an investor to tell you about Luke 16:10, tell them that you want their money but you don’t have traction.

#5 The market doesn’t care

  • You need capital to get traction right? Wrong. Investors don’t care – entrepreneurship is about figuring out how to get traction with no capital.
  • You need capital to hire a developer and fix the issues with your website first and your customers should understand that you’re working on it right? Wrong. Your customers don’t care about your excuses.
  • You probably have good excuses for being where you should be but the market doesn’t care. Entrepreneurship is all about solving the chicken and egg problem.

Investors don’t invest out of sympathy. They don’t care about your problems. They market doesn’t care!

#6 Get a good lawyer

You will need a good lawyer to help you negotiate, and close the agreement – your cousin who is good at criminal or divorce law is not the best lawyer when you’re trying to close an investment round. Get a lawyer who has done deals like this before and actually closed them.

A bad lawyer will cost you thousands of dollars in the best case and in the worst case, she will make you lose a good investor because she will dig positions for terms that are not important and will make the investor get the impression that you are a bad person to work with in the future. A good lawyer however, will help you get a good deal deal and know you close the deal much faster.

#7 Tracking the correct metrics help you say growth with flowers

Saying it with flowers’ was a thing the time my grandfather grew up (I don’t see it a lot these days). When the old man sat me down to tell me about the birds and the bees, he told me that one day I was going to fall in love with a beautiful girl and that when that day came, it would be in my better interests to not just tell her that I love her, but to tell her while handing her a bunch of flowers. “Say it with flowers!” he used to say.

My grandfather was trying to teach me showmanship – if you say that your startup is growing, you have to be able to demonstrate it beyond the shadow of a doubt. Few startups can do that.

When you start talking to an investor, she is going to ask you about your growth. When she does, demonstrating that you know your numbers will score you points. But demonstration that you are tracking the correct metrics and that you know your numbers for those, will score you double points. Some metrics are not important – they are known the industry as ‘vanity metrics’. Here are some examples of how easy to get caught up in vanity metrics:

  • Measuring number of hits your website gets instead of amount of time people spend on your website
  • Measuring number of registered users instead of number of products that are actually sold
  • Measuring number of downloads instead of measuring engagement

My point here is that: Demonstrating hits, downloads and acquisitions are like telling a girl that you love her. Retention and usage are saying it with flowers – investors know that you can’t grow or control what you don’t measure so do yourself a favor, stop tracking vanity metrics. You should be tracking the important metrics from Day 1.

#8 The 3 types of deals you will likely do

  1. Your investor can give you the money as a loan – your investor gives you money and you pay it back over an agreed period of time with interest. We’ve raised a few thousands using this method – albeit looking back, this was an expensive way of raising capital.
  2. Giving out equity – you give out shares in your company to an investor who is giving you money. We’ve raised money using this method before. This is a great way to raise money from an investor if they are a good fit for your company and if they can help with more than just money – because when they own part of your company, they are invested enough to do as much as they can to help you succeed. But for many first time entrepreneur, deals of this kind take a longer time to close, partly because the entrepreneurs want to use a valuation that is much higher than the investor thinks is fair. Valuation is usually a cause for deadlock. If you find yourself in that situation, a good negotiation strategy may be to propose a third option to your investor – the convertible loan.
  3. A combination of the two – it’s called a convertible loan and here is how it works: The money your investor is putting in is a loan, and you agree to an interest rate, but when it’s now time to pay back the loan, the investor can choose to have that money converted to shares.
    Some situations where it’s best to use a convertible loan:

    1. When you can’t agree on a valuation with your investor – first time entrepreneurs have difficulty calculating or justifying the valuation they think is fair and the investors they are talking to probably think it should be lower. With the convertible note, you basically agree to give your investor a discount when you eventually raise capital at whatever valuation you raise at from a future investor. Of course your valuation could rise significantly so you agree to what’s known as a ‘valuation cap’ which means that if your company grows very fast, you won’t convert at a valuation that is higher than the valuation cap you agree on.
    2. Your investor is an offshore investor and there are lots of compliance hurdles she needs to jump through – you need to register the investment with the Central Bank (if you don’t, you’ll have trouble sending them dividends when you declare them), register and comply with the Zimbabwe Investment Authority and make sure that  you comply with indigenisation laws. Getting all your ducks in a row will take many months and costs thousands in legal fees. A convertible loan lets you circumvent all of these – you just need to register your convertible loan agreement with the exchange control division at your bank.

#9 Learn to speak the language

I’m assuming you’re a first time entrepreneur and you’re going to take a convertible note – it’s probably the best and easiest option for both you and your investor (it was for us). If that’s the case, you’re going to sign an agreement that is several pages long. You’re probably not a lawyer but it’s important that you understand every single word that is on that agreement. In fact, you want to understand that agreement better than your lawyer or your investor does.

If you choose to disregard my advice, you should at least understand these terms:

  1. Interest rate – If the interest rate is X% per annum, it means that you will start paying back the loan at the ‘maturity date’ and pay back an extra ‘X%’ of the outstanding amount every year.
  2. Maturity date – The date at which you are expected to start paying back the loan. If it’s a convertible note, the investor can also choose to convert the loan to equity at the maturity date.
  3. Valuation cap – we don’t know what the valuation of the company will be at the maturity date (or the next time we raise a significant investment) but since you took a risk early in investing in our company, the valuation we shall use for you (no matter what valuation other investors use) our valuation shall not exceed a percentage which we shall call a valuation cap.
  4. Conversion percentage – if we raise money at less than the valuation cap and other investors are getting $100 per share but we’re give you an 80% conversion percentage, you, the investor, will get $80 per share if you decide to have your investment converted to equity.
  5. Burn rate – How much money you’re spending every month.
  6. Runway – When an investor asks you how much runway you have they are asking how many months you’ll be able to survive for before running out of money
  7. Cap table – When an investor asks you to send her your cap table, they want to know who owns how many shares in your company so you should send her a spreadsheet that has the names of your shareholders and how many shares they own..

We’ve signed 4 convertible note contracts with 4 different investors and the contents have changed much. We think it will help the Zimbabwe startup ecosystem a great deal (and save entrepreneurs lawyer fees – we paid thousands of dollars in lawyer fees to get these done) if we made these open source so we’ve made our standard convertible note open source so we’ve made it open source and you can fork it here: https://github.com/BitFinance/OpenSourceLegalDocuments/blob/master/Zimbabwe/ConvertibleNoteAgreement.asciidoc

#10 Don’t get married before you’re 30

This was the advice my grandfather told me when I was much younger than I was today – I only learnt what he meant when I was now running a company.

Although it seems like a one night stand, an investor-entrepreneur relationship is a really a long term relationship – It’s a marriage. And investors are usually investing in you – this means that even if your company is going to fail or exit, they will likely invest in your future companies (you may have heard the saying: “investors are investors for life”) With that, you want to keep the following in mind:

  1. Bootstrap for as long as you can – aim to be profitable before you get an investor – don’t get married before 30.
  2. Do due diligence on your investor – you don’t want to marry the first person you see. And you don’t want to take money from an investor you just met in an elevator. Ask them for the list of other entrepreneurs they have invested in, call every one of them and ask what it’s like to work with that investor. If they refuse to give you references, don’t take their money.
  3. Your investor should be bringing more than just money to the table – no matter how good she looks now, those looks will disappear in 15 years. Similarly, no matter how much money your investor is putting in now, that money will run out in 15 months so you want an investor who will help you grow your business and has skills and experience that you don’t have in-house. Looks are great – but you want an investor who is both pretty and can cook.
  4. If there is no chemistry, don’t take her money.
  5. If she doesn’t believe in you, don’t take her money.
  6. A win-win is better than a win-lose or a lose-win.

#11 Some negotiation tips

I’ll come back to edit this post when I think of more but here are best ones (I’ve also mentioned some of these in earlier conversations):

  1. Your investor can probably help with more than just money. She can have accounting experience while you don’t have an accountant in-house or she can have experience scaling a business, while you or none of your colleagues have done this before. Ask about (and investigate) what else she can help with, besides just money, and get her to commit to helping you with that without you having to give out more equity. Always get the most out of your investors – remember, they are invested so they would want to help anyway.
  2. If you can’t agree on a valuation, a convertible note can be a faster way to close the deal. Because in a convertible note you’re now agreeing on what you think the valuation will be at the maturity date of the loan and not what it is right now.
  3. Establish a relationship with your investor over a long time – we established relationships with all our investors well before we actually needed them to put in the money and so when we were eventually ready to raise money, we had an existing relationship – this makes it easier to close the round.
  4. If you want advice, ask for money; if you want money, ask for advice – I will write another blog post on this point specifically in the future.
  5. Don’t make the first offer. Have your investor send you a termsheet first.
  6. It’s easy to underestimate legal costs initially – try to get your investor to foot the legal bill. She will probably end up agreeing to meet you halfway i.e each party covers their own pays for their own lawyers. In that case negotiate with your lawyer to have you only pay them after the deal is closed.
  7. A typical agreement has several pages – the terms in this agreement are not equally important. Don’t waste a lot of energy and time negotiating terms that have nothing to do with economics (how much of the company you’re giving away at a certain price) and ownership/control (who makes decisions, how many board seats you give away. A good negotiation strategy is to give in on things that have nothing to do with economics and control.

#12 Books you should read:

I found these books to be helpful and I recommend that you read these before you start talking to investors:

  1. Venture Deals – because you should be able to speak the language
  2. The Startup Checklist – because you probably think that building a business is all about building the product and you’re likely ignoring other important aspects
  3. The Hard Thing About Hard Things – because you should brace yourself – it’s not going to be an easy road.
  4. Startup Boards – because your investor is likely going to ask for a seat on the board. This is big deal and you should understand what you’re giving. Or if you should.
  5. Robert’s Rules of Order – because you’re likely going to be the one chairing your first board meeting and you should do it right.
  6. Traction – because traction is not negotiable.
  7. The Customer-Funded Business – because you probably don’t need that VC money right now and you can do without it.

#13 And more importantly

I’ve now joined the gym and my goal get rid of my belly fat. If you know any exercises that I should be doing, I would owe you a debt of favour if you let me know if the comments below. Also, let me know if you think this Zumba thing will help me get rid of belly fat or if I’m just killing myself for nothing.


  1. bajay

    “A bad lawyer will cost you thousands of dollars in the best case and in the worst case, #she will make you lose a good investor because she will dig positions for terms that are not important and will make the investor get the impression”So man can make you get investors? ???

    1. Ndini

      Lol. Nice observation there.

    2. Ndini


    3. Fidelis

      With all due respect. The writer was using the female person as an example in many positive and negative ones, instead of make sentences lose flow by using he/she pronouns.

      1. gifty

        thats what I observed too and its no problem at all with it.

  2. tinm@n

    Belly fat enemies:

    1) Drinking
    Alcohol being a simpler sugar to process than breaking down natural sources – meaning any additional carbohydrates are stored…AS FAT…. other issue is to do with beer. Mostly water. Takes alot more to “get there”, so you stretch your stomach to get the quantities right for your high. Repeated stretching, leaves it in that state and the abdomen develops around that new “volume”

    2) Sugar & excess carbs

    3) Gluttony
    No need to fill yourself up to the point of bursting. If you get hungry fast, eat small portions, spread through the day. Less fatty, sugery and high-carb stuff

    Fix the diet and RUN.


    You will trim it

    1. Tawanda Kembo

      Thanks for this @Tinm@N. My biggest challenge is going to be losing the belly without giving up alcohol – giving up drinking is too big of a sacrifice for me.
      I’ve taught myself a few hacks that have helped me give up sugar and excess carbs – such as putting honey in coffee instead of sugar – my tongue will never know the difference. & replacing carbs with more meat and veggies – it fools my stomach every time.
      These are helpful tips – many thanks.

  3. Shark

    Thanks for the post Tawanda. One of the few gems you find here and there on TechZim.

  4. Kevin

    Great post.

  5. Masaai

    Nice post even here in Maasai Mara, I have learnt one or two. Asante Sana

    1. Tawanda Kembo

      Karibu :).
      My first investor was actually based in Maasai Mara (though now relocated to Arusha) when we closed the deal so I imagine this advice is also helpful to you too. I’m glad you learnt a thing or two.

      1. Paida

        Interesting piece from Tawanda Kembo. It is simple, direct and easy understand. The points raised are very valid.

  6. Sagitarr

    Thanks for a very useful post. Much appreciated. I look forward to more articles you have promised!!

  7. Phillip Peters

    A thousand thanks Tawanda for these HACKS. I hope most people are finding the real worth of this article without being that haggered “Teacher English”.

    Come get my 30 Day Challenge to turn the belly fat into a Six pack

    1. Tawanda Kembo

      Mr. Peters!!
      I’ll take you up on that 30 Day challenge. Let’s discuss it when we meet this weekend

  8. Yolisa Mokobi

    excellent article, definitely going to share with many people. I’m buying the book, the start up checklist

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