"Wow, raising that round of capital was FUN" said no founder ever
Raising money is normally not fun. It’s a time consuming distraction from building your business.
It doesn’t have to the bane of your existence though!
There’s certainly some tried and true best practices for every process that can make your life easier while most times ensuring success. Here’s a few things that could be helpful to remember irrespective of how much you are raising:
Your product and big idea are not the most meaningful thing for success. Regardless of your stage and the amount you are raising, most investors, at a minimum, want to see the following three things before they even consider investing: (1) a proven and curated team; (2) a large total addressable market; and (3) an interesting product and vision that’s aligned with their thesis. There’s a lot of dissent normally regarding which one of these are most important, although in my experience, the larger the market the better (you can have the best product in the world and a team of superstars, but if the market is not big enough, everyone will be banging their heads against the wall to build a large business). Some guy Marc Andreesen wrote a [much better] post about this once here.
A proven and curated team: Don't try to raise money for a software business without someone that can actually create the software. Get advisors involved that get people excited and add some sense of sophistication, networking, curation, and help with execution. Also, try to find a person who has an exit. Nothing is better than having someone on the team that has made money for people before. Investors like people who know how to make money - and these team members will have a wealth of business building experience that is irreplaceable.
Large TAM: If you don't want to hear "this is a lifestyle business" then present a business that attacks a large addressable market. If this addressable market is hard or expensive to acquire, then be sure to present unit economics and a go to market that can support scale and penetration. Also, don't show people a TAM that ends in "Trillion" or "hundreds of billions" - you lose credibility (whether you strongly believe it or not). In the end, your market should be big enough to get people excited, but not one that is unbelievable - in the end, your eventual investor is going to get very smart on the TAM and come to their own conclusion. So at least break it down for them in an exciting way that's credible and take a stand before they form their own conclusions.
an interesting product and vision that’s aligned with their thesis: Yes, product is important - as is your vision. Investors normally like certain things over others (some even have a documented thesis) so do your research prior to speaking with them and show them how what you are doing is aligned with what they invest in.
Even if you show up at dinner with these three table stakes, a successful raise will still require a fantastic process which develops an underlying fear of missing out (good ole FOMO). Such a process needs to come complete with the perception of traction within the investor community, adoption and validation in some way shape or form (perhaps through other businesses), and curation through the correct introductions combined with an exciting pitch and storyline.
Assuming you have the table stakes down pat and your general fundraising game squared away, here’s a few other things you should always keep in mind:
You are not panhandling: Change your general mentality from “begging for money” to “letting people invest” and “choosing a partner”. For instance, if an investor asks you “how much are you trying to raise?” the answer is that you aren’t trying to do anything. “We are going to raise about $5m and it looks like we are going to choose our next financial partner in about three weeks. We’d be absolutely delighted if you were excited about ReversibleDiapers.com because of your experience in eCommerce poopy, etc, etc, etc.” Shift the mentality (for yourself and for the investors) that you have a ton of traction and this is getting done.
Investors will move as quickly as you make them: The common denominator with investors is that (1) nobody likes to miss out on a deal and (2) they will move as quickly as you make them. Your job is to create a peloton where you move the pack along by providing them a good sense for timing. Those that are least interested will fall away to the back of the pack while the most interested investors will break away and get to a term sheet. Your job is to keep that peloton moving and get someone to race out in front to the term sheet in accordance with the time frame you've provided (i.e., they should care about your timing because you have so much traction). If an investor wants to spend 30 days hiring a third party to do a market research study (that will undoubtedly lead to their passing I promise you) then you may want to remind them that "you are going to be making a decision on who to go with on Oct 13th" (by the way, never take money from that investor no matter what stage you are at). I always like to have a reason for the timing we set. In the past, it's been the due date for my first child being born. I've also used my wedding. True, we wound up signing a term sheet in the parking lot of the rehearsal dinner. And I was indeed pitching a VC partnership from the recovery room of Isaiah's delivery. The point is, if you don't have a peloton it's because you have a broken message, missing table stakes, or have set your sites too high with respect to the amount being raised.
Your job is to keep that peloton moving and get someone to race out in front to the term sheet in accordance with the time frame you've provided (i.e., they should care about your timing because you have so much traction).
Timing will always be out of your control: The investment decisions at even some of the largest VCs are run by small groups and sometimes they get caught up on other things that make them unavailable (IPOs, sales, and dispositions of their portfolios). Don’t fret it or take it personally – if the timing isn’t right, it’s just not right. These things happen and you cannot control it. Move on to the next person on the list.
Investors are in the “no” business: The average VC will see no less 50 potential opportunities a month but will only be investing in 6 to 10 companies a year (or fewer). As a result, they say “no” a lot and need to stick to a specific thesis in order to filter their decisions. So you need understand what an investor is looking for and spoon feed it to them so they aren’t hooking onto slivers of information in order to get to “no”. If you feel like an investor is "an idiot" or "doesn't get it" or "didn't let you get through your deck" that's YOUR fault, not theirs. Your job is to make sure they get it - and I can promise you these people are extremely smart and have seen everything and your business is not as unique as you think it is. So, 99% of them WILL get it, should you do a better job explaining it, taking verbal cues, and pivoting the message so there's a clear exciting story line. Sure sure, it's their loss if they say no and they will miss out on the next unicorn as a result, but they do not care and they do not know it because they have 10 to 30 other meetings this week just like the one they just had with you.
Get your ducks in a row and run an organized process: It shows the business itself will be well managed. No matter what stage your business is in: (1) every process should have a start date and an end date, how else can you move the peloton (hint: you can always gracefully move end dates); (2) have an organized data room ready before you go out to raise; (3) maintain a list of people you want to speak with and update it for where they stand, the feedback, and who’s the best person to reach out and intro; and (4) have an amazing pitch deck and story line. Your advisors and board can certainly help with these last two – but you need to own your message it and it needs to be amazing and exciting. If you’re not getting traction and if you aren’t successful, it’s YOUR fault – not your board or you advisors’.
Don’t have coffee: Never have an “informal cup of coffee” when you are out raising. Figure out how to elbow the meeting into their conference room so you can provide a well constructed pitch that you have practiced. When you raise capital you should become "pull a string" and you want to start that message in front of your deck with their complete attention and no distraction in a normal professional environment.
Don't meet with investors if you aren't raising capital: Okay, this one is going to get me in trouble and create some dissent, but if you aren't raising capital, don't waste your time talking to investors. Some of my friends in venture LOVE having coffee and would disagree with this message because for them "it's a great way to get to know the company and build a relationship". I've read blog after blog about VCs waxing poetic about how for them to invest and do a deal, it's important for them to have a really good previous relationship with the founding team, etc etc etc. This is all bs, and here's why: (1) good investors get things quickly, dive into your process if it's well run and the timing is right, and can come to a decision quickly. They are all super smart and have seen the movie so many times that they know if they are interested more or less after the first meeting anyway; (2) your two most precious resources when building a business are time and money, don't waste the former if you don't need the latter; and (3) most of the time, they are going to pass once you do run a full process - until that happens, you are just research.
Don’t offend sensibilities: You are always “only speaking to a select group of people” and you always “understand dilution and are not giving valuation guidance” because the “market will tell you valuation and everyone seems to be coming out at the same place”. You can argue for valuation once you get a term sheet (hopefully more than one) and some traction – which is the point of a process. Finally, if you get pushed down from a partner introduction to pitch a principal or associate, don’t get discouraged. Just give the best pitch ever and get more sponsors internally - here's why: Having a more junior person put themselves on the line by putting you in front of their boss for a follow up meeting is a powerful thing generally; (2) principals are the hungriest and many times are leading deals (and sometimes even the future of the fund); and (3) larger funds are political in nature and once a partner wants to issue a term sheet, they become your sponsor internally in an effort to shepherd you throughout their own organization. The more support the better.
Don’t get introduced by someone who should be investing but isn’t: The worst introduction is from another investor they know who isn’t investing but should be (it’s not good enough for me, but maybe you will like it?!). I find the best people to get introductions from are: (1) entrepreneurs they have invested in the past that have made them money. Even if they do not trust these people to curate deals, they at least try to continue to cultivate them so will take a meeting just to maintain a positive relationship; (2) founders that they met with in the past but didn't fund and then went and made other people money; and (3) investors they normally invest with and have made money with before. I don't like getting introductions from my existing investors to a target - they are too biased and it's a weak intro whether they realize it or not. Unless you really have no other way to get to a group, the only time you should let your board do an intro to a potential investor is if your insider has made a ton of money with this person before or is one of the top investors in the world that everyone knows and wants to work with and kiss up to. Otherwise, find another way to get the intro and then let them all back-channel independently (they do it anyway).
Raise the right amount of money for where you are: If you have a SaaS business with a product for enterprises and only recently established product market fit and aren’t yet generating real revenues, don’t go to market looking to raise a $10m series A. It’s not going to happen (unless you’ve made a lot of people a lot of money before or your parents are LPs in the fund).
Always be delightful and positive: This should go without saying, but never get defensive or respond negatively to stupid questions. Sometimes investors ask them as a test just to see how you will respond – remember, they are hunting for “no” and checking boxes. Also, remember you are going to be back-channeled throughout this process. The community (no matter where you are) is very intimate and investors love nothing more than to talk about their portfolios and companies they have met with (sometimes they are worse than teenagers in a high school cafeteria). So don't get a reputation for being anything but delightful and a person people should be giving money to.
Finally, please do not translate any of the above to mean you should be condescending and abrasive with investors! This is certainly not the case - quite the opposite. You can certainly move a process along so that it works well for all concerned while still coming across friendly. Think of it like dating in a way: it's easier to fall in love with the person that everyone else wants, who seems very available at times, but not that completely available once you start showing some affection (note, I'm happily married with 1.5 children - actually today is my 3rd year anniversary. Honey if you are reading this, I'm only kidding).
All in all, fund raising is hard for any business, but it can also be a positive experience where you meet and speak with some of the most incredibly interesting and bright people in your space while also building a network for the future. So take it as a learning experience, accept all of the great feedback you will receive, and use it as a catalyst to refine your strategy and general approach. Most of all, be patient, deal with the constant rejection, and don’t give up!This is what the blog looks like