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Last week my company announced $2.5 million in Seed funding led by Haystack VC. Additional investors include Initialized Capital, the firm co-founded by Reddit co-founder Alexis Ohanian and former Y Combinator partner Garry Tan, Liquid2 Ventures, started by former NFL hall of famer Joe Montana, Fathom Capital and Background Capital.
Since that round was announced, I have had 10+ early stage entrepreneurs in Boston ask for advice on how to mimic our round and get connected with the best Silicon Valley VC’s. What I found from these conversations is that there are a lot of misconceptions about fundraising (particularly from companies outside the Bay) that lead entrepreneurs to spin their wheels while trying to close early stage rounds.
Traditional VC fundraising strategy calls for 4-6 months fundraising and talking to 100+ VC’s (the traditional mantra being that you will get 100 no’s for every yes). We completely upended that strategy. We put together a highly structured process similar to a sales pipeline to go from 12 VC introductions to closed in 4 weeks. Here is what we did:
Step 1: Put Together a Strong Advisory Team of Founders
A few months before we started fundraising, I reached out to successful founders who were 1 or 2 steps ahead of me (most at Series A/B stage) for advice. I got a few introductions, though I’d met or else knew most of these founders already. As long as you respect their time and use it well, founders are generally willing and ready to help other founders.¹
I met with each of the above founders (the vast majority of them are Techstars alumni, as are we, which has a strong “give back” culture). I talked to them about our fundraising plans and value proposition; each asked pointed questions and gave actionable advice about strategies that had worked for them.²
Some of these founders I only met with once or twice. They gave me advice and then ripped apart my deck and pitch until it was perfect. Brent, Rafael and Wombi took a more active role and we texted all the time. I would ask them questions on the fly and they helped me understand a process that is opaque for first time founders like myself.
Step 2: Build an Investor List
With the help of our founder advisors, we put together a list of the best, most relevant investors. “Best” is obviously a matter of perspective but we looked for investors with big wins and great relationships with their founders (both successful and not).³ Also, because of the nature of our business, we looked for funds that prioritized data and enterprise B2B tech.
Even though we were building out our investor list, we did not accept any introductions for the month before we started fundraising. The planning process took over a month and we were also running our business and focusing on our KPIs. We did not want to go into any investor meetings unprepared so we asked our founder advisors to please not make any introductions until we were ready to truly start the process.
Step 3: Draft a Calendar
During the planning stages, we kept our round as quiet as possible. We knew that to succeed in this process, our financing needed momentum and we needed to generate FOMO (fear of missing out).
Our goal was 3-4 weeks of conversations before an agreement and close. We got much of this process from Bill Trenchard’s writing on fundraising. As Trenchard says, “It’s critical that your fundraising process be organized and methodical. Never run an ad hoc process or be half-heartedly fundraising. As a founder, you should either be fundraising or not — and if you are, it should be done with great intention.”
We built a calendar that looked something like this:
All of our introductions were made on the same day and then we had a packed meeting schedule that optimized our top-tier investors. This also prevented information leakage as we moved quickly and we knew that investors would all be talking to one another.
Step 4: Build a Short Deck and Data Room
While we were working on a calendar and investor list, we were also putting together our pitch deck. We kept our deck short, recognizing that the deck was meant to be talked over and that our story and opportunity needed to shine through in 8-10 slides maximum. I actually built about 30 appendix slides but only sent these when an investor asked a specific question that an appendix slide could help answer. As you can imagine, our founder advisors tore our deck apart every time we sent it (I didn’t start pitching investors until version 11).
We never sent our deck to an investor until after we’d met with them, because investing is all about the founder/investor relationship. After practicing with my deck 20+ times, I could have a conversation with an investor, never showing my deck, and then when I’d send the deck later, it would match our conversation almost 100%. This gave investors confidence that we knew what we were talking about and were focused in our pursuit of our goals.
A data room at the seed stage is not a particularly complicated effort. Before fundraising we put our financials, legal docs, etc. into a Dropbox. Then when we went into diligence, we could send that link and didn’t need to stress about anything towards the end of the process.
Step 5: Practice
The last step of prep for our fundraising was practicing with as many founders as we could in the month leading up to our raise. The first time I gave my pitch I was stumbling over words and trying to hone my story. Over time I discovered a pitch that resonated well, but repetition made it sound robotic. By continuing to practice, I became less robotic and I was able to riff on my presentation. Preparation allowed passion to flow through my pitch because I knew the pitch so well that I could go off script, answer questions, make jokes and still deliver my planned story.
As an additional part of practice, I scripted hard questions and answers with my founder advisors. I also put together far more appendix slides than I’d ever be asked for, which gave me confidence in every single number and fact about my business.
One thing to remember during practice is that everyone is always judging. This doesn’t mean that people judge each other in negative ways, but when pitching founders, some of them get so excited that they ask to invest themselves or they want to make introductions to their favorite investors. Like any meeting, while asking for help we also wanted other founders to be pumped about what we were doing as it matters in the long-run that we are well regarded in the community.
Step 6: Focus, Raise, Return to Business
The important thing to remember while fundraising is that raising capital is a means to an end and not the end itself. The reason we tried to raise in as short a period of time as possible is so that we could get back to work and hit the ground running on growth and development as soon as new money hit the bank.
After following the steps detailed above, the goal is to raise money like a well-oiled sales pipeline. It is better to get an investor to “no” than to drag out the process by weeks or months. Being well prepared and keeping quiet until the day you are ready for introductions, generates excitement and FOMO. Obviously any round will have hiccups (I spent time with a founder last night who has raised over $100 million and he said that in every round he has had one moment where he thought his company was going under), but if you are well prepared, have good KPIs (or a great idea at the early stage) and have the backing of founder advisors, you can raise money from great VCs in a matter of weeks.
¹ Using founders’ time well means drafting an agenda before a meeting with specific asks so your contacts know exactly how they can be helpful before sitting down with you.
² TJ sent me fundraising guides built by Bill Trenchard of First Round Capital that I found particularly helpful.
³ We also prioritized funds with female or minority partners and female/minority owned portfolio companies.
March 14, 2019 at 10:56AM
Forbes – Entrepreneurs