Five Startup Fundraising Rules You Should Break

There are rules you’re told you need to follow in order to raise money. Some of these rules make sense like rehearsing your pitch. That’s an obvious rule you should follow.

However, there are other supposed “rules” that it makes sense to break. In fact, breaking these rules can be the key to you raising money.

I’ll explain the five most important rules you should break, what the thinking is around each rule, and why you should break the rule. I’ll go in reverse order, starting with number 5 on our list that you should break:

5. You can’t raise money in the summer.

The supposed reason you shouldn’t bother raising money in the summer is investors are on vacation during the summer, so why even bother trying to raise money? Instead, the rule is you should wait to raise funding until September when investors are back from their holiday.

This is definitely a rule you should break. Yes, many investors do take a vacation during the summer. And yes, things definitely slow down during the summer, but they don’t stop. However, you will have lost valuable time if you wait to raise money.

Instead, you should go forward and deal with the delays. For example, we were raising our Series B funding over the summer, and we had five investors that were getting close to give us term sheets. One of the investors, Tucker emailed me, “Hey Brett, I’m going to be on vacation for the next couple of weeks. I’ll pick up the diligence when I get back,”

I wrote back, “No problem. Have a great vacation.”

And two weeks later, we picked up where we left off. And, yes, Tucker did give us a term sheet.

In the meantime, we continued working with the other four investors that weren’t on holiday. Three of these investors gave us term sheets too.

Here’s the deal. There’s never a perfect time to raise money. You should just go raise money when it’s time for you to raise money.

Let’s move onto rule number four on the list that you should break:

4. Just pitch ten investors. Give up if no investors are interested.

This was the advice I got from a partner at the San Francisco based Venture Capital fund where I was an EIR (Entrepreneur in Residence). I guess the thought is that if ten investors pass and no experienced investors is interested, then you don’t have a company that is investible.

What a load of garbage. I am so glad that I didn’t listen to his advice because I would have never raised my initial funding.

Even more, pitching ten investors is too small a sample size. Think about it. If angel investors and VCs only invest in one startup for every one hundred they invest in, then shouldn’t the goal be to meet with at least one hundred investors?

I approached fundraising as a numbers game, and I think you should too. The more investors you meet with, the more the numbers work in your favor.

And that’s what happened with us. It wasn’t until we met with the 64th investor on our list that we raised our initial funding.

Now we’re on to rule number three that you should break:

3. You have to be in a hot market to raise money.

There are so many reasons I hate this one. The biggest reason is that I’ve seen too many CEOs change their pitch to fit the flavor of the month, and it always bites them in the back. Always.

For example, right now artificial intelligence is the flavor of the month. So, the thinking is you make your startup fit into this box because it will increase your chances of raising funding.

I totally get why you would be enticed to change your pitch. Fundraising is hard, and maybe this change will magically help you raise money. I actually think this will hurt your chances of raising money.

The reason I feel this way is that it’s like putting a square peg into a round hole. Your company is what your company is.

My company had this exact problem. We were an Analog Semiconductor company trying to raise money in a market that didn’t want to invest in semiconductor companies. To make matters worse, there were other unique things about our strategy and business model that didn’t fit what investors wanted.

Now, I’m not saying that you shouldn’t make adjustments that make it easier for investors to understand what you’re doing (we certainly did). However, I am saying that making unnecessary changes to your plan will hurt you.

Your goal is finding investors that get what you’re doing. This is exactly what we did and why we got funded.

Let’s move onto rule number two that you should break:

2. You can’t go back to an investor that passed on you already.

No is no, so don’t waste your time with investors that tell you no. That’s the rule. Well, not so fast.

The reality is that when an investor tells you no, it’s only no for that moment. If something changes, then a no can turn to a yes in a heartbeat.

For example, maybe the number of customers you’ve added increases. Or maybe you didn’t have a CTO, and now you do have a CTO. You get the idea.

These are valid criticisms of your company. And your goal should always be to improve your company. Full Stop.

So, as you improve your company, you should let investors know that traction is improving, or the team is improving. In our case, one of the investor criticisms was that we didn’t have a CTO or VP Engineering.

So, when I added Jeroen, our VP Engineering to the founding team, I went back to investors that passed. And guess what happened? That’s right, we got a term sheet from an investor that passed. Remember, as I said before, no is only no for now.

Okay, we’re onto the final rule you should break. Here it is, number one our list.

1. You need warm introductions to investors in order to raise money.

Warm introductions means that someone that knows the investor will introduce you to the investor. So, you’re using their credibility to get you a meeting.

And there’s no doubt about it. A warm introduction is a great way to meet investors. However, it’s not the only way to meet investors.

A well crafted cold email does work. In fact, I used cold emails to meet lots of investors. They do work.

For example, Jason Lemkin, of SaaStr fame, has said that many of his best investments came from cold emails. It does work.

The key is to be direct and to the point when you email someone. I wrote an article about how I did this that I have a link to in the notes below this article.

Let me add one more bonus rule that you should follow:

Bonus Rule: Don’t listen to what your well meaning friend tells you regarding fundraising.

Your friend successfully raised $10 million in Venture Capital, Now, your friend is telling you all the things you should do as you prepare to raise money.

The problem is nothing your friend is telling you makes any sense. Here’s the deal. Your friend’s situation may not have any relevance regarding how you should go about raising your funding.

The bottom is let your common sense guide you as you proceed down the path of raising funding for your company. After all, your common sense has gotten you this far already.

For more, read: https://www.brettjfox.com/can-you-get-investors-to-respond-to-cold-emails/

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