Insider Tips for Winning Your First Round of Venture Capital — Part II

This is part two of a series on raising venture capital. Click here to read part one.

If you’ve already read part one, and you’re still interested in selling equity in your startup in exchange for cash from venture capitalists, then you’re in the right place…

Insider tip #8 — Find your sherpas

A well-executed fundraise may take as few as 8 weeks from pitch to close, but the sooner you start preparing, the smoother it will go. For many, fundraising is a multi-year journey.

A great way to jumpstart your experience is to get the inside story from founders who have recently fundraised ahead of you.

The best way: be friends with founders — see tip #5 — who are willing to reveal the full details of their process. This includes their deck, their path to investors, the number of no’s they got, the number of yes’s, the terms they raised on, their negotiation wins and losses, etc.

Ideally you’ll find personal “sherpas” — friends willing to give you personalized input and guide you to the summit, and away from the cliffs.

Yan-David Erlich and Matt Munson are two people who were especially helpful to me — both of whom I met through Mucker, an LA-based accelerator program, and both of whom had fundraised before me. Side note: after selling his company, Matt went on to become an executive coach, and I highly recommend his Medium posts.

Why are personal “sherpas” so helpful? Because they don’t just share their success stories, they also share their setbacks. People have a natural aversion to appearing publicly vulnerable, so most reserve discussing their missteps for intimate relationships.

The second best way to learn?: Read. Start by reading the sources I linked to in the previous post. And remember when you read: every writer has her own bias, conscious or subconscious.

For example, founders, including me, may naturally sugarcoat their experience because of the aforementioned aversion to appearing vulnerable (spoiler alert: everyone is figuring it out as they go along), or because of a simple confirmation bias endemic to most humans.

And, investors may offer fundraising advice that seems objective, but favors their self-interest at your expense. Read from multiple sources, and do so with a critical eye so that you can form your own opinion.

Plug: Alexis Ohanian’s Knowable course is a great primer for anyone who’s considering the entrepreneurial journey. I’m the co-founder of Knowable though, so, case in point, I’m biased.

Also, Jason Yeh, a former investor turned founder, has a compelling podcast — The Funded — focused on intimate interviews with recently funded founders.

Lastly, be wary of reading too much TechCrunch, the tech industry’s most popular venue for fundraising news. TC articles tend to gloss over the details of how a founder actually navigated the fundraising process. TechCrunch makes the fundraising process seem easy, and simple. It rarely is.

The third best way to learn ahead of a fundraise? Learn about what makes you a better founder, not just a better fundraiser. The better your company is performing — or the more you can de-risk, even if pre-launch— the better you’ll perform as a solicitor of capital.

TLDR:

Make friends with other founders and learn from both their successes and their mistakes.
Read a lot, including the links from my previous post, and always do so with an awareness of author bias.
Learn how to improve as a founder, not just as a fundraiser.

While you’re preparing for your fundraise — the period when you’re in market actively soliciting capital from investors — you’ll want to start building your relationship with investors, even before you meet them…

Insider tip #9 — Know whom you’ll pitch, and be known by them

Asking someone you’ve never met before for money is like asking to get married on the first date: kinda awkward.

Ideally, you can build up to the “ask” over time. Mark Suster, an investor at Upfront Ventures, has a pithy phrase summarizing what investors like to see: “lines not dots.” I.e., investors like to see a history of high performance from a founder prior to their wanting to invest. Why? Because a track record of high performance helps lower the perceived risk of future performance.

This is why if you’ve previously run a successful start-up, it will likely be easier for you to raise your next round of capital. But, every founder is a first-time founder at some point, and many first-time founders are venture-backed, so there are obviously other ways to demonstrate high potential besides having run a company. Like what?

Best: have a product in a compelling market that’s rapidly gaining traction (product-market fit). This is rare at the seed stage.
Have a public record of high performance. Matriculating from a selective university, having an engaged social following, and having a demonstrated level of expertise in the market you’re looking to disrupt all help “de-risk” you as a founder.
Have a prior history with the investor. While I agree with Paul Graham that you should spend far more time talking with customers than investors, it does help to have a human connection with as many potential financing partners as possible. Two bits of advice here:

3.a) Ask for advice early in the process, not money. You can say, “we’re not fundraising yet, but I love your Medium posts on consumer marketplaces and would be grateful to get 20 minutes of input on our approach.”

Investors don’t want to miss out on promising entrepreneurs / startups, so they’re also interested in meeting before you raise. They’re also more likely to approach this first interaction wearing a collaborative hat rather than their default skeptical hat, which makes it easier to connect on a human level. An “advice session” also gives you the added benefit of judging them, and deciding whether they’re someone you’d want to work with long-term.

3.B) Build in public. Investors who have some familiarity with you before your fundraising process will be more likely to want to fund you — known quantities are less risky than unknown quantities — and one of the best ways to scale “being known” is to have a demonstrated public record of doing what you say you will do.

I’m a fan of building in public because you’re able to show a public track record of your thinking and progress. Follow KP to learn more about this movement.

Most investors can only say “yes” to a handful of deals each year. Have empathy for their job, just like you want them to have empathy for yours.

Insider tip #10 — Don’t raise right before holidays

The best windows for fundraising: January through July, and Labor Day through Thanksgiving.

Why? Investors tend to take vacations during the summer and winter holidays, and deals benefit from momentum leading up to Close.

Assume that it will take at least 8 weeks from your first pitch until closing your first check. I.e., work backwards from July 4th and Thanksgiving to determine an official fundraising start date.

You want to minimize the time that you’re known to be “in market.” And, for the sake of your business, and your sanity, you want to minimize the time spent talking about your business, and maximize the time building your business.

So, if you’re ready to officially raise, how do you kick off a process with investors whom you haven’t yet met?…

Insider tip #11 — Get hot intros

The best intros to investors come from successful entrepreneurs who know you well and are genuinely excited about your potential. This is why tip #5 is so crucial.

These intros are often called “warm intros” because an investor is more likely to be receptive to an introduction from a mutual acquaintance than from a founder reaching out cold.

You want to make it easy as possible for the introducer to tee up her intro. Here’s an example email that’s easily forward-able:

Notice that I’ve given a three bullet summary of the situation:

What’s the state of the company / product? Share numbers if you have them.
Who’s working on it? Add a hyperlink to your LinkedIn profiles.
Where’s the team in its fundraising cycle?

Investors are busy and can only invest in a small number of deals each year. Answering these questions up top in the process can help them quickly determine if you could be a fit. This saves their time, and more importantly, yours as well.

I see a lot of rookie founders handle the intro process poorly. Check out my Twitter thread on this topic for even more details.

Insider tip #12 — Reply to intros like a pro

Once you’ve gotten a hot intro to an investor, you’ll want to reply quickly, move the introducer to Bcc, and suggest a few times in the next week for a chat.

If possible, I advise that you avoid sending your deck ahead of the call. Why? You want to build momentum with each interaction, and the blurb that you previously provided should be sufficient for an investor to decide if it makes sense for them to meet you.

Note: not sending your deck before a live conversation is controversial. You do you.

Until next time

Once you’ve made it known to investors that you’re fundraising, you’re “in market,” and your goal is to find the best investment partners possible, as quickly as possible.

In the next post I’ll go into more detail on the following tips:

Infect with vision
Listen to your voice
Know what you don’t know
Be wary of follow-on investors
Talk with multiple investors simultaneously
Know that you deserve to be having this conversation

Follow me on Medium and sign up to get my posts delivered straight to your inbox.

And if you have questions, please let me know in the comments below.