Uncommon Fundraising Advice

Raising funding is an exercise that’s full of rejection. What if there was a way to bypass all of the pain, lows, and difficulties of being a founder who needs capital?

Well, there is! If you don’t want to pitch, present, network, and face discomfort, you could bring in external help to do all these things for you. Bring on a ‘pitch expert,’ and then focus on the business, right?

No matter how tempting it may be, don’t hire this external help for fundraising. Especially at early stages, VCs will avoid these types of projects and instead pay attention to founders who know enough to play the game themselves.

Opt for an authentic approach. View every relationship as a long-term investment, not a means to an end.

I asked myself questions like: Who will be the best partner once the deal closes? Who will help me get to the next stage beyond this current raise? Is this simply an investor, or someone I can see getting into the trenches?

Be okay with the idea that you will get many no’s until you get a yes.

It’s just part of playing, and there’s a light at the end of the tunnel. You can’t put a price on partners that will add value, communicate transparently, and form a strong board.

Say that you have deep technical domain knowledge, but is it enough to start a venture-backed startup? This is exactly what I asked myself as I thought about my lack of startup exposure, network, or experience starting a business.

I went for it, and after successfully raising money from investors, here are some tips I wished I had known in the beginning that would've made the process even better.

The first is that deep technical knowledge, in my case expertise in cybersecurity, is not going to directly influence your ability to raise venture capital.

As a basic rule, make sure you and your co-founders cover the ability to build the product, sell the product, and drive key differentiation in the industry you're targeting.

I realized there were a large number of capability gaps I needed to address and quickly found a mentor. She helped with incorporating the business, made introductions to founders and investors, and provided perspective on the journey.

Another benefit of building a founding team to cover necessary skills was that investors see co-founders as a de-risking factor since there is buy-in from multiple people. It's a good litmus test. How will you convince an investor if you can't convince a co-founder?

Make sure to build a technical skill set and domain expertise.

Start building your startup network now, even if you think you need more time to create one. Find a couple of mentors in different stages of their entrepreneurial journeys, so you have multiple frames of reference.

At the start of our journey we just set the direction and committed to action. 

We didn’t produce a top 10 list of investors or plan 3 moves ahead. We only commited to being actionable.

The biggest contributing factor to our successful round was having a loose plan that we could amend on the fly. 

We were able to project who would join our round and when because we had met almost everyone we possibly could have who was looking to invest in a company at our stage and follow up on every referral — VC or angel. 

We went out of our way to ensure we met or took every meeting that came our way from an investor ecosystem that our accelerator got us into. It helped that we were the top of our cohort and having more sales and traction and better pitch turned into more conversations and interest. 

At this point we had a ton of investors who said they were interested but weren’t joining the round. They would ask about metrics and say they would join if we had so-and-so as a lead investor.

Keeping with the plan of constant reiteration, we decided to drive 45 minutes to meet with an angel investor who ended up committing a significant sum.

With him onboard, we could confirm our VC as the lead investor with a term sheet, and then all the rest of the work we had done following up and maintaining relationships resulted in the pieces falling into place very quickly. 

You have to adapt and just be persistent on follow ups until you get enough commitments to close the round and then keep in touch with the rest for the next round.

As a first-time founder who lacked an extensive and influential network, I’d say the early days of my fundraising journey could be summarized as ‘not getting replies to cold emails.’

It turns out there are other proven ways to get exposure besides email. This is how I got inbounds from the VC scouts, with hundreds of decks sitting untouched in their inboxes.

Within every major city, there are pitch competitions for startups, both virtual and in-person. The in-person ones are far more effective, so apply to all the ones within driving distance.

When I started going to these, the first three months of pitching were rough, but that’s the point.

The biggest takeaway from those early pitches was to focus on the numbers, like the market size on the pitch deck. Most investors don’t believe the numbers. $ 10B or $15B makes no difference; it’s all about communicating the process of getting the numbers.

Take investor meetings and competitions early as practice but assume they don’t matter. Use them to refine your pitch. If you have a dream list of 10 investors, then make them your 11-20th pitches.

After refining our pitch in numerous smaller competitions, we applied to the ‘World of Startups’ competition in Boston and got accepted to be one of the 100 to do a small pitch to compete for a spot on the big stage.

We were 1 of the 10 to win a spot on the big stage and then went on to take 3rd place overall and walk away with a cash prize of $15k. The money was exciting and a nice reward for our work but far from the best part.

Our 3rd place finish turned into exposure, inbound investing interest, and a catchy competition name we could use in our LinkedIn content. It became leverage to get into more pitch competitions.

Raising funding (especially Angel, Seed, and Series A) is personal, not just business.

Of course investors aren’t simply doing you a favor by investing. They are doing it to get a return. That’s the business side of it. There are many more forces at work and understanding them is key to confidently and successfully closing a round of funding.

The first force is building relationships with amazing individuals. People underestimate angel investors but they have been incredible for both of my startups. They are connected to people in the industry. They can fill entire rounds.

When I started my businesses I thought through connections I had before my entrepreneurial journey.

I had once interviewed with an successful entrepreneur who instead of offering me the job said ‘you should go and start your own company and come back when you do’ and now he’s one of our angel investors. Similarly, when I left Bain & Company and started Opply, I had partners who said they would come in on the funding, but we had an oversubscribed round; connections can come from anywhere!.

That’s the case with advisors as well. Find what their interest areas are and play to that. We had an advisor who was a founder who wanted to relive and help us on the journey, and then they came on as an angel as well. You get to build a sound relationship, get advice, and often get funding as well.

Next thing to consider is mutual trust. I experienced this when founding a D2C commerce brand and again founding a larger supply chain tech company.

Huge VC firm names are alluring but make sure what they want aligns with what you want. Do you want a quick exit or more building a longer sustainable company? There are different paths when building a tech company and I found the smaller firms to have a personal touch and be able to spend more time coaching early on in the journey..

When building Opply we were more concerned with who to get in the boat with, not how big their boat was.

We interacted with over 100 VCs in the course of about 3 weeks when raising our seed - and were very lucky how quickly we closed the round. One thing was that we got excited at the interest, and scheduled too many too quickly, without giving us time to learn and improve our pitch, which in the first week resulted in a lot of first and second meetings and people not getting back to us, but we changed tack and learnt quickly, so think about the order and speed you meet VCs/angels Keep your head up, fundraising is likely the most times you'll ever get rejected in your life, but all it takes is one.

Have you heard of the company Webvan? Twenty-five years ago, they were trying to revolutionize the market for home grocery delivery. They raised close to $800M before they went bankrupt.

Some of the biggest VCs in the world were on the bandwagon. They weren't wrong; they were just too early. This was before cell phones, and to use the service, you had to order on the web (hence the name Webvan). There was no way for them to properly monetize and make it to scale.

Were they wrong that people would have groceries delivered? Not at all. But this pursuit of rapid growth of an innovative product changed how Silicon Valley invests today.

Some of the same people from the same investment firms have since invested in businesses like Instacart and Postmates. It's the same market, but what sold the investors this time around was proven unit economics and a path to profitability.

The issue is very simple. One of the problems tech founders tend to have is to think like engineers and believe that technology is the end-all and be-all.

And while you can't have a business without it, investors do not care about the technology. They care about what the technology will drive, and the revenue you will get because of the technology.

For example, I worked with a client developing an innovative indoor autonomy product. When they went to raise money, all the founder wanted to talk about was how advanced the technology was.

When the investors listened to him, they heard about technology. They weren't getting any closer to writing a check because he wasn't articulating how any of it would translate into making money.

We changed the story to be more about monetization. Subscription fees, the verticals we were going into, how we would get the market share, and revenue dollars per product unit.

We didn't talk about technology. We raised $135M talking about how to monetize the technology.

One more piece of advice while we're talking about improving the effectiveness of your pitch.

In venture capital, like sales, the first rule of overcoming objections is to avoid the objection. To avoid objection in your pitch, you need to answer it before they ask.

Years ago, a famous sales trainer for real estate was trying to sell houses in a big development, and the last houses on the last road would not sell. Whenever someone walked in to see one of those houses, they would look out the window and see railroad tracks.

In the back of their mind, they would think, 'who wants to live next to railroad tracks? It's too noisy."

It turns out that the train went by twice per day at 10 am and 2 pm. So, what the agent did was make every appointment to show the house at those exact times. While he was showing the house, the train would go by, and he would say, 'by the way, it goes by twice at 10 and 2, wasn't so bad right?'

'Yeah, it wasn't so bad' would be the reply, to which we would respond, 'good news, I also just knocked $10k off this house'. All of a sudden, he was selling the houses.

He made it part of the pitch and, therefore, could control the environment of answering what would have been an objection.

If you see that people are asking the same question while you are giving your presentation, then make sure to revise your presentation and answer it before they ask it.

As a founder, you have a single point of leverage available to you at the start of your fundraising journey.

It’s yours to put to work or yours to give away. You are making a mistake if you send your pitch deck to countless info@vc-firm.com. You can implement a system to get investors and land inbound emails from VC firms.

First, let’s talk about some numbers that I find most founders underestimate. Your target list of VC firms should contain at least 1000 people and expect a 3% response rate from cold emails. Plan on 9-12 months to raise a round; during this time, 80% of the focus as a founder should be on raising money.

It’s a full-court press. Now, onto the tactics.

To build a target list of firms, use a database like Crunchbase and look for companies related to yours and look at who invested in them. Then look at where else they invested and similar firms on other deals.

Find every person at these firms and connect on LinkedIn. Reach out and ask for help and not money. Lead with personal experience and what you know about where they invested.

The goal at first is to just get them on the line and feel like they can help you, which makes them feel good about themselves. It’s a win-win. It’s easy to help you and feel good in doing so.

The most important thing in this first call is that you also tell them exactly what you’re going to do. Give them a metric to build credibility in their mind.

When you hit the benchmark, go back to them and say, ‘Hey can you chat again, remember that benchmark; we hit it! By the way, I ran into this other problem and had these questions. Do you have any feedback?’

Then, in all of this, maintain leverage by guarding the most important resource you have as a founder: information. I would never share my whole deck at first and instead opt to share pieces of information, framing only the problem, our solution, the team, and the market size.

You need them on the phone, so use the information you have to build relationships and credibility. This is important especially early on as investors will be investing in you more than the business you have built to date.

I’ll leave you with this: The single most powerful benchmark of investment behavior is not margins, not revenue, not your deck; it’s FOMO.

As soon as a firm thinks another firm has identified you as an investment opportunity, you win the game of leverage. Create scarcity in their mind, and good things will follow. Make them think someone else is going to jump.

Just because you're starting a business that has to do with tech does not mean you need to become the next Google or die trying.

Becoming a unicorn is almost impossible to do, yet until very recently, raising venture capital meant going down that one-way path. Traditional VC math only works if companies have the ability to scale and become one of the few big winners.

Case in point, relatively early on, we had an acquisition offer that would've put $5M in my pocket, but the VC blocked it because it would have only generated a 15% return for them.

They knew I'd be happy with the deal, but that didn't matter. They don't need lots of little winners.

This fundamental conflict of interest is why lots of other options have come to life. Where tech startup used to mean one thing, now you can have a tech startup that will (by design) never get larger than five people.

You should not raise VC until you have proven to yourself and your team that you need to do it.

Start with bootstrapping what you can or getting early validation from the market. Work on projects that don't necessarily map to the 'VC math'.

Leverage platforms like Kickstarter, Patreon, and crowdfunding. You can very cheaply build an audience and monetize it to fund building the next thing.

Then, if you determine you really do need capital to get to the next level, you can now find funds that have a different risk-reward model. Take the Calm Fund, for example, who says they invest in companies that do not 'risk survival for growth.'

VC is a very specific tool for a very specific job. Understand that while a huge percentage of people assume they need VC as a default mindset, the vast majority are not fit for it. There is a lot of space to play between opening a food truck and founding the next Google.

At Float we were always careful to raise the amount we thought we could get in revenue generation so we could always return to cash flow positive. 

We raised really small amounts of cash at first, $5K then $10K, and we didn’t take a salary for the first year. Then we raised $30K from our early users by giving them a lifetime plan.

After that we raised $100K, $200K, $500K but each of those times we still made sure we got back to that figure in revenue. This greatly took the pressure off so we never took funds from an investor that wasn’t ideal.

I noticed through this journey that when it comes to fundraising there is an interesting phenomenon when an initial meeting with an investor group starts gathering momentum.

Because fundraising is full of rejection, even this little bit of positive momentum can change your mindset. It's really tempting to think "this is in the bag" and stop working hard to speak to other investors.

As a founder you will surely feel that all you want is to close the deal, get the cash in the bank and get back to building your startup. 

But you must resist the temptation and wishful thinking and power through. Do not stop speaking with other investors.

However nice the investors start out - their job is to make money - and to protect the downside. They are going to get the best terms they can - and the only way you have any leverage is if you have other offers. 

Even with one interested party - you're only going to have a successful funding round if you can get another. Use the offer you do have, even if it's not a full term-sheet, and use it to accelerate the decisions of others.

You have to use the FOMO to your advantage. You might be promised a great valuation - but it comes with a clause in the terms that you don't want. Your best leverage is that you have someone else who will do the deal and you’re not afraid to walk.

Aim for 3 parties at the very least - the trick is to get them to similar places at the right time. If they know about each other (make sure they do) they will hurry you for exclusivity.

There are lots of articles on founder-friendly terms, so read up on these. You’ll be more confident and be better off knowing things like you should avoid preference shares if you can and how to keep the board with only the people you really want.

Also, read up on the motivations of VC. When you understand the motivations and what your VC needs to return to get a successful outcome you can better understand if you're aligned with what they want.

If you're not sure you can become a billion-dollar company - and you don't see a clear path to that door - be upfront about it. Angel investors might be a better route.