Some Advice Before You Hit the Fund Raising Trail

Fund raising.

It definitely has a “d” in it, as in it’s really not fun, raising. But it’s critical for your business, for you as a leader and people who excel at fund raising have an extreme advantage over those who do not. The best entrepreneurs in our industry focus on it year-round as opposed to just once every 18 months.

As a VC with scores of startups in our portfolio we have ringside seats to many, many fund raising processes plus I had to raise money across about 5 different rounds of capital as an entrepreneur so I’ve developed some thought on the process that I hope can be helpful to some of you before you start.

As a VC I also have to fund raise every three years and these posts 100% apply to VCs raising money, too.

Rather than overwhelm you with a super long Suster post I thought I’d break it up into a series of 13 (or so, might expand) posts. Below is the outline Upfront.

1. Lemons ripen early

The hardest thing about fund raising is how dispiriting it can be. The reality is that very early in your process you’ll hear “no” and it can set you back and make you think that nobody sees your vision or values your progress to date.

The trust is that “lemons ripen early” meaning that the easiest thing for an investor to do is say “no” quickly to a deal if he or she doesn’t feel like your business is in her wheelhouse, fit her investment thesis, isn’t the right stage or frankly maybe she’s just too busy with other deal related stuff that she doesn’t have time to evaluate your deal.

So you might hear 9–10 “no’s” in the early stretches of your fund raising process. It is CRITICAL that you not let this get inside your head. Just remind yourself of lemons. Sure, you need to learn what the common theme of the no’s are and be willing to make adjustments to your pitch. But if there is nothing wrong with you then please don’t let early rejections alter your course.

A huge mistake I see is that VC tells an entrepreneur no based on a set of reason that this VC felt weren’t right with the business (market size, traction to date, too many competitors, no big exits in the category or whatever easy excuses VCs have developed to politely say no) and the entrepreneur lets this get inside his or her head.

Let me give you an example. Let’s say you have built a SaaS company where a large part of the early revenue comes from a few big customers or a large part of the revenue is services based vs. software based. It’s important to know that these biases may affect a VCs evaluation of your business but it’s equally important that you not start saying early in the meeting, “I know we only have a few clients today, but …” or “I know that today we have 40% services revenue, but …”

It seems absurd reading this that entrepreneurs would do this but I promise you this is one of the most repeated mistakes I see and it often comes out in subtle comments that you drop in the meeting. You’ve lost your swagger because after 10 “no’s” you assume that everybody is going to see the same potential flaws in your business.

“I know that our repeat purchase rate is lower than the industry average now, but …”

“I know that our margins are lower than VCs like to see, but …”

“I know our revenue decelerated in the last 2 quarters of 2017, but …”

Remember that fund raising is a sales process. The investor is a customer and they have money to spend but only for a limited number of companies. They are buying trust in you that you will build a large business that will be valuable. The first “Blink” evaluation they’ll make is about YOU and only when they’ve subconsciously decided whether they find your smart, likable, credible, a good leader, inspirational, competitive and all of the other subconscious attributes they’ll look for do they begin to truly think about whether your business idea has legs.

That’s why it’s critical not to let yourself get into the weeds early in a fund-raising meeting and allow time for your concept to sink in while they’re subconsciously evaluating you. Of course you need to have answers to all of the hard questions that you know you can anticipate about your business — just don’t lead with them!

Once you accept that lemons ripen early I hope you’ll realize the following about fund raising

  • Fund raising can be a numbers game so you really need to do research and have a long list of potential VCs in case the earliest ones don’t bite.
  • Fund raising is a confidence game so you can’t let yourself get psyched out by the early “no’s”
  • For most companies fund raising takes a long time so start early!

If you want some more reading on this topic … I’ve written some relevant posts in the past here:

A. What to do about that chip on your shoulder?

B. How to get your Series A mojo back

The rest of the outline I’ll write as a series to come back to this blog if you want to read more.

2. Measure twice, cut once

The key is you need to plan out your fund raising rather than “winging it.” I know it sounds obvious but in my experience people don’t put nearly enough time into planning. Here’s a post to help you.

3. Remind me why I love you?

(coming next …)

4. You only need one “yes” but when it rains, it pours

5. Never stop working the top end of the funnel but the bottom end of the funnel is where deals get done

6. Just send me your dog damn deck

7. Why you should never have a data room — the most counter-intuitive fund-raising advice you’ll get

8. Why “no” is ok in fund raising

9. Confidence sells

10. Land and expand

11. Cash in, cash out

12. How to talk about valuation

13. How to go for the close


Some Advice Before You Hit the Fund Raising Trail was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.