Fundraising 101: Refinement
This is the second installment of five part series on tactical guidance for Seed fundraising. This series was originally written by me during my tenure at Entrepreneur First and can also be found here.
Photo by Chris Liverani on Unsplash
There’s no substitute for experience and while preparation is key, you can’t become “investor ready” without actually talking to investors. This can (and likely will) be a painful phase as your initial excitement will most likely be met with rejection. The important thing to remember is that this is part of the process and at this point you haven’t started “active fundraising” yet. This post focuses on the strategies minimize the time spent and maximizing learning.
The fundraising process
Control your environment
It’s very natural to be flattered by early investor interest, but it’s important that you fight the urge to take that high-profile meetings right away. Without sufficient practice you’re almost guaranteed to come off as “too early” or unpolished, which can have a negative ripple effect on your round. You have a responsibility to your company and your team to take the time to get things right. The best way to do that is to gather feedback from qualified, but safe sources so you can hone your pitch over time. When prioritizing, there are a few investor groups to consider.
Trusted Advisors: The best source of feedback is someone that you have a previous relationship with. They can take an initial meeting as a training scenario, rather than a formal pitch, because they’ve already formed their initial impressions of you. Choose someone that you already know and feel comfortable getting honest feedback from. Look to your existing investors as a first step (if applicable). In addition to feedback, they can connect you with other investors that they trust to provide useful guidance. If you don’t have any close investor friends, try to leverage your network of fellow founders and get meetings under the guise of a training exercise.
Later Stage Investors: Seek out investors that consistently back teams in later rounds. When an investor doesn’t have to make a Yes/No decision they can provide insightful guidance in a safe environment. The added benefit of this is that you can get on the radar of later stage investors and start building your relationship.
Isolated Experts: Try to find individuals who have relevant sector/technology knowledge as well as limited exposure to your relevant investment community. This may sound like “talk to shit investors” but it’s not. Bad investors will likely lead to bad advice. Absolutely search for feedback from those who can provide meaningful insight into your market, target customer, etc. so you can tailor your narrative. But ALSO search for investors that aren’t very plugged into the investment scene. At this stage you have to assume that you’re not going to be great at pitching. Do you really want to talk to a highly networked VC within your first week of fundraising? The overwhelming chances are that they’ll pass, but once they do you can’t control who they speak with or what they say. This is a less discussed, but very real form of signaling risk.
Fundraising Management
It’s more efficient for your time and sanity to have one co-founder lead all fundraising efforts while the other focus on the business. Most times this is the CEO but it really needs to be the strongest communicator. Have the lead take all intro meetings and bring the co-founder in when appropriate, which is usually the full partner meeting.
“Whichever founder is the better communicator should do most of the talking, you don’t need to artificially split up answers.” — Toby Mather (CEO of Lingumi)
Always Use a No
Don’t ever forget to follow up! Every pass is an opportunity to learn more. If it’s a good no (“you’re too early” or “we can’t invest right now”) ask that investor for introductions to others. If it’s a bad no (“we don’t get your product”) as for honest feedback to make yourself better. You may not always get a response, but asking for ways to improve demonstrates professionalism and a commitment to the business.
Lines not dots
Every investor has an opinion but that doesn’t mean it’s right. As a founder you should know your product/market/team better than anyone so one viewpoint shouldn’t be enough to change your opinion. If an investor says they think your strategy is flawed, brush it off and know that they probably weren’t right for your business. If, however, you get five investors saying the same thing you might want to think through some stuff.
Build your auxiliary team
An auxiliary team is anyone you can call on to help you out with the fundraising due diligence that will inevitably come. As you finalize your pitch, you’re going to see a pattern in what investors gravitate towards. It could be your customers, your growth plan, your references or maybe all three! As these patterns emerge, start to build out a shortlist of trusted resources to share with an investor based on their concerns. If you’re seeing a lot of customer/market interest, you should identify a few enthusiastic users who would be willing to speak on behalf of the product. If your meetings focus on the use of funds, spend time curating a list of hiring targets for your critical roles.
Stamina
Fundraising can be a very emotional experience. You will experience rejection. You will experience doubt. This is normal, and I always tell founders to trust in the process, but I recognize that this is much easier said than done. There’s no ideal timeline of how long this stage will take, but if you’re 100% dedicated to this I would argue that two to three weeks is sufficient before “active fundraising” begins.
“Fundraising is your opportunity to use investors to improve your business.” — Marc Sloan (CEO of Context Scout)
To be clear, there’s no magic number of meetings, strategy sessions or . Instead focus on the point where you feel very confident going into any meeting. When you feel like you’ve already thought of any questions/concern an investor can mention. That confidence is worth its weight in gold.