You Are About To Enter The War Zone. Be Prepared For Pain.
Unless you’ve been ordained as the hottest up-and-coming unicorn in Silicon Valley, nothing about fundraising is easy. It’s filled with painful no’s: No’s that take your breath away in how quickly and rudely they’re delivered; no’s that are tied up in pretty little ribbons and disguised as “let’s keep in touch”; no’s that come in the form of deafening silence after a series of promising meetings. Especially in the beginning, each one of those no’s will weigh on you heavier than you ever could have imagined.
There will be a lot of stress, anxiety, and sleepless nights. You’ll have days that feel like weeks, and weeks that feel like years.
You’re going to go from one meeting to the next — back to back to back to back. Some will go exceptionally well, others will be lukewarm and frustrating, and the rest will make you want to doubt your idea, choice of career, and possibly existence on this planet.
Gear up and get ready to fight through it all. Get ready to accumulate a lot of scar tissue. Get ready to explain to your mom later why you look like a walking zombie.
Don’t worry, it’s not always horrible. There are definitely moments of extreme joy in there. Moments where you feel high on life. Moments when it all seems worth it. But don’t get used to that feeling for too long. It’ll end at the next meeting when an investor reminds you how terrible your idea is.
Takeaway: Be prepared for an incredibly painful process — as painful as you think it might be, multiply it by 100. To cope with this, be honest, and be brave: When talking to your peers, don’t put on a front and act like everything is always awesome and easy, but don’t wallow in your difficulties either. Maintain your sanity amid the daily discouragements by staying focused on your core idea and long-term vision. When things end up a-okay (which I’m almost certain they will), these tough times will be something to commemorate.
Choose partners over brands
As much as we all like the sound of getting an investment from a big name VC firm, guiding clients through this process I realized that it’s much less about the brand and much more about the partner who will be working directly with your startup. This is true even at top-tier firms. This is not to say that a well-known VC firm is something to avoid: A good brand certainly gives you positive “signaling” (an indicator to others that your idea is worthwhile,) but the partner is what should make or break the deal (for you.)
In hindsight, I probably should have already known this. I’ve seen many friends’ companies get funded by a top-tier brand and a mediocre partner, resulting in a mediocre experience for the entrepreneur. Conversely, I’ve seen several instances in which an exceptional partner at a mid-tier firm has provided an excellent experience for the entrepreneur.
In short, you’re not entering a partnership with a brand name — you’re entering a partnership with a single person at that brand. And so you want to be working with someone who you respect, and who you strongly believe you can gain a lot from. You want someone who will pull up their sleeves and get to work with you. You want someone who is in love with you, your company, and your vision and is eager to help you succeed.
Takeaway: Look beyond a VC’s brand name. Plenty of no-name firms have backed big successes, and plenty of famous firms have invested in crappy companies. What matters is the person who you will be dealing with on a day-to-day basis. Choose a strong partner you’re excited about.
Set a time limit for your raise
Don’t let your fundraise drag on for months on end. I can’t overstate how important this is.
For one, you simply don’t have the luxury of time. Your product will never get built if you spend six months on your fundraising process.
Secondly, setting a time limit puts urgency on investors to make a decision and not marinate on it for ages — which, given the option, VCs will always do. You may end up reducing your total fundraise amount to hit your time limit, but it will probably be worth it. Without the sense that “the train is leaving the station,” a VC has every incentive to let your deal sit idly, as that gives them more time to collect more information (by observing other investors’ opinions of you, waiting to see how your company progresses, etc.). Investors can never have enough information, so unless there is a time constraint set by you, they may never pull the trigger and write a check.
While your company sits on the back burner, the VCs will be prioritizing other more time-sensitive deals.
Takeaway: Set a time limit for your fundraise. A good time limit for a seed deal (in my opinion) is 2–4 weeks (this is excluding the upfront time you spend in researching investors, getting intros, and setting up meetings.) When it comes to fundraising, buzz begets buzz: Once your round starts filling up due to the constraints you’ve set, you will notice a huge uptick in interest from other investors who want to get in.
Seek out investors who truly believe in YOU
This is true at any stage, but especially in the earliest ones: seed and Series A.
Your company might pivot, or the market dynamics might change, or your timing might be wrong. Choose the people who will be behind YOU regardless of what happens. It makes a world of a difference when you have someone who’s got your back no matter what.
You might be wondering how to tell if an investor truly believes in you. Well, trust me, you’ll know. It becomes clear from the very beginning. They won’t judge you for little mistakes or for not knowing something. They won’t start ignoring you when shit isn’t going okay. Instead, they’ll be jumping at every opportunity to try to help you, guide you, and work with you towards success. And when things get tough — which they always will — having people who have faith in you will make you want to push harder and fight through the pain.
But there’s one caveat: Be wary of people who work overtime cultivate an aura of “having high integrity with founders” versus those who actually have high integrity with founders. The only way to reliably do this is by doing reference checks with past portfolio founders (especially the unsuccessful exits) to find out what’s the real deal you’re about to get. Don’t be shy about reaching out to people you don’t know — the best bet is to get an intro through a mutual contact, but you’d be surprised at how willingly most founders are to share information with another well-meaning entrepreneur.
Takeaway: Building a company is hard. Choose the people who’ll come even closer to you when shit hits the fan (and it will.)
Don’t take anything personally
When you’re a founder, your idea feels like your baby — it’s something you’re proud of and fiercely protective over. But in the process of fundraising, your “baby” will get criticized left and right. It’ll feel really crummy.
After one fundraising pitch, a client told me he had an investor tell him flat-out that his idea was irredeemably terrible. That he should quite literally abandon it ASAP. That the best thing for my client was to go back to the drawing board, brainstorm a bunch of ideas, create a spreadsheet of them, and start from scratch.
Yep. Get used to it.
Don’t worry, not everyone will be so harsh. But there will be many subtle forms of criticism that you’ll get, and you need to get used to it. Some investors will totally “get it” — and others will not, for a myriad of reasons.
Don’t bitch and moan about how they suck for not getting it. I’ll admit wholeheartedly that this was my first reaction. It’s easy to walk around and say, “Whatever, this person is clueless. I don’t need them anyway.”
Look, it’s totally normal to get upset at someone for questioning your ideas. After all, it’s your baby. And they called it ugly! But the truth is, it’s not their fault for not getting it. It’s your fault. Yes, it’s your fault.
Learn to embrace criticism. Swallow your ego. Cool off for a bit. And then go back and figure out what you can learn from it. Maybe you weren’t telling the story well enough? Maybe you didn’t convince them of the problem you’re tackling? Or maybe — and this is very likely — you just suck at pitching, and you need to learn how to convey your ideas more effectively.
Every time this happens, replay every minute of the meeting and figure out what went right and what went wrong. Be ruthless with yourself. Really be objective. Figure out what you could have done better. Think back to every question that you sucked at addressing, and figure out how to tackle it for next time. Put yourself in the other person’s shoes, and figure out how you could have told your story so that it resonated with her or him.
To be able to do this, always jot down a few notes after each meeting. You’ll never feel like doing this in the moment — you’ll either be on an endorphin high after “nailing it,” or feeling super drained. Whatever it is, push through it — pull out your phone or laptop or notebook or whatever and do a stream-of-consciousness brain dump. It will come in handy later and help you improve.
There’s almost always a lesson to be drawn from every piece of feedback or criticism you get. Learn from each meeting and improve your pitch so that you don’t make the same dumb mistakes over and over again.
Takeaway: Remember that being a founder is all about getting used to rejections. Even after you successfully fundraise, you’ll get many, many, MANY rejections: from potential customers, employees, clients, and others. Get used to it. Get good at it. And don’t take it personally.
Avoid educational meetings
It’s a VC’s full-time job to learn about the latest tech and trends — after all, they are investing in the future. One of the best ways they do this is by talking to entrepreneurs that are building the future. The more companies and entrepreneurs they talk to, the more knowledge they gain about a particular industry or trend, and the better they become at their job. This is why VCs love to set up casual meetings — coffees, beers, whatever — with people who they think can offer them valuable insight into an industry or trend.
As an entrepreneur, you ain’t got time for that. Your priority as a founder is to build an amazing company. Which means you need to get back to building your company, like, yesterday.
Thinking back to some of my previous client’s experiences, there were several meetings where it was pretty clear from the interactions leading up to it that the investor was not very serious and that he/she was mostly treating the meeting like an educational meeting. It’s obvious when a VC is serious and prioritizing meeting with you and hearing about your company, and when it’s just a casual coffee date to chat.
The time, mental horsepower, and physical energy you expend in every pitch meeting is immense — and expending all that for an educational meeting is frustrating and generally never worth your time.
Takeaway: Take meetings only if you know that the VC is genuinely interested in learning more about what you are specifically building, and avoid educational meetings (unless it serves some other purpose for you.) One way to figure this out is by sending them a blurb or pitch deck ahead of time and ask them to let you know before you meet if it’s something they are interested in investing money into.
Research your investors
Most (if not all) investors will do “due diligence” on you — some more than others. A LOT of it will be backdoor references, so you won’t even know it’s happening.
Similarly, you should do your own research on investors. Personally, I think you can learn SO MUCH by doing due diligence.
How can you go about doing due diligence? One way is by reaching out to the VC’s portfolio founders and having a heart-to-heart. Ask them about their experiences working with the investor, how they’ve been helpful, what their core value-add has been. Don’t forget to ask about the tough times too: “What is one thing that has not gone so well?”… “What is something this person could do better?”… Trust me, every investor has their flaws, so ask a lot of questions and remember to balance it all using your own judgment.
Another way to do due diligence is to reach out to anyone in your network — entrepreneurs or not — who knows this investor and ask them for their candid thoughts.
These should all be relatively quick emails that lead to easy 5–10 minute phone calls. Do them.
Takeaway: You are choosing your investors just as much as they are choosing you. Find out who they are — their strengths, weaknesses and ways they add value to their investments — before you take the investment.
As much as I hate it, “signaling” is a real thing
VCs, especially at the seed stage — and especially in Silicon Valley — talk. They all mostly hear about the good deals. They all definitely hear about the great deals. Assume that your deck will get forwarded.
This creates a giant echo chamber. It sometimes feels like your pitch is being aired on live television, and a “no” from one investor means everyone watching can hear it — and will be much more likely to reject you as well.
Experiencing the ripple effects of negative “signaling” firsthand is a painful thing. Your first couple of rejections will feel like you’re spiraling downward into a dark hole with no hope of coming back.
When you’re starting your round and have no commitments yet, you’re relying on investors who can make decisions independently and back you before anyone else does.
Unfortunately, there are not as many of these as you’d think. You can and will sometimes find VCs who operate under truly independent philosophies, but by and large, venture capital is an industry ruled by a hive mind.
How do you get out of the negative signaling spiral? The best approach is to just keep working, keep doing you, and don’t worry too much about it. After all, if an investor is purely relying on signaling from other VCs, then perhaps it’s a sign that he/she doesn’t actually have a strong enough conviction for why they’re investing in you (or anyone else for that matter.) Is that really the type of investor you want?
On the flip side, the tide can turn quickly. Keep pushing forward until you have a lead investor. Once you have a lead, or even once you have a few investors who are seriously considering making a commitment, this can create positive signaling and lead to much more investor interest. Suddenly you have leverage, especially if your first investors are well-known.
Remember that signaling can be used to your advantage, and it should be. Once you do convince someone to take the bet on you, use that as a positive signal and let it drive your process forward. Trust me, it gets much easier after the first YES
Takeaway: Don’t underestimate the power of “signaling.” Use signaling to your advantage and leverage it when you have your first offer. And don’t get too bogged down on negative signaling — there’s really nothing you can do about it. It’s just how it works, unfortunately.
Learn to tailor your pitch to the investor
Every investor is different. They each have certain things they look for, have experience with, or are passionate about. Some want to spend an inordinate amount of time on your personal story. Some don’t really care as much. Some want to spend a lot of time understanding your “idea maze.” Some don’t. Some want to dig deep into the product specifics. Some don’t.
In short, different investors will dig into different things (e.g. your go-to-market strategy, the product, the competition, YOU, etc.) and to different degrees. So don’t go into a meeting and talk at her/him for an hour with your cookie-cutter pitch.
Instead, treat every meeting like a conversation. This doesn’t mean you let it drift into no man’s land and start talking about what you had for dinner last night. Instead, come up with 3–5 core things that you want to convey in every meeting. Next, do your research on the investor. Look at their past investments to understand where their interests lie. Look at their background to see what relevant experiences they might have. Look at their Twitter or blog to see what’s on top of their mind.
Then go into the meeting and initiate a natural dialogue. Tell your story while actively listening to their feedback and reactions and clearly answering their questions. You need to drive and own the conversation, while still making sure they are engaged and feel a part of the conversation. Throughout it all, keep tying the conversation back to these 3–5 points that you’re trying to get across.
Takeaway: Do not do the same pitch for every investor. Have a core set of talking points that you make sure to deliver every time, but be flexible with the conversation beyond that. Learn about the investor before the meeting and treat him or her like your friend — have a thoughtful and engaging dialogue.
Ordering is important
Sequence your meetings appropriately.
What exactly does this mean?
One suggestion I’d make is to speak to angel investors first. It’s best to talk to the angel community first because these are the people who usually are less formal and are willing to give you more direct feedback (if you ask for it genuinely.) Also, a rejection from an angel is generally:
- less embarrassing
- more friendly and light-hearted
- less loud, in terms of signaling
On the other hand, a rejection from a VC firm feels much more “real” and unfortunately can reverberate through the wider VC community.
Oh, and DO NOT TAKE YOUR BEST VC MEETING FIRST. Spend your first few days of fundraising taking meetings with VCs you are less in love with. Polish the shit out of your pitch. Iterate and iron out kinks in your pitch and deck after every meeting. When you feel like you’ve heard basically every question/concern/push back on the planet AND have to rock solid answers for addressing each one of them, go kill it with the investor(s) of your dreams.
Takeaway: Sequence your meeting appropriately, starting with angels and less promising firms, and then moving up the ladder from there. Use each meeting to improve your game for the next one.
Get good at playing the analogy game
VCs love analogies. “Oh, so you’re like X for Z?”
Of course, in your head, you’re thinking, “Uh, NO. My baby is one of a kind. Stop comparing my baby to someone else’s.”
The reality is, it’s not just VCs that do this. People, in general, find analogies helpful. Analogies help us make sense of the world. Analogies are like mental shortcuts for grappling with unfamiliar situations. They are inevitable.
So, use them to your advantage. A good analogy can serve as a very strong foundation for explaining your idea and be a great starting point to help get people interested quickly. Find one that you like (or at least, one that you don’t hate) and go from there.
Takeaway: Analogies can be a powerful way to explain what you’re building. Use them to your advantage, but also make sure to explain the idea from first principles so that they don’t walk away thinking you’re just another “Uber for X”.
It’s a numbers game, especially at the Seed stage
Sure, there are some rare cases where a founder will meet with a couple of investors and get a funding round squared away quickly and easily. But most likely, you’ll have to meet with many investors before you start to hear “yes.”
So treat it like a numbers game. For the seed stage, the average number of meetings to do is between 20–40. I was shocked to hear this myself, but it makes sense for a few reasons:
- You should plan to get no’s from about 80% of the investors you meet.
- Some of these meetings will be with angel investors, who typically write smaller checks.
- Having multiple options on the table gives you leverage in choosing the best investors for you.
Takeaway: Err on the side of setting up more meetings, not less. If you’re following my advice from earlier, you’ve already set a strict time limit for your raise. Knowing that you’ve only got 2–4 weeks to raise capital should make it easier to bite the bullet and get into meeting mode.
You don’t have a deal until the docs are signed and the money is in the bank
This one is self-explanatory.
I’ve heard many, many horror stories from founders who thought they had a deal in the bag only to be left empty-handed at the last minute. Don’t think it can’t happen to you. Keep following up with your committed investors until they’ve sent you a check — and the check clears.
Takeaway: Get the money in the bank ASAP. Then, get back to work.
Think twice if an investor doesn’t respect your time
As an entrepreneur, you have a lot on your shoulders and limited time to get it done. All VCs know this.
So if a VC still chooses to not respect your time and energy — for example, by being unapologetically late to a meeting, not showing up to a meeting, asking to do an unnecessary amount of diligence, taking weeks to give you an answer, repeatedly wanting casual coffee dates — then you should think twice about whether you really want to enter into a partnership with that person. Regardless of how well-reputed the person is, if these become repeated offenses, then they are early signs that they probably aren’t prioritizing you. Plus, is this the same way you want to be treated when they join your board?
Takeaway: Seek out investors who are sensitive to your time as an entrepreneur.
Go directly to partners (if possible)
When you’re a first-time founder, VC firms will often set you up to have a meeting with an associate instead of a partner. Associates are more junior at the firm, and typically don’t have the ability to write checks. Associates can sometimes add delays to your fundraising process, or worse, end the process too early before a decision-making partner even sees the opportunity.
Quick caveat: Associates are not always bad. In fact, if the first meeting with an associate goes well, they could serve as an invaluable champion for you in front of the firm’s partners. But for the purposes of your current round, it’ll ultimately be a partner who makes the call. So if you can, go directly to a partner.
If you have no choice but to start with the associate, treat it like a partner meeting and take it seriously: Get all the help you need to prepare for an eventual meeting with the partner(s). Generally, the associate will have discussed the deal with the partner(s) before you meet them. Ask them what questions and concerns the partners have. Ask them what things you should focus the meeting on.
Oh, and don’t blow off associates. It’s not going to get you anywhere. Associates know very well when you don’t want to pitch to them or aren’t taking them seriously, and it’ll likely hurt your chances of ever reaching the partner in the first place.
And of course, it’s always important to treat every person you meet in the fundraising process (and life in general) with the utmost respect. Not only is it the right thing to do, but you never know who you’ll cross paths with again in the future.
Takeaway: Try to get an intro and meeting directly with the partner. If it’s not possible, it’s not the end of the world. Use the associate to your advantage to help champion the deal in front of the partners.
Go to partners who have the political and social capital to make the deal happen
I learned this the hard way: Make sure that the partner you’re working with has the political and social capital within the firm to actually make the deal happen. And that he or she is willing to spend that capital on you.
Oftentimes, junior partners will inflate their ability to make a deal happen. They’ll overpromise and get you all excited and giddy as an entrepreneur. And when it doesn’t work out, it leaves you in a really shitty spot.
Never assume a deal is done until you actually have a partner meeting AND you actually get a yes.
Takeaway: Go to the partner who can and will stand up for you at the partner meeting, and has the political and social capital to push the deal though.
You’ll know when a VC is interested
99% of the time, you’ll pretty clearly know how interested an investor is from the get-go. They’ll be engaged during your conversation and give a clear indication of the specific next steps you can expect. They’ll talk with confidence and say something like, “I’m going to talk to my partners tomorrow at the team meeting, and also do a few reference checks. I’ll be in touch by Thursday.”
In short, they’ll be super responsive, polite and engaged.
If, on the other hand, they don’t follow up for days or even weeks, they repeatedly tell you they need more time, or they avoid you altogether, then it’s probably a pass. Many times, you won’t hear an explicit “no” at all. But if you read between the lines, it’s clear when you’re being blown off.
Takeaway: You’ll know when a VC is interested. Don’t waste your time hoping and praying on the ones that aren’t. Just move on.
Always remember: The whole world can say no. You just need one person to say yes.
All you ever need is that one YES. Hold on to it tight and be ecstatic when you get it. That’s the moment when the wheels start spinning and you’re off to the races.
Takeaway: Hustle till you get a yes.