(a secret) fundraising guide

Stage 1: You are not fundraising

You want to start fundraising before you start fundraising. Investors should feel the company is happening regardless, either they get on the bus or not. Do not make it feel like you are asking the investor permission to start the business.

If you are meeting investors, it should feel casual. Meet them for a coffee, not at their office. Spend time socializing.

Use them to help explore the idea maze. Do not bring a deck. If they ask you for a deck, say “I don’t have one, I’m not fundraising.”

You are building relationshpips for the life of the company (10+ years). Build rapport that will support all the future ups and downs.

Remember that you and your company are being judged in every interaction. During this stage, consider bringing in smaller investors at a pre-seed valuation on a capped SAFE. They will help you work your way up the chain to seed investors. They are incentivised to hype you up to mark up their books.

You have only a few bullets to get in front of investors; use them carefully and not too early. Do not shoot them before you are ready. Those bullets include: asking your network for introductions. Another is changing your LinkedIn status to “Founder at Stealth” or similar. This will trigger an alert in VCs’ monitoring software. If you are not able to get good introductions from your network, consider working at a strong early stage startup before founding. You want to start off with every advantage you can get.

Stage 2: Run a tight process

Once you start fundraising, act like the fundraise is already done. Know upfront what market raise and valuation is for your stage of company as well as what you are aiming for. You should say “I am aiming to raise $XM for the company to reach the next milestone.” Do not give a valuation number, let investors offer it. You can say “we want something reasonable but will let market decide what is appropriate. We are not optimizing for the highest valuation but for bringing in the right partners.”

Bring a good startup law firm onboard (eg Goodwin, Cooley, Wilson Sonsini) and they will tell you what is market for startups at your stage in terms of terms, valuation, etc. Read Venture Deals to better understand the terms being negotiated and the dynamics with the funds you are talking to.

You want to create deal heat You will only get good terms if investors fear competition taking the deal. In a perfect world, you will start your fundraise with a term sheet in hand and every investor you meet feels like you are meeting because you like them personally and want to bring them in.

Run a two week process. Do not go longer.

End every meeting with: I am not trying to apply fake pressure here, but we have {term sheets, verbals, etc} and are looking to wrap up by {start date + 2 weeks}. If it’s not a fit for you, that’s not a problem.

Investors are professionals. They will be very persuasive that you should end the process early and take them on. Do not agree to this; run your full process.

Schedule thoughtfully. You want to work your way up to the most desirable investors.

Perfect your pitch. Learn from investors after any interaction. They will find and dig into the company’s weakest points, whether its market size, product, etc. Aim to strengthen the story each time. If you run a good process and speak to smart investors, the company will come out stronger on the other side. They will be great at pattern matching against hundreds of other startups and telling you your weaknesses.

The pitch is a performance; practice the theatrics of it. Every meeting is a performance. Do not try to transfer all information to them as fast as you can. Let them explore the idea maze with you. Gently guide the conversation to where you want it to go. Watch your emotions. Do not get defensive or overly excited in a way that hinders your message.

Be confident in your thinking, investors will challenge it. Practice the chemistry between you and your cofounder(s). The biggest seed stage risk is cofounder break up and investors are looking out for small signs of this: Are there non-verbal signs of tension? Is one founder taking up all the space in the room?

The content of your pitch should be a persuasive story on how this company will easily get to the next round of funding and has a clear path towards becoming a public company. The worst seed pitches are focused on a small niche and claiming there’s a large market for it. You will be rewarded for being ambitious; hope to rebuild entire industries.

You want to show the following traits to investors:

• Execution focused: you are organized and follow-up quickly.
• Driven: Have something driving hunger in you. Be high energy and a good sales person.

Understand the fund dynamics. VC is a relationship driven business; aim to have personal connections with everyone you meet. Understand who you are talking to at the fund. Is it a partner, principal or associate? Who do they need approval from to make a deal? Do they have power inside the fund to negotiate on your behalf?