I learned from Ron Conway that fundraising should be something a founder does quickly and gets back to focusing on the product.
It’s just a small step in the process of building a company, and a founder should just get it done and over with quickly without obsessing over it too much.
Aaron Harris, a former partner at YC, also shares the same advice. He says it’s smart to have a definite date or time period when the fundraising activities must occur.
He says that investors are looking for evidence that the founder and their team are actually going to be able to pull off what they’re saying they will.
He talks about how any founder (even if they’re not part of an accelerator program) can replicate what happens at demo day without being part of a cohort.
The way to do this is to obsessively work on making the product better, talk to customers, get feedback, make the product better, and keep doing that for 3-6 months until you have revenue.
Once you’ve got revenue, then cold email a bunch of investors, and you will easily book meetings with investors.
Unless you’ve had a successful exit in the past, no investor wants to bet on you unless they have some evidence that you can pull it off.
The best way to do that is to generate revenue. You are always better off focusing on your product than trying to figure out how to convince investors to give you money.
Parker Conrad, the founder of Zenefits and Rippling, spent a couple of years trying to raise money for a startup before Zenefits.
During a pitch meeting, an investor told him to focus on revenue and reminded him that he and his team weren’t the “Twitter guys.”
Parker realized that he just needed to stop wasting time trying to raise money and build a product that sells itself.
He built Zenefits, and the rest is history. He’s now building Rippling, which has a multibillion-dollar valuation.
Cold Emailing Seed Investors
If you’re going to cold email seed investors, make sure you have something concrete to share in terms of numbers.
Do not cold email seed investors without doing specialized research on each investor and learning about their past investments.
The last thing you want to do is create a cold email template and do a mail merge to a few hundred investors.
Investors practically live in their email inbox, and they can quickly sniff out a real email from an email blast.
Sending cold emails to investors is an art. You need the emails to be short and informative, with just enough information to get a reply.
Don’t overwhelm the investor by writing a book in your email and attaching 20 documents for them to review.
Do not send your pitch deck unless an investor asks for it.
The moment a founder starts the fundraising process and takes the first meeting, word spreads quickly.
Investors discuss the deal, and if the first meeting doesn’t go well, the founder loses credibility with their startup.
This is why it’s important to do your due diligence, make a list of potential investors, and contact all of them at the same time.
This allows you to book your meetings quickly and complete the round of financing so you can go back to writing more product and generating revenue.
Crafting Your Story
It’s important to think about how you will craft your story when pitching to an investor.
What you focus on when talking to an investor should be slightly different than what you focus on when talking about your company to customers.
Investors will, of course, want to know what user problem you are solving and how you are solving it.
If there’s one thing you take away from reading this post, just remember that the investor invests in your story and the story of your startup.Investor invests in your story and the story of your startup. Click To Tweet
It is your job to craft a compelling story and be persuasive and intriguing enough to get an investor to write you that first check.
When you talk to an investor, focus on the big idea for your company, how it will reinvent the future, and what your plans are to dominate the market.
Investors want to invest in products that have a chance of creating a massive impact on the world and completely changing an industry, a market, or creating a market that has never existed before.
You’ll need to be able to answer questions like, “How are you going to capture market share? How might your company need to evolve in the future? What is it about your company that will make it a major player in this space?”
Investors want to understand the full story—what you are doing now, what your big vision is for the future, and how you plan to get there. They want to know you are thinking big and have a vision to get there.
A good strategy is to start with your current progress and plans for the near future, and then build your story from there.
What are your plans for the next 18 to 24 months? What milestones are you planning to hit? How will your company and plans change as you continue to grow?
If the investor ends up talking more than you out of excitement for your idea and vision for the company, let them. This is a good sign.
Problems With Raising Too Much Money
The funding from most seed rounds gives startups 12 to 18 months of runway. If you are planning to give yourself more runway, there are a few things to keep in mind.
As a startup, your most important resource is time, not money. It’s important to move quickly.As a startup, your most important resource is time, not money. It’s important to move quickly. Click To Tweet
Oftentimes, founders with too much money get comfortable, don’t move fast, and spend the money on unnecessary things that don’t move the needle or push their company forward.
Investors also expect more from companies that have raised more money. They want to see that you know how to spend the money to make progress and grow faster.
What if you raise a seed round for 4+ years of runway, but spend it wisely and don’t let the money negatively affect the team’s speed and progress?
Some believe that if you raise more money than you need and end up keeping most of it on the balance sheet, then investors may wonder why you haven’t used the money to make more progress.
Evaluating Multiple Offers
The majority of founders are not in a position to evaluate multiple offers or choose between different investors when raising a seed round.
If you are, it’s important to think carefully about the investors, understand their background, and know what their incentives are for giving you money.
Work with investors who can add value to your product. Bonus points if they are engineers, designers, growth hackers, and product-focused investors who can add value.
Don’t raise money for the sake of raising money. Focus on getting the money you need to build your business without losing control of it.
Fundraising for a Series A Round
Use a similar approach for raising a Series A round as for a seed round, for the same reasons previously discussed.
You’ll want to reach out to several investors at the same time and move through the process quickly.
It’s important to evaluate investors more carefully in a Series A round, though, because at this point in funding, investors will want a larger chunk of your company (typically 20%) as well as a seat on the board.
This means you will have a significant relationship with the investor for the rest of the life of your company.
A good strategy is to start building relationships with series A investors before you focus on fundraising.
This way, you’ll have enough time to get to know them before making a decision, and you can still move quickly once you begin the fundraising process.