Always Be Raising: A process for raising early stage capital
Being in the seed finance ecosystem, we get questions from founders all the time in relation to raising capital:
“When should we start raising”
“How do we find investors”
“I don’t know any VCs, how can we connect?”
And so on…
They’re all chasing that magical silver bullet on sealing seed investors so that they can get back to building their wonderful startup.
Unfortunately, there is no secret sauce on how to get an investor or group of investors to back your startup. BUT, I believe there are ways that you can make it much easier for yourself so that the fundraising process is not as stressful and time-consuming.
A critical fault that I see with startups is that they leave it too late. They think, OK so we’ve got about 3–4 months left of bootstrapped runway and that should be easily enough time to nail down further angels or early stage VCs so I can keep my venture alive. They then proceed to allocate 80% of their time to fundraising for the next few months. Knocking on door after door, pitching away, wading through sh*tty term sheets, dealing with lawyers etc etc.
This process does work, but to the detriment of your startup — how can it be helpful if one or more of the founders are pulled off the business for a period of 3+ months to focus on capital raising? In short, it can’t but people have resigned to the fact that it is a necessary evil and thus get on with it to survive.
They also don’t do themselves any favours when cash is drying up and hence put themselves in a position to be squeezed on valuation and key terms. Desperation is the friend of the investor.
I believe there is a better way and I’ve outlined below how I would attack this as a founder chasing them dollars.
Always Be Raising (‘ABR”)
For the founders out there wondering when to start the fundraising process, is it 6 months, 4 months, 3 months, maybe 2…
Nope, it’s now. It’s yesterday.
My advice is that you should ABR (“Always Be Raising”) and what I mean by that is that you should ensure that you are always trying to meet potential investors and create meaningful relationships. I would be suggesting that a founder in charge of capital raising should allocate between 10–20% of their work week to investor relations & relationship building, whether it’s researching investors, meeting for coffees, writing up business updates — I will outline all of these below.
Relationships matter in this space, investors want to trust that you are the right team to back and that you’re not going to wash their money down the drain. In the early stages, there’s not much to go on from an investment decision — generally there is a team (a few talented people), an MVP with maybe a little of traction and a dream / vision on where the idea could go. Based on the above formula, it means a LOT of focus is reliant on the team being the right people to create something special.
But we’re not raising, won’t the investors get p*ssed off?
Put it this way, if it’s the first time that I’m meeting a startup and they have their hand out for money — it’s gonna be tough to get me from a no to a yes. You leave yourself one hour to convince me (the hypothetical investor) that you are the right team, chasing the right idea, at the right time and there’s this big opportunity. If you stuff up your pitch or miss your message, then you’re out the door and the investor is already onto the next pitch, board meeting or portfolio company problem to deal with.
Don’t get me wrong, this is generally the process that happens in this space. Yet I believe there is a more effective way.
I’ll talk a bit more about how to get in the room with the right investors below, yet when talking about how to handle a conversation with an investor when not actually raising. Use the guise that you need advice. It gives you the chance to explain your business or ‘set the scene’ of what you’re doing, team, idea, industry (aka a mini pitch) without actually pitching. Also, asking for advice with them as experts makes them feel important. You want them to know you and your team, know what you’re doing, know more about your business. You want them thinking about your business and trying to help — LONG before you ask for a $ into the account.
Don’t be wishy-washy if you’re not raising, say that you respect the work they’ve done and wanted to get advice on how you’re tracking to date. When asked if you’re raising, say “No” and that’s it. Don’t skirt around the topic because you’re not actually raising but you want them to be interested. It doesn’t help if they ask and you respond with “well that depends… are yooou interested?”. If they are interested, yet you have nothing ready to go — no Dataroom, no targets hit, not enough traction etc. It will either reflect badly or have an impact on a proposed deal. If they’re not interested, then you are back in the “see you later” bucket and have missed your chance to convince them that you are the real deal.
Be open with them, get their thoughts on where you’re at, ask for advice and then ask to keep them updated.
How do I find the right investors?
Research & hustle. Find out who prominent early stage investors within your area and industry are. Use the freesources available to find the angels or funds that are invested in similar startups. Do this by checking out platforms such as Crunchbase, CB Insights or AngelList — they have info on the majority of funding for startups and market maps on who is investing by sector. Google is your friend.
Form a list and rank them on most suitable. Focus on finding investors that like your industry (maybe not invested in direct competitor but know the space), have invested in similar stage companies, are in the city that you are starting your business etc. Do the research on each, and start forming a list of your dream team investors (with notes on applicability to you).
How do I get in front of the investors?
Get an intro. If you don’t have intro… find one. If you can’t find a way to get connected or miraculously ‘bump into’ your top investors on your list, well you’re probably not the hustler that we want to back to go and chase down that unicorn status in any case. Ask mutual connections on LinkedIn for an introduction, go to events where they are speaking and hit them up afterwards, befriend founders of their portfolio companies, chat them up on twitter with questions. Do more than a cold email sent from your desk.
One of the best channels for intros is through other founders, they all have relationships with investors and VCs and as I said before, relationships matter and are what are going to get you in the door on a warm & friendly basis. Don’t be afraid to ask them for an intro, if a founder of our portfolio intros another startup founder then we will more than likely take a meeting — they’re validating that they are worth a coffee at least.
How to get a coffee?
You’ve met the potential investor, maybe out at an event and they’ve given you one minute to pitch what you’re working on. Don’t waste it, that one minute is the difference between a meeting or not. You’ve done the research outlined above, you know their portfolio or relevant investment mandate and hence play to that. The goal is to peak their interest enough to get a meeting, don’t try pitch them — say you love their work on ‘Company X’ and would love to get their advice on ‘Problem Y’. In this case, it’s not about ABC (“Always Be Closing”), ‘closing’ means getting a verbal commitment to meet. That’s it, get their contact details for the meeting and leave — you can go into details when you follow up and hopefully lock in time to connect.
If you have been introduced to a prominent investor on email, don’t waste it with a laboriously long lengthy email or massively detailed deck. Be concise and give them enough meaningful information to get them interested in what you are up to and then request a meeting (best if you are local) or a call. Include an intro deck, they’ll spend at least one minute reading the first few pages… maybe. In any case, a warm intro is generally enough if the opportunity is within their investment mandate. Just try get a meeting.
On the topic of warm intros, most investors information is available on their websites (at least Twitter & LinkedIn). I would NOT suggest contacting them cold on their email or via LinkedIn message. They will get a bunch of these emails / contact requests and are most likely to delete or ignore. You may get lucky, but if you can find a warmer way in — do it.
How do you keep them interested without bothering them?
Communicate, subtly. Start building a list of potential investors (after pseudo pitching them above), and make it easy for them to track your progress. Send out a monthly progress update on Campaign Monitor or Vision6 (local is best!), include all the good news and highlights of your wins / progress — your first customer, first ship of product, first hire…
Make the story positive and tell your story. Also have an ask, any keys issues or intros that you need, you’ll be surprised who responds saying “oh hey — I have this contact in Company X, they can help with…”
Communicate often enough to stay relevant. Leading up to your fundraising period, you should look to send out at least a monthly update with the key points. Include your previous goals and milestones, and show that you’ve been nailing what you set out to do.
Then… Open the floodgates!
So now, you actually need the money. And because you’ve done the hard work to create an investor following, you now have their contact details, they know what you’re working on, they know whether they’re interested (you might not). So, start kicking the tyres — get out there and pitch properly.
I’m not going to talk through what is a good and bad pitch. That’s for another day.
In fact, my hope for you is that you never have to do a full pitch because all of your hopeful investors have been on the journey with you and when you open the investment round, they knew they were in months ago.
That’s it from me, if you need further advice — contact me on stewartg@transitionlevel.com.
