Some Advice Before You Hit the Fund Raising Trail

Mark Suster
Both Sides of the Table
8 min readMay 7, 2018

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Fund raising.

It definitely has a “d” in it, as in it’s really not fun, raising. But it’s critical for your business, for you as a leader and people who excel at fund raising have an extreme advantage over those who do not. The best entrepreneurs in our industry focus on it year-round as opposed to just once every 18 months.

As a VC with scores of startups in our portfolio we have ringside seats to many, many fund raising processes plus I had to raise money across about 5 different rounds of capital as an entrepreneur so I’ve developed some thought on the process that I hope can be helpful to some of you before you start.

As a VC I also have to fund raise every three years and these posts 100% apply to VCs raising money, too.

Rather than overwhelm you with a super long Suster post I thought I’d break it up into a series of 13 (or so, might expand) posts. Below is the outline Upfront.

1. Lemons ripen early

The hardest thing about fund raising is how dispiriting it can be. The reality is that very early in your process you’ll hear “no” and it can set you back and make you think that nobody sees your vision or values your progress to date.

The trust is that “lemons ripen early” meaning that the easiest thing for an investor to do is say “no” quickly to a deal if he or she doesn’t feel like your business is in her wheelhouse, fit her investment thesis, isn’t the right stage or frankly maybe she’s just too busy with other deal related stuff that she doesn’t have time to evaluate your deal.

So you might hear 9–10 “no’s” in the early stretches of your fund raising process. It is CRITICAL that you not let this get inside your head. Just remind yourself of lemons. Sure, you need to learn what the common theme of the no’s are and be willing to make adjustments to your pitch. But if there is nothing wrong with you then please don’t let early rejections alter your course.

A huge mistake I see is that VC tells an entrepreneur no based on a set of reason that this VC felt weren’t right with the business (market size, traction to date, too many competitors, no big exits in the category or whatever easy excuses VCs have developed to politely say no) and the entrepreneur lets this get inside his or her head.

Let me give you an example. Let’s say you have built a SaaS company where a large part of the early revenue comes from a few big customers or a large part of the revenue is services based vs. software based. It’s important to know that these biases may affect a VCs evaluation of your business but it’s equally important that you not start saying early in the meeting, “I know we only have a few clients today, but …” or “I know that today we have 40% services revenue, but …”

It seems absurd reading this that entrepreneurs would do this but I promise you this is one of the most repeated mistakes I see and it often comes out in subtle comments that you drop in the meeting. You’ve lost your swagger because after 10 “no’s” you assume that everybody is going to see the same potential flaws in your business.

“I know that our repeat purchase rate is lower than the industry average now, but …”

“I know that our margins are lower than VCs like to see, but …”

“I know our revenue decelerated in the last 2 quarters of 2017, but …”

Remember that fund raising is a sales process. The investor is a customer and they have money to spend but only for a limited number of companies. They are buying trust in you that you will build a large business that will be valuable. The first “Blink” evaluation they’ll make is about YOU and only when they’ve subconsciously decided whether they find your smart, likable, credible, a good leader, inspirational, competitive and all of the other subconscious attributes they’ll look for do they begin to truly think about whether your business idea has legs.

That’s why it’s critical not to let yourself get into the weeds early in a fund-raising meeting and allow time for your concept to sink in while they’re subconsciously evaluating you. Of course you need to have answers to all of the hard questions that you know you can anticipate about your business — just don’t lead with them!

Once you accept that lemons ripen early I hope you’ll realize the following about fund raising

  • Fund raising can be a numbers game so you really need to do research and have a long list of potential VCs in case the earliest ones don’t bite.
  • Fund raising is a confidence game so you can’t let yourself get psyched out by the early “no’s”
  • For most companies fund raising takes a long time so start early!

If you want some more reading on this topic … I’ve written some relevant posts in the past here:

A. What to do about that chip on your shoulder?

B. How to get your Series A mojo back

The rest of the outline I’ll write as a series to come back to this blog if you want to read more.

2. Measure twice, cut once

The key is you need to plan out your fund raising rather than “winging it.” I know it sounds obvious but in my experience people don’t put nearly enough time into planning. Here’s a post to help you.

3. Remind me why I love you?

Fund raising is an in-person sport. If you have a great first meeting you might think the fund-raising momentum will begin immediately. It often doesn’t and three weeks later your investor has had 19 other pitch meetings. You need to get back in front of them — in person! This post talks about how to do this and why.

4. You only need one “yes,” but when it rains, it pours

The most annoying thing about fund raising is the herd mentality of most investors. They want to sit on the sideline and continue meeting casually and get updates from you but they rarely want to commit. It’s easy to lose your confidence when nobody seems to believe in you. I try to remind entrepreneurs, “you only need one yes” and that even though you read about successful fund-raisings by others it’s usually after a long and arduous process that is never reported in the press.

5. How to Run a Fund-Raising Sales & Marketing Process

Raising capital is like any sales & marketing process and if you plan and execute wisely you’ll have more success. Like everything else you do as a startup you have limited resources so you need to put your resources against the actions that will yield the highest results. In this post I describe the sales funnel, how a VC thinks about their internal decision process and how you can make progress.

I cover “How Many VCs Should You Meet” and how do you know whether they’re engaged with you?

6. Just send me your dog damn deck

Many people advice you to send links to VCs rather than sending them your deck in a PDF format. The rationale of those who are trying to be helpful is that you can control the distribution better, make sure your decks aren’t passed around, remove access when you want to and you get analytics that track usage. In this post I argue that this logic works against you. The goal of a fund-raising deck is to get read widely within a VC and across VCs as it helps you with marketing and any friction you add to the process is negative. Nothing in your deck should worry you. Read this post on Sending a VC Deck to understand why …

7. Why you should never have a data room — the most counter-intuitive fund-raising advice you’ll get

Data rooms are where sales processes go to die and fund raising is a sales process. Often the data room is an excuse for uninterested parties to download a bunch of your proprietary information so investors can use to better understand industries. Don’t fall prey to this trap. You should trade your sensitive information for engagement with a prospective investor and test whether or not they are really evaluating your company. In this post I offer ways to use your financial information to help support your fund-raising process.

8. Why “no” is ok in fund raising

If you’re not willing to hear “no” you’re not pushing hard enough. Investors always delay processes and only those bold enough to risk a “no” move the process along more rapidly. Read this post on “why accepting a possible ‘no’ can lead to more ‘yeses’ for you.

9. Confidence sells

So much of raising capital is being able to persuade skeptical investors that you have the right vision, team, product and market opportunity to drive enormous returns on an investment. It’s very hard to persuade investors in the best of times but given how often investors meet with entrepreneurs they develop a sixth sense for when you lack confidence. This post will talk about the importance of confidence and how to show evidence during your fund-raising process.

10. Land and expand

Many entrepreneurs spend almost all of their time prior to a VC partner meeting with just one partner at the firm and perhaps one associate. By the time he or she arrives at a full partner meeting there may be 4–10 other people in the room that day making a final decision. In this post I talk about both the need and the methods for meeting with other VC partners prior to your ultimate judgment day. It will increase your chances of coming away with a term sheet.

11. Cash in, cash out

When a VC is evaluating you in the first meeting he or she will be looking for some key fund-raising metrics to test the reasonableness of your plans. I call these “cash in, cash out & milestones.” Cash in is how much you’re raising, cash out is how long your runway is and milestones are what you’ll have to show for yourself at the end of this period. In this post I expand on what VCs really want to see and why.

12. How to talk about valuation

For most fund-raising discussions you shouldn’t name your own price but it is the job of an entrepreneur to “anchor” the investor in a range without speaking it and then to test the investor’s reaction to the price guidance. This post gives you the language and strategies you need to pull this off.

13. How to go for the close

(coming next …)

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2x entrepreneur. Sold both companies (last to salesforce.com). Turned VC looking to invest in passionate entrepreneurs — I’m on Twitter at @msuster