Dear Founder,
While it can be disheartening (and frustrating) to feel like you’re not making progress with fundraising, you should know that many WIN companies have been in a similar position at some point in their lives. Below are a few thoughts and ideas that we frequently give our founders as they struggle to build momentum with venture funds and investors. Our industry is unfortunately quite extreme in the sense that often everyone wants to give you money, or no one wants to invest in your company. If you are in the latter category, it’s crucial to focus on the business to make the investment as attractive as possible. Fundraising takes a lot of time and can be very distracting. It also can feel like you are starring in Don Quixote, chasing down windmills. How you respond to these setbacks, and how you prioritize your time and effort, will have a big impact on your happiness and on your fundraising success.
- First and foremost, are you speaking with the right people? I cannot stress enough how important it is to be targeted and measured as you build your investor list. Have you had a chance to speak with investors and advisors who know the market well and who could give you advice and who might be able to open doors for you? If you find yourself meeting with seemingly random investors at the early stage, there is a high likelihood that you might be barking up the wrong tree.
- We often counsel our founders to think of investors in different buckets (we call them “sorties”). Try to group 3-5 investors in each sortie, and reach out to each group individually rather than blasting everyone at once. This approach may seem slower, but it often enables you to incorporate feedback and to build momentum as you move to each successive sortie.
- Fundraising is all about building and maintaining momentum. Once the lead falls into place, rounds normally come together very quickly. How does one find a lead? In your initial investor sortie, we recommend that you speak with a handful of leads and also individual angel investors who can commit before a lead is in place. Ultimately the lead will determine how a round comes together, but sometimes progress with great angels can also encourage a lead to move (and they can also introduce you to leads they frequently work with). While it might feel counter-intuitive, sometimes starting with some of the smaller players can yield a better overall outcome.
- Are you setting yourself up for success? Do you have any leverage going into these meetings? Often, the most important source of leverage for a founder going into fundraising is having plenty of runway (you do not need to raise, but feel the time is right). Does your investor “ask” make sense (are you raising an appropriate amount for the stage of your business)? Can you show that you have the right team and the right approach to tackle your market? Investors can latch on to perceived “dealkillers” (and these can blind them to other virtues of the company), so buttoning up many major concerns in advance of meeting can make a big difference.
- Are you internalizing and acting upon the feedback you are getting from investors after a meeting? If you start to detect a pattern in how investors respond (they think the idea is too early, they have questions about market, they have questions about competitors, etc.), it’s important that you address these concerns and take this feedback to heart. It is easy to dismiss investor feedback (“Investor X only spent 30 minutes with me, how could they possibly even understand the product I am building?”), but investors see many companies and have a good pulse on the market and when a company feels “fundable.” If you have the luxury of being able to do this, pausing fundraising for a month or two to focus on the business and messaging can make a world of difference.
- Are you being honest with yourself about momentum? Momentum is palpable, and you know when you have it. Follow-on meetings do not necessarily mean momentum. Does the investor seem to be leaning in? Is he or she proactively reaching out to you with next steps, or do you find yourself constantly chasing people down? At WIN, we often compare the process of making an investment to falling in love. An investor who is excited about your company will jump through hoops to make things happen, and you will feel like you are being fast-tracked.
- Start to think about Plan Bs. Can you raise a smaller amount of money to make material progress? Are there other potential investors (e.g. corporate VCs or industry players) who could add tremendous value and who might have more flexibility in their fund mandates? You should also have an idea of M&A potentials and start reaching out to contacts, if only to help build any sort of momentum as you engage with investors.
Some things to avoid:
- It is easy to become bitter with the fundraising process. Try not to focus on other companies that seem to have an easy go of fundraising. Try not to disparage people who don’t “get” what you are building. Investors are well-tuned to pick up these emotions, and often view them as a sign of weakness and lack of fortitude.
- Try not to create artificial deadlines or time pressures. Investors know when something is moving, and when it is not. A rush for a follow-up meeting, needing clarity as the round is coming together, etc. often present investors with an opportunity to pass. (You’ll hear: “We cannot meet your deadline at this time.”)
- Do not be coy, or give run-around answers, to questions about the state of the business or fundraising to date. Investors should do their homework, and will eventually find the truth so it’s much better to control this process and this dialog, rather than try to hand-wave these questions away (again, this can give investors a reason to send a quick “pass” note.) Another way to think about it: it’s much, much better for an investor to give you money knowing the thorny challenges you’re facing, rather than have them give you money on somewhat false pretenses.
This fundraising process can make you a better CEO. Fundraising is a lot like sales, only this time you are not selling a product but rather shares in your company. Though the process may be grueling, it can offer an important window of self-reflection and a chance to tighten your story and focus on the important drivers of your business. Also, this experience can serve to encourage you and your team to make the next round of financing as compelling as possible. Talk to a few potential lead candidates for the next round and ask what they ideally like to see in companies like yours. Be ruthlessly focused on getting to those figures (3-6 months before you’re out of cash), and the fundraising experience may be very different the next time around.
Best,
Jeremy