Things I wish someone had told me years ago
Entrepreneurs who have raised money will say things like, “well, it wasn’t really all that hard, you know.” The truth is, for most entrepreneurs it’s a time consuming, humbling, and frustrating process that they only go through because they have to. This is especially true with early stage investment, where a lot of the bet is being made on intangibles like the team and idea.
Having been through the process, I’ve come out a little wiser. Here are a few “hacks” I wish I would have known before we started to raise money.
- Make friends with someone who recently raised – emailing investors directly is not a good strategy. They get a lot of inbound leads, and almost all of them are bad. So don’t put yourself in that bucket. Find a friend, or a friend-of-a-friend, or even just make a new friend, who has recently raised money. They will have the freshest set of contacts. Have them make intros to their investors, and even all the investors who turned them down. You will get way more meetings this way.
- Expect to hear “maybe” a lot – investors love to have optionality, and all things being equal they’d prefer to invest when there’s less risk. “Maybe” is code for: you haven’t convinced me yet, but I might change my mind so I want the option to invest later. Keep them on your list to send updates to, and they could end up being useful if you need others to fill out your round. “Maybe’s” often convert to “yes’s” once you have a lead investor or a majority of the round committed.
- Create scarcity – this will force your “maybe” responses to choose to say yes or no. The way you do this is to setup as many meetings as you can in a short period (typically 2-3 weeks). Investors often talk, so if they find out you’ve pitched others at the same time it makes them nervous someone else might say yes before they do. What you should not do: spread your meetings out over a two-month period. This will make it look like you’ve “lost momentum”. You might also get a weak offer early, which makes it a difficult decision if they won’t wait for you to chat with other investors in a month.
- Be data driven – you need to be organized and analytical. Keep track of all your investor leads and intros in a CRM like Streak, Pipedrive, or RelateIQ. Take time to learn about these firms and people using resources like AngelList. Figure out which investors are interested in your space and stage, and prioritize these. You’ll find some investors just aren’t interested in your space at all, so don’t bother reaching out. When you send your pitch deck out, use a tool like DocSend so you know who opens it, how long they look at each page, and who they forward it to. The control features will also minimize the chance of your deck being sent to a competitor.
- Have a backup plan – in negotiation there’s a term called BATNA – Best Alternative to Negotiated Agreement. If you aren’t able to raise money, know what your plan will be. This will give you realistic bounds on the terms you’re willing to accept. It’ll also make you more confident in your negotiations, which is super important (nobody likes an unsure entrepreneur). If you aren’t able to raise within a couple months, stop trying for a bit. Make some more progress on your business, incorporate feedback you got, and try again in 6 months.
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These hacks will save you some trouble, but above all focus on building a real business. For most people fundraising is an arduous process, so if you find yourself discouraged know you aren’t in the minority. Remember that fundraising is just a means to an end.