"Fundraising is fun," said no entrepreneur ever. But there are tricks to make it much less painful.
After raising over $100 million of venture capital cash for a few businesses (which has taken hundreds of investors meetings) combined with hearing war stories and advising countless other entrepreneurs, here are some of the best practices I've found from failing forward:
1. Think about both what you say and how you say it.
As daunting as fundraising feels, have the mindset that you're going to get it done--and show it. It's a mentality.
You aren't panhandling. You're selling a piece of your brain child and providing the opportunity of a lifetime to a potential investor.
You need to believe this. It will come across if you don't, and investors will believe you have traction. That's critical--if there's one common denominator with investors, it's that nobody wants to miss out on a deal and they will move as quickly as you make them.
For example, when asked, "How much are you trying to raise?" never say, "I'm trying to raise two million dollars." You aren't trying to do anything. You are "going to raise two million dollars," and you're "excited to make a decision in the next few weeks and get back to work."
2. Don't focus on valuation.
You only raise capital a few times in your career. Venture capitalists hear pitches all day long and issue term sheets for a living--this is all they do. As a result, many have developed test questions they use during the first meeting in order to suss out how much they can mess with the entrepreneur.
The first is: "What is the valuation you are looking for?" Never answer this question unless the valuation is already set and you're doing something like filling out a convertible note with a cap.
Your answer should be: "We understand dilution and aren't as focused on valuation as we are on optimizing for the best financial partner. The market is giving us a sense for what valuation will be."
Yes, you are indeed focused on valuation. Yes, you do care about dilution. But your job is to get a few term sheets--once you do, you can start talking about valuation. Plus, answering this way shows you are sane on valuation, have traction, are coachable, and tactical.
3. Don't reveal too much.
Another test question is, "Who else are you talking to?" Never answer this question.
The investor community is very small--there are probably the same 200 people early on every VC-backed SaaS company in the U.S. They all know each other. They all collude and will partner with someone you do not like.
Simply say, "We are talking to all of the usual suspects. David introduced me to you and he's introducing me to others as well. If there's people in particular you like to invest with, let me know who and I'd be delighted to provide them an update and work together."
Finally, there's: "What will you be spending the capital on?" Unless you're fundraising for an iron ore mine, a biotech company, or some science project, you're probably going be "investing in technology and further developing the sales and marketing funnel while continuing to understand and improve unit economics."
In other words, you are building a business with great technology and economics. Investors really like money--that's what makes them investors.
4. Run an organized process.
Think like a project manager: For a successful launch, you need deadlines, a list of tasks, and your assets (your pitch deck and story line) ready to go. Every fundraising round should have a start date and end date --time-based decision making really works. Just ask Kickstarter.
I'm not saying give a deadline. A simple "It looks like we are going to make a decision in the next few weeks" often works.
The exception: If you have a great business and real traction, definitely give a deadline. (I was signing the term sheet for ShopKeep's Series B from the parking lot of my wedding rehearsal dinner.)
Investors will move as quickly as you make them. The good ones care about your process and timing and want you to get back to work. Your job is to manage a peloton and keep the bikes moving forward until someone breaks out to the finish line.