It definitely has a "d" in it, as in it's really not "fun" raising. But it's critical for your business and for you as a leader, and people who excel at fundraising 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 fundraising processes--plus I had to raise money across about five 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 fundraise every three years, and these posts 100 percent apply to VCs raising money, too.
1. Lemons ripen early
The hardest thing about fundraising 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 truth 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 nine or ten "no's" in the early stretches of your fundraising 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 a VC tells an entrepreneur "no" based on a set of reasons 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 versus software-based. It's important to know that these biases may affect a VC's 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 percent services revenue, but..."
It seems absurd reading 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 two quarters of 2017, but..."
Remember that fundraising 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 you 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 fundraising 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 fundraising:
- Fundraising 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.
- Fundraising is a confidence game so you can't let yourself get psyched out by the early "no's"
- For most companies fundraising takes a long time, so start early!