Silicon Valley is littered with  myths about investors offering million dollar checks over coffee.

Sound too good to be true? That's because it is. 

Those stories make for good headlines, but the truth is more nuanced.

What seems like a split second decision often took an entire career to build the level of credibility, trust and even luck required to land that kind of investment.

The bitter truth is that most fundraisers fail. They fail for many reasons, but every successful fundraise follows six steps.

Follow these six steps to beat the odds and raise millions in funding:

1. Decide whether venture capital is right for you

Venture Capitalists expect 10 times their returns in less than seven years. They're not interested in linear growth and will pressure you to manage the business to grow sales at that rate.

Not every company can achieve that kind of growth. If you don't plan on embracing that goal and the tactics to achieve it, don't waste your time talking to venture capital investors. They won't invest anyway.

 "Venture capitalists sit in pitches all day long, and can usually sniff out nonsense. Be upfront and candid about your business's journey and your plans for it" says Brad Hargreaves, founder of immersive education program General Assembly and co-living community Common. 

After raising nearly two hundred million dollars in funding, Hargreaves advises "Remember that most companies shouldn't be venture-backed, and there are plenty of other sources of capital out there: angel investors, family offices, small business loans and lines of credit, grants, and more."

If you decide to raise venture capital, keep reading.

2. Grab investors' attention

Investors' inboxes are overflowing with potential deals. You need a headline that is noteworthy enough to cut through the noise and grab their attention.

It could be an industry luminary who agreed to become an advisor; a key client with name recognition; an award at a startup showcase; or an anchor investor who lends credibility to your raise. 

The point is to demonstrate external validation from your industry that you're working on something interesting.

3. Get the right introduction.

Don't let your email be lost in the spam box. Investors rely on a trusted circle of advisors and friends to send them deals. If someone outside that circle introduces you, odds are low that they'll pay much attention.

The most powerful introduction is from a founder in the investors' portfolio. Portfolio founders have already earned that investor's trust in a way that few others have.

The next best introduction would be from a client who is a genuine fan of your product and can credibly speak to how it will revolutionize the industry.

Avoid asking investors to introduce you to other firms. Whether true or not, the perception is that investors tend to only share mediocre deals. The assumption is that investors selfishly guard their best deals for themselves.

4. Build momentum.

Just like any good story, you need to build towards a climax. The exciting news you used as a catalyst may have got you the meeting, but it won't be sufficient to hold their attention over the next month of diligence.

You need to keep investors excited. Each week you should send an email update that includes a meaningful piece of news like: any new clients, feature releases, or press coverage. 

5. Set expectations.

Investors need to know exactly what you plan to do with the money you raise.  

In the early days of Betterment, the goal based online investment platform, co-founder Jon Stein learned that lesson the hard way when raising a Series A in 2010: "I had only a loosely formed idea of what we'd do with the money. Obviously we wanted to hire some people and grow and serve more customers, but I [only] had rules of thumb in mind."

He struggled to persuade investors until he could confidently answer a few specific questions for the investors such as "what the things we'd accomplish in a year, which hires it would require, how much that would cost and how investors should judge our success."

According to Stein, "having a cohesive story was game-changing. We ended up closing $3M" and Betterment's gone on to become a unicorn worth over $1B.

6. Set a deadline.

Define a deadline when venture capitalists need to decide whether they will invest.

It doesn't matter whether it's an artificial excuse. It just needs to be plausible. The point is to take advantage of the momentum you've created and impose a conclusion.

Otherwise, you run the risk that investors delay decisions indefinitely and continue to ask for just a bit more information and traction.

It's not impossible to close funding without these attributes, but it will require more luck and likely frustration. So do yourself a favor: don't bother kicking off any fund raise until you have these attributes already mapped out.

Published on: Jan 5, 2018