By Codie Sanchez, CEO & Founder of CS Ventures
Before I give you the secrets to raising capital, here is a truth for all you starry-eyed entrepreneurs looking to create the next unicorn. Without capital, your idea will most likely never see the light of day, that sought-after IPO or a $100 million exit.
Capital is the lifeblood of a company. That is why thousands of companies flock to Silicon Valley to try to find the holy grail of "getting funded." Having raised capital for my own company and invested in companies that are raising, I know that it is certainly no picnic. In fact, one of our portfolio companies had to pitch 189 times to get their initial $4 million.
According to Harvard Business Review, fewer than 1 percent of U.S. companies have raised capital from VCs. I want you to stop, go back and re-read that number. Why? As an investor, I get hundreds of emails from startup founders pitching their firms. I commend the hustle, but I do not respond to most of them. I simply don't have time, and cold emails almost never result in a big win for the portfolio.
So, I am going to tell you my three rules for venture raising. And I'll start with this:
1. Never ever, ever, ever send cold emails.
I've spoken to dozens and dozens of my colleagues who run some of the biggest PE and VC firms out there. Only one of them could tell me about a company they funded cold. The leading mentality is that an entrepreneur ought to be thoughtful enough to get a warm introduction if they are going to succeed in the infinitely difficult world of startups.
Instead of cold emails, go to the VC firm partners' LinkedIn accounts, find a mutual connection, reach out to them, pitch them your idea and ask them to make an introduction to their VC friend. Or, even better, ask a current investor to help you make the introduction.
2. Find those predisposed to what you are selling.
The obvious route is so often never taken. I had a founder last week pitch me a pre-MVP, pre-traction, pre-revenue alternative energy play. I am very public. I say often that I don't invest that early, I focus on cannabis and I do not invest in things I don't intimately understand. This founder could have saved himself the 30 minutes of crafting his email and finding me if he had quickly scanned my investment thesis.
So, continuing with this example, find those who already invest in the energy industry, look into corporate VCs and incubators in that region, seek introductions to former energy executives, etc. They won't need as much convincing as someone who has no vested interest in the matter. After all, you wouldn't feed a pit bull birdseed, would you? Find people who are hungry for what you have. And if they aren't interested, chances are they have connections and could be willing to make introductions.
3. Build a dedicated base first.
Build your investor base with people who are obsessed with you and what you are creating, whatever that may be. If you haven't read Kevin Kelly's article on this marketing tactic, take three minutes and do so. The moral of the story is you will have greater reach and ease in fundraising if you first create a dedicated investor, user or client base. Then, over-service them: Keep them updated on a monthly basis and make it impossible for them not to want to share with their friends. Before you know it, referrals may come your way without a single phone number dialed.
I've seen this in practice at I company I invested in. The founder sends out quarterly and timely updates to all investors with bite-sized asks embedded. That may be why his last $7.25 million raise was oversubscribed -; especially when you consider his company is still in growth mode and figuring out monetization. It's really a two-for-one, as these consistent updates lead me to connect him with investors or clients. All that without a single cold call.
The last secret I'll tell you is we investors are hungry for the few of you out there who have what it takes to succeed. That is why we take hundreds of meetings, calls and pitches. We are looking for you. But just like in any fairytale where unicorns exist, you have to prove yourself through struggle and triumph. Where else in the world are you given treasure at the end of your hunt? So, come find us.
Codie Sanchez is an international investment head, investor, entrepreneur and CEO & founder of CS Ventures.