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Valley Fundraising Primer, The 2012 Fall Edition

The few August months I’ve been here, the same thing happens in the Valley. A lot of people leave. People get married. Or they visit family. Or they get away. The result is that the actual pace of pitching and funding for startups slows. This isn’t news. Though, I’d bet each August and the proceeding fall season are different in their own special ways. And, if July and August are any bellwether, it will be a crazy, crazy fall season for startup fundraising. I typically don’t write posts like this because — well — what the heck do I know about this? But, I am observing (in the Valley), and I thought this would be helpful to founders who are just starting out and/or going out to raise another round given the sheer number of founders I’ve already met who are planning for this.

To be clear, these are just ideas for tactics to get to the initial meetings. Beyond that, I’d leave the advice to real investors who blog about this such as Chris Dixon and Tom Tunguz — you should read everything they write, see the right-rail of my blog for the blogroll suggestions. So, then, here goes, some tips for the fall 2012 fundraising season in the valley, in no particular order:

  • Closing the Distance between San Francisco and Sand Hill: Yes, on the map, it’s just a few miles. But between the hours of 7-9am and 4-7pm, you know what happens. Not only is it hard to physically get to and from each node here, once you do get to Sand Hill, traffic itself increases! Unbelievable. And, this fall will be especially bad because of the rise in popularity of Stanford sporting events and the wonderful gift that PG&E is giving Menlo Park a “pipe replacement” along Sand Hill road that will start in late August and go through October, which really means February. Founders who are raising obviously want to stack their days in SF vs. the Valley accordingly, but we all know how schedules get shifted. Founders in SF may be able to get time with investors who are coming up to the city more often. Or, I’ve seen some co-founders split up to divide and conquer, only doing a full founding team meeting once there’s at least evidence of real interest.
  • Email Wars Are No Match For Calendar Wars: Founders are already on investors’ calendars for post-Labor Day. Therefore, if you’re ready to raise now, go start raising now and differentiate yourself. There are still lots of investors around and you can start the process early. I do see a lot of teams who try to perfectly “time” the market and end up being too cute, usually to their own detriment. Once you do get on a calendar, expect that to shift. And, anticipate it. Don’t let it bother you. The best hedge against this is to split up (if you can) and pitch concurrently in different places at the same time.
  • Warm-Up Materials: I now have seen enough to have an opinion here. Most emails and decks will not be read. The best way to start initiating and warming up conversations is to make sure your site and/or app looks clean, and to pair that with a very crisp, clear, and concise one-page PDF document for someone to review. This document should allow the reader, at a glance, to know who is on the team, what the basic metrics are, and appropriate links to sites, apps, and key team members. Along with warm introductions, this is the currency that will get you meetings faster. It shows you’ve edited your message and are serious about your time and others’ time. A good test is to describe your product in 140 characters or less.
  • Pre-Meeting Materials: Take this one with a grain of salt, please. I don’t like slide decks over five (5) slides long for early-stage companies. They end up being a distraction, a passive motion picture to lull others to sleep. For a young company, six slides suffice: (1) Who are the people? (2) What is the product and the brand? (3) How many people are using it, how often, and who are they? (4) Growth Plan + Distribution (5) Addressable Markets and (6) Risks, which should include a few key competitors. Once you boil this down, you’ll automatically distinguish yourself from 80% of other founders. At the end of this pitch, you should have the sense to detect interest among your audience. You can bring supporting slides, of course, in case the discussion goes deeper.
  • Signals to Gauge Positive Interest: There are infinite posts out there about the social nuances of investors avoiding delivering a decision of “pass.” I’ll assume you’ve read those. To add to that, I’ll offer some signals that you can read as potentially positive after an initial meeting, so when you start to see some of these in tandem, you can start to prepare to dig in, if you’re so inclined: (1) Email dialog focused around product feedback. Notice I said “dialog,” not one email. Sometimes investors can dig in and that shows interest. (2) “Hey, I want you to meet ____.” This could be a colleague, former colleague, or someone they trust. They want a second opinion, but wouldn’t ask for that unless they first thought it was interesting. And (3) the overall pace at which #1 and/or #2 happen. It’s important to let these things play out and run their course — founders need to be persistent, of course, but there are also lots and lots of great investors around with deep experience who aren’t on Twitter or blogging. The sooner you can determine if you need to move on, the sooner you may find the next one.
  • Clarity in Subsequent Meetings: The keys here are mostly around barriers (differentiated technology and/or model) and adoption (paying customers and/or active users). Assuming investors like your team (and that you like them!), they’ll want to dig into (1) what makes your company different, or how copyable it is and (2) who is using it. On the first, either you have differentiated technology or you don’t. A young company could also have a different business model which differentiates it. This is obviously harder in most consumer-facing startups. On the second, the biggest mistake I see here is opaqueness, deception, or just plain lack of clarity around metrics. The practical problem here is that nearly every investor will want to dig into this, and unless you present them clearly to start, it’s almost an invitation to be put on the defensive, to change the tone of the meeting, and to waste time.
  • Missteps around Press and PR: One tactic for teams that are raising is to “get covered” by the tech press. This usually results in a lot of wasted activity for something that usually doesn’t break through the noise. I’m not sure all of these articles are even really read. At best, the headlines are circulated via Twitter, with friends adding to the echo. Perhaps this is enough, on its own. I’m not sure. There’s a balance here. You want to signal that you can get press, but be selective. If you really have something different, a few well-written, in-depth pieces of content (text and video) could create a strong impression in the eye of an investor. On the other hand, volume and noise that basically regurgitates the same talking points may actually backfire. Maybe the best approach is to get a core group of friends and colleagues using your product, talking about it, and organically leveraging the backchannel chatter lines that make up the underbelly of what’s said on Twitter.
  • Determining An Investor’s Taste: A final word on “taste.” This took me a long, long time realize. If one investor passes on you, don’t worry about it. Just move on to the next one. Each investor in the Valley, this being an incredibly diverse place, has his or her own taste profile. Some focus on revenue, some focus on technology, some focus on people, and some focus on markets. One of the problems created by investors’ marketing tactics and Twitter impressions is that founders make their “lists” based on little logic or intel. They don’t think about an investor’s taste. For the investor, their taste isn’t going to change immediately. They won’t go from Baked Lays to Ruffles Salt & Vinegar chips. (Sorry, that’s a bad analogy, but you get the gist.) So, save time by priming your list according to taste. It takes a bit of extra homework, but it is definitely worth the investment.

There you have it. I believe these tips can help you get those initial meetings and the right coverage. The rest is, of course, more complicated. I was motivated to write this because I just have this feeling that it will be very hectic this fall. Things will be all over the place. It will be exciting, to be sure, but for many founders, they need to devise and execute on as many tactics possible to give them the best chance to stand out and get that next round. And if you close, I’ll be writing more about options for what to do around that event and after it. I’ve outlined it but haven’t written it just yet. Good luck, and if I can be helpful in any way, please feel free to email me.