Fall 2014 Fundraising Field Notes

Each August, as the Fall approaches, I try to quickly jot down my “field notes” and tips for folks who enter the marathon fundraising season from Labor Day to Thanksgiving. This Fall is a bit different. More companies, even more money, and new capital sources like the crowd and private equities. For Fall 2014, no long preamble or disclaimers, I’ll just launch right into it, in no particular order:

The Jump From Seed To Series A Is Big: I hear many people in their seed round already talking about their A Round in the next year. Optimism is great, but if that’s the goal, everyone needs to be clear about how to put the seeded company on the right path. If the institutionalized seed folks are looking for six months of trailing data, imagine what the billion dollar funds want.

Don’t Get Tripped By Outdated “Round Name” Terminology: What are seed rounds? What are Series A’s? Who on earth knows anymore. Yet, I see so many folks getting hung up on what to call it that it clouds their vision and judgment. I’ll paraphrase a line from PG: “Series A is when the pros do it and call it that.”

Optimal Ratios Between Branded And Unbranded Money: Every founder is different here, no rights or wrongs. The trap is to get stuck. Some founders want some level of branded money, and some just want money. Know where you stand on this spectrum and execute accordingly. Those who want a mix of branded and unbranded can likely close quicker (as opposed to rolling closes) and save time, as fundraising is quite a distraction to product and company development.

The Trick With Introductions: I’ve seen 100s of founders do the rounds for random intros to investors they want to meet. Those rarely work, in my experience. Rather than play a numbers game, 4-5 targeted introduction requests from people who BOTH you and the investor know will be much better received. It’s really about the strength of the connection between the nodes, that’s what sets up an introduction to be timely, awesome, and potentially game-changing.

Own Your Process: Dorky as it sounds, running a fundraising process is a way for investors to see how a CEO runs process. Investors like to see someone in control, this gives them confidence. Give them something to believe in — like running the process.

The Uber Effect: Uber is the hottest company on the planet now. It’s first round was pegged at $5m, and I believe it was on AngelList. People even questioned the $30m B round from Menlo. Now everyone realizes it was under their noses, so they’re looking for not only breakout ideas, but breakout people — Travis already had a startup he slogged through for six years and was determined to the bone. Motivation reveals itself.

Conversations, Not Pitching: Speaking of conversations, the best advice I received from a mentor in graduate school in preparing for interviews was to turn any Q&A into a conversation. If you can do that, it breaks up the unnatural interrogation and allows an investor to see the range of your thinking, as well as personal characteristics. Also, I just fundamentally believe that people want to have conversations rather than pitches or business meetings — they want to be heard, they want to listen, and they want to feel as if they met someone new that they can work with. That is what creates excitement.

Start The Conversation With Traction: Here’s a bold idea — After your cover slide in the deck, have the first real slide be about traction, usage, metrics. If you don’t have traction, say that upfront and explain where you are. People will still fund things pre-traction (and even pre-product), but just be upfront about that.

Speaking Of Slides, They’re Meant To Attract Others: Slide decks are a way for investors to determine if they want a meeting. Some don’t like slide decks and want to just try the product. Either way, if you have an app — send the investor the app. If you have a deck, make it simple and attract others to want to meet you. The deck or app is just a means to a meeting where you can have a conversation in real life.

Part Of The Pattern, Or Part Of The Portfolio: When a space gets hot, investors want to meet everyone in the space. This helps them develop a thesis, meet the players, and build a pattern. When you’re talking to an investor, try to determine if you’re becoming part of their pattern or can be part of their portfolio. If things don’t move in a manner that has momentum, take it as a “no” and move on…believe me, the investor will rush to get back in touch if they come to a decision later or change their mind. I have done this too — waiting by the phone — and it’s just a bad place to be. Don’t do it! (Tangent: Read this post on “Turf Signaling” – the location of where you meet reflects power dynamics often overlooked.)

Hard Problems or Timing Inflection? A fun criticism of investors is that they (and some founders) don’t “solve hard problems.” It’s a misguided critique. These kind of investment dollars are to be applied to hard problems, yes, but what really drives this is traction, market timing, and potential for inflection. Some do it by chasing after it’s obvious, and others are able to predict when something is on the precipice of inflection. Again, there are plenty of patient investors and capital, but with companies staying private longer, secondaries available but not predictable, and so many investment opportunities around them, investors are going to naturally pick up on things that are already working — where the question isn’t “How big will it grow?” but rather “How big will it grow and how fast?”

Sophistication With Stats: A bad place to be in an investor meeting is when the CEO does not own the metrics. The metrics should be like oxygen to a CEO. Also, the way in which stats are presented (month by month rather than cumulative, properly labeled graphs, etc.) show a level of business sophistication that will be noticed.

Alternative And New Capital Sources: VC firms have used social media and content to convince you that you need it. In some cases, you do; in many, you don’t. There are now tons of alternative funding sources (you know the ones). Additionally, for companies who are growing, there is even more new money coming into late-stage private financings. This is an increase even from last year as companies stay private longer and mutual funds, hedge funds, corporates, and even SWFs are getting into the game with direct investing. There lots of money out there (some may say too much), so make your plans accordingly.