Some Notes on Fundraising

Over the last two decades I have helped many companies raise venture capital rounds. Here are some of the lessons I have learned from this.

If your company is growing like crazy you will have an easy time fundraising and you can ignore pretty much everything that follows. Put differently, what I am writing here is for companies where the ability to raise money is somewhat in question.

Fundraising is selling. You are literally getting money in return for selling a part of your company. Because fundraising is selling, many of the lessons from how to be effective at sales apply directly to fundraising. This starts with the crucial need for qualification of who you are talking to. Build a broad funnel so that you can qualify hard. Otherwise you will wind up spending a lot of time with VC firms that will never get there. How do you qualify firms? Through an initial conversation where you figure out such things as do they seem to know the space you are operating in? What is their process and are you talking to the right people?

The second crucial insight from selling is that your goal is to get from push mode into pull mode as quickly as possibly. What do I mean by that? You want to stop talking and let the investors ask questions. That means the investors are engaged and ideally are starting to sell themselves on the opportunity. A bad pitch is one where you do all the talking. A good one is where the investors are tripping over themselves to ask questions. So what does this imply? Keep your pitch geared towards being intriguing rather than trying to answer every question upfront.

Closely related: be prepared for questions. I recommend to every company that I work with on a fundraise to keep a written FAQ. For every question you are likely to get have a succinct answer ready. A strong answer will be short and whenever possible will include both an abstract argument and a concrete example or statistic. For example a question about gross margins might be answered by saying: “We are currently at x% but can already see the beginning of scale effects that are allowing us to reduce our bill of materials by y% for each time we double output.”

The crucial art of giving an answer is to deliver it firmly and then shut up. Nine times out of ten that’s it and the conversation will move on to a different question. The confident delivery of the answer will increase investor confidence in what you are doing. Conversely a meandering answer raises more questions. Only one times out of ten the investors will actually want to go deep. Now the opposite is the case. You need to come along and really go deep as opposed to try to head off the question. Ideally you already have several slides ready that you can use to go deep but if not just engage in the discussion. As you meet with firms keep the FAQ updated with new questions.

What about the deck itself? Here we are getting into fairly subjective territory, so what follows next may or may not work for you based on your own style of delivery (e.g. some people do well with many slides that they present briefly, others better with fewer slides to which they speak at more length). Still I find the following to be important.

First, you only have a relatively short time upfront to grab people’s attention. So ideally you start with a hook. Something provocative or at least surprising works well here (again if you are growing like crazy, that would simply be your growth slide).

Second, keep each slide to one clear message that’s easily discernible from the title of the slide. Many times someone in the audience will be momentarily distracted (e.g. by an incoming text message) and when they look back it needs to be easy for them to figure out what’s going on or you have lost them for good.

Third, no matter if you go withe many or few slides, keep each slide as visual and as uncluttered as possible. Less is more.

Fourth, make only your strongest points. For example, if your product has a long list of advantages, talking about all the ancillary ones will actually detract from the central ones, so stick to those.

Fifth, if your business has an obvious weakness, address it in the presentation and be upfront and non-defensive about it. This is especially true for businesses that have been around for a while and had a setback.

Tying everything together: your task is to tell an interesting story that engages the audience. The second the audience starts to engage (from push to pull) you need to stop talking at them and enter what Adam Grant in his new book “Think Again” calls a “dance.” If you do this with the right firms (thanks to qualification) then good things will result.