Here is a typical conversation I have with a portfolio founder just about every week:
Founder: I’m having a tough time closing our round.
Me: How much are you raising, and where are you now?
Founder: I’m raising $1m, and we’ve got about $200k committed from angels.
Me: Got it. How many meetings have you done so far?
Founder: A LOT!
Me: How many is a lot?
Founder: Oh, maybe about 15-20?
Me: Oh…that’s not a lot. Let’s talk again after you’ve done 200 meetings.
A major problem with fundraising is that it takes up A LOT of time, but if you’re going to fundraise, you have to be dedicated to the process. Too many entrepreneurs half-heartedly fundraise while running their business, and that doesn’t usually work out very well. So how do you know how long you should attempt to raise money before throwing in the towel?
I made up a rule of thumb: 5-100-500. Over 5 weeks, meet with 100 investors to close $500k in your seed round. If you want to close $1m, double all of these numbers.
Why does this rule work?
Disclaimer: I can’t guarantee you’ll be able to close any money, even if you meet with a million investors. On the flip-side, you may be able to close your whole round within 5-10 meetings. This is just a rule of thumb.
Here is why I have this rule of thumb:
1) You need to do enough meetings in order to figure out your pitch and find the right investors.
I’ve talked before about why fundraising takes so long.
For your first 20 meetings or so, you may still be figuring out your pitch. You’ll need to figure out what messaging resonates with investors and what people’s general concerns are. You may feel discouraged after the first 20 meetings, but you should push through and have even more meetings because by then you’ve learned how to pitch your company effectively.
In addition, not every investor you pitch will be in your audience. For example, with my company LaunchBit, an adtech company, we pitched a whole series of VCs who had done adtech deals. It seemed like those people would be a good fit, right? Wrong. What I didn’t realize was that those investors felt over-indexed on ad deals and had been burned by companies that were adtech companies before, and they wanted to get out of investing in ad businesses altogether. Likewise, often investors will do a one-off deal in a space in which they don’t usually invest because they knew some founder really well who offered them a piece of their round. You won’t figure any of this out unless you do a lot of meetings — and you’ll need to do a TON of meetings to then get a decent group of people who are truly interested in your space, thesis, and vision.
So, write to a lot of investors. Get a lot of intros!
2) You need to create urgency by having lots of meetings packed together.
If you are not meeting with enough investors, then you won’t be able to create urgency.
Investors have no reason to come into your round now – even if they really want to – unless there is a chance they cannot invest later at the same price.
Seriously. Think about that. As an investor, it’s in my best interest to wait and get more information if I know I can get in at the same price in 6 months. Right?
As an entrepreneur, you need to create urgency amongst all relevant, potential investors to whom you’re talking. A good way to do this is to pack a lot of meetings together.
Let’s say you do 4 meetings a day for 5 days straight. That means in one week, you can do about 20 meetings. If you did this for 5 weeks, you would easily hit 100 meetings, which is about how long it takes to raise $500k in a pretty fast, efficiently-run fundraising scenario. (Of course, there are always the exceptional baller people who are either in a hot space or have a famous name who can do this in a week, but for the most part, a very fast fundraising situation is about a 1-2 months.)
Packing your meetings together also ensures that all investors are “progressing” at the same time. Ideally you want investors to all be in the same place with their process so that if one commits, the others are able to commit to. So, let’s say you start your fundraising process with VC firm A today and start your process with VC firm B in 4 weeks, and let’s say A commits. B is too early in the process with you to make a decision, and so now B has to decide whether or not to speed up or just decline altogether. But, you need both A and B to be seriously interested in order to negotiate your round. The ideal situation is to start your process with firms A and B around the same time.
What happens if I get to 100 meetings and have not closed my first $500k?
If you cannot close $500k after doing about 100 meetings over the course of about 5 weeks, then it’s probably not worth spending anymore time on this fundraising process.
One of the reasons for having this rule of thumb is to know when to stop fundraising. Sometimes you just need to throw in the towel on fundraising, make more progress, and then go back out and hit the pavement again later. And that’s ok. There’s nothing wrong with that.
The good news is that if you follow this 5-100-500 rule of thumb, then you’ll know the upper bound of time you’ll spend on this process AND you’ll also know that you put in solid effort in trying to make it work.