“So why do you like fundraising so much now?”
It was a dreary day, and I was catching up over coffee with a friend of mine whom I hadn’t seen in a couple of years. And we were talking about startups and fundraising. This friend has known me since when I had my company LaunchBit, and she knew just how much I hated fundraising back in the day. In fact, when I was running LaunchBit, the fundraising process was super tough for me. In fact, it took a huge toll on my health.
Back in 2011…
“We can’t find anything wrong.” said the physician.
There I was at Massachusetts General Hospital. I had been referred to a specialist to check out a problem I was having. My problem was tough to explain – I kept feeling like someone was constantly poking me all the time with a pin. Just everywhere all over my body. The prickly feeling didn’t stop anytime during the day – even when I was trying to sleep. It had started a few weeks before and it just would not go away.
After seeing a number of physicians who could not figure out what was wrong, Massachusetts General Hospital was the final stop. MGH was a world premier hospital with a billion and one specialists and researchers including in fields such as the nervous system. All these doctors appointments were a bit of a distraction for me, because I was in the middle of raising a seed round for LaunchBit. But this issue was becoming so bad that I couldn’t even sleep.
Fundraising had been a stressful process, and I had felt so much pressure to raise a $1m round. And, after raising almost $400,000, I decided to just stop. I wasn’t getting any more momentum on the round, and my health problems were really starting to bother me. Immediately after halting my fundraising activities, surprise surprise, all of my ailments stopped and magically disappeared. There was never any scientific explanation or diagnosis for what had happened. The only explanation that I have for myself is that I was just so stressed that weird things were happening to me because fundraising was taking a toll on my health. Fundraising was definitely not fun to me back then.
Back to the meeting with my friend. “So why do you like fundraising so much now?” she asked.
“Hmm…that’s a good question. Because I now understand how to do it. And, because I’m good at it – hah!” I responded half laughing.
It was even hard for me to believe that I could get good at fundraising.
In the past 7 years, I’ve learned so much about fundraising – partly from my own fundraising experiences LaunchBit, but much more so through helping hundreds of founders I’ve backed over the years with their raises and in raising Fund 1 for Hustle Fund.
7 years ago, I didn’t understand how to fundraise. I think when we hear the word “pitch”, it almost seems to imply that we are talking at someone. But fundraising could not be further from that.
My biggest learning around fundraising is that fundraising is actually a series of dialogues – not pitches – and success is contingent upon need finding and finding the right investor match.
The reason I think fundraising is so fun now is that I’ve learned that fundraising is more of a customer development exercise out of the Lean Startup playbook than anything else. And that’s fun.
A noob fundraiser will go into a first meeting, open up his/her deck, and start going through the slides. In doing so, you don’t really know how your story is landing. You’re not having a conversation. But, an experienced fundraiser knows that the goal in going into your first fundraising meeting is to ask lots of questions and walk away understanding what next steps make sense. You should understand your potential investor’s pain points. Is there something you can solve for a potential investor by having him/her invest in your company? Do you have a solution for those pain points?
There are many reasons to invest
For example, let’s say we’re selling pet food – hippo pet food – and let’s say that I were raising money for this company.
There are a number of reasons why someone might like to invest in this company. It could be that an investor wants:
- To make a lot of money and believes that hippo pet food is an amazing market
- To invest in a basket of e-commerce companies
- To invest, because he/she believes in me personally
- To invest in more female entrepreneurs
- To invest, because he/she has a pet hippo and really loves the product
- To invest, because he/she believes that I have a strong network and wants to get tapped into it
- To invest in a bucket of Xooglers’ (ex-Googlers) companies
The list goes on and on. As you can, there are many reasons why an investor might like to invest in this business. And my job is to ask lots of questions in a first meeting to learn what an investors’ interests and challenges are. And can I figure out which of these reasons, perhaps, might be one that resonates with a potential investor.
I think we fixate too much on what VCs are looking for, but it’s important to note that the world is filled with many would be investors, including individuals, corporates, and family offices.
In general, most VCs are trying to maximize their dollar return in the shortest amount of time possible. (This is reason #1) But, for an angel investor, there are many other reasons to invest, and some of those reasons may be #2 or #3 or #5 etc…
Fundraising is about doing customer development
It is your job as an entrepreneur to figure out what a potential investor is interested in in a first meeting. Can you help that person or that company achieve its goal. If the investor is trying to invest in more e-commerce companies, you’ll want to tailor your story to that thesis, and if the investor is trying to invest in more women, you may want to play up that angle.
Your job in the first meeting with a potential investor is to ask a lot of questions – ala customer development style – to understand how you might be able to tie your story to their problems and interests. And so your pitch should not be stagnant, and although you may have created a deck before the meeting, it’s important to tie your talking points together as a solution to the problems you learn about in that meeting.
The first meeting with an investor is really about truly understanding their needs and triaging whether you think your company might be a good fit for that investor. Your job is not to try to convince a potential investor to invest. Your job is just to triage. It is much easier for you to close an investor who is already bought into your story than it is to try to sell an investor who is not bought in. And it’s ok if someone is not a good fit. In fact, I would just address that head on — “It sounds like this might not be a good match — you’re generally a series A investor and you’re looking for a lot more traction. Why don’t I put you on my newsletter, and perhaps there may be a fit down the road?” Addressing things clearly and directly is the best way to communicate with investors, and it’s ok if there’s no match.
There are billions of investors
I’ve observed over the years that when founders create their list of investors they want to pitch to, they often draw from common directories. Such as Crunchbase. Or AngelList. Or various Excel spreadsheets that are passed around. It’s often the same set of hundreds of funds and about 100 angels. These lists are a great place to start for sure. But what I’ve found is that these lists also narrow people’s thinking. Why do founders just pitch these people? Why not the billions of other people in the world? There are so many rich people or even people who are not rich but may have conviction to write a small check. By limiting ourselves to these lists, we create unnecessary pressure on ourselves. You end up in a weird mindset — if I cannot convince these people to invest, I’m hosed. Right? A bit of an exaggeration, but has anyone else had that mindset before? I certainly have.
But this is the wrong way to think about things. The right way to think about fundraising is with a growth mindset. There are billions of people in the world – many of whom are rich – any of these people could potentially invest. This takes the pressure off right away. The game changes from “How can I convince this small group of people to invest in my company” to “How do I triage people quickly and get to meet with a lot of people quickly?”
Once you have that mindset, then it’s just a matter of finding potential investors to have a conversation with, figuring out quickly whether they are a good fit, and if they’re not, move on quickly. Instead of wasting time trying to convince someone to invest, you want to actually spend as little time with people who are not a good match to focus your energy on getting new meetings. Your job is not to try to pitch at people or convince. Your job is just to have a conversation and do need finding, triage accordingly, and then rinse and repeat. (See my post on finding potential investors.) That is what fundraising is all about when done right.
For people who are not a good fit, you definitely want to cultivate those relationships. Put all of these people on a monthly newsletter with your clear progress. Much like in B2B sales, if a lead is not a warm lead, you should use automation to keep those people engaged but don’t spend a lot of time with them until they are actually interested.
When I was fundraising for my startup many years ago, I took the totally wrong approach. And you can see that by limiting yourself to some silly list that you have and putting pressure on yourself, fundraising can be a bear. But if you can change your mindset and approach, it’s actually pretty fun.
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