Elizabeth Yin

The first time I ever tried to fundraise, I was completely clueless.  My team had built a highly technical product that allowed consumers to co-browse with each other, but we had no customers or users.

A lot of investors turned me down, but I didn’t even realize it because they were not clear in their rejections.  Investors would tell me:

“Oh this is a very interesting product.  Let’s keep in touch.”

“The technology is quite interesting….thank you for showing it to us.”

As a naive founder, initially I did not push to get to a call-to-action or to learn what the next steps should be.  I had no idea how close I was to successfully raising investor dollars (read: not at all).

As I met with more investors, eventually, in my frustration of not getting anywhere, I realized that I needed to push harder to find out what investors really thought and whether they were going to invest in my company soon.

Still, investors were quite nebulous in their thoughts on my company.  I remember this one phone call very clearly:

“So, are you going to invest?” (I was not sure how to ask this in a great way, so the first time I asked it, I was pretty blunt because I just needed to know the answer.)

“Well, it’s an interesting product.  Let’s chat again in a couple of months.”

“I’m not sure I understand; is that a yes or a no?”

“It’s a no for now.”

That conversation was just the first step in my becoming a savvier fundraiser, but it took many, many more missteps and poorly-run fundraising meetings for me to eventually understand how this game is played.

Most investors are simply not upfront with their true thoughts because they are afraid to reject entrepreneurs.  They think entrepreneurs will not come back to them later when they have made more progress or have found a better business.  I find that this is particularly common behavior amongst investors who have never been founders.  So this is the type of vacuous email you typically receive as an entrepreneur:

This is a big mistake in my opinion.  Although, founders should also be less clueless on how to run investor meetings and should ask good questions (something I hope to change with this blog), if investors were more upfront with their true thoughts and opinions, founders would find that feedback valuable.

Great founders can take feedback well and can learn and adapt quickly.  The investors I have the greatest respect for are the ones who were candid with me about my company – whether they invested or not – without my having to pry their thoughts out of them.

I realize it is a tall order to ask investors to be explicit with their feedback.  It’s not a fun job to send tons of rejection emails everyday.  When I first started investing, I was unsure what to write in a rejection email, and so I asked Dave McClure for advice.  He told me to frame my emails positively – what it would take for me to invest?

This has been one of the best pieces of advice I’ve received in joining Venture Capital.  So, I now write entrepreneurs emails like this:

Although, it’s still not fun to be the bearer of bad news, it causes entrepreneurs to come back to me later when they’ve fixed some of my concerns.  This helps me see how quickly teams can learn and adapt, which is one of the best indicators of a team.

Plus, we end up having productive conversations about their progress which actually *helps* me build a relationship with entrepreneurs.

Entrepreneurs: what has been the most helpful “rejection” you’ve received?  Tweet @dunkhippo33.

When I was fundraising for my company LaunchBit, raising money frustrated me to no end.  There was all the rejections.  All the time spent in investor meetings.  All the email follow ups that went nowhere.  We ended up raising ~$1m, but it was brutal.

On the flip side, I often enjoyed selling LaunchBit as a product to customers.  Selling a product had many similarities to fundraising – again, constant rejection, lots of demo calls before getting to a “yes,” and follow up emails that went nowhere.  Even though the two sales processes were similar, somehow selling my product was a very different experience from selling my company for investment.  One was a very fulfilling learning experience, and the other was pure misery and an angering experience.

Entrepreneurs often hate fundraising, not because of the fundraising sales process itself, but because of all the underlying crap that we have to put up with alongside the actual fundraising.  Most entrepreneurs don’t complain about it publicly – I certainly didn’t.  They don’t write public blog posts about their experiences because you end up sounding like a whiner and because you’re afraid that no other investor will take your meeting.

So what is this “fundraising crap”?  It’s all the times that investors:

• clearly have no interest in your business but want to waste your time with multiple meetings and by “keeping in touch” with no call-to-action or closure.
• are trying to “pattern match” and have inherent biases based on past successes, but you don’t fit their demographic pattern because you are not a 20-year-old American White Man with a degree from Stanford in computer science who speaks accent-free English.
• reschedule your meetings multiple times (often on the day of or at the last minute) to take meetings with other entrepreneurs.
• are too chicken to invest in your company (even if they have conviction) because they do not want to be the only ones.
• have no money to invest but they don’t tell you that.
• don’t articulate what will give them conviction – or are even self-aware enough to know – so you can’t effectively sell them on your business.
• project their weird ideas on whether a company is truly a serious business or is “just a fun lifestyle business” when the founders happen to be
  • Family
  • Married or dating
  • One or more of them is pregnant or has children
• have no interest in your business but will take advantage of the situation in inappropriate ways.

Truth be told, as a founder-CEO, your job isn’t to change the fundraising process or even to worry about whether it is just or fair or right.  Your job is to cut through the crap as best as you can and raise money for your company.

And so, all of this fundraising crap continues because no one calls it like it is.

Having been there before and now investing in startups and running the 500 Startups Mountain View accelerator, it’s time to call it how it is and change investor-entrepreneur relations.  Going forward, my blog posts will be focused on how I’m trying to make the fundraising process better and more transparent for entrepreneurs and calling things as they are.  Sign up for my newsletter, and look out for my next blog posts.  Let’s change how this industry works!

Special thanks to Andrea Barrica and Chandini Ammineni for reading drafts of this post.  

I’m continuing my series on sales tips that have worked well for me over the years.  Yesterday, I wrote about how to cold-email.  Today I’ll talk about who should get your cold-email.  Hint: it should be (someone like) Steve Ballmer.

For my company LaunchBit, I sell ads, but often I don’t know who the decision maker is at a given company.  Sometimes, even after looking through LinkedIn, there can be so many potential decision makers.  What to do?

Aim high

If you don’t know who your decision maker is, email high up in an organization.  I’m talking really high.  Like the CXO level  (SVP and VP levels are OK, too).  This can be REALLY DAUNTING, especially if you are emailing a CXO at a large company.  For a previous company, I used to email a lot of CXOs at Fortune 1000 companies, and the first several emails made me quite nervous.  I was afraid to say the wrong thing.  I was afraid I would hear a mean response.  I was afraid I would hear nothing at all.  But after a while, each email started to mean less and less.

When you email these people, the goal is not to get a meeting with them.  The goal is to get an introduction to your decision maker.  For example, for LaunchBit, I might cold-email the VP of HR at a company, and my call-to-action will be: “Who is the best person to speak with for 20 min about this?”  Even though the VP of HR may know nothing about marketing or ad buys, my hope is that he/she can simply cc the person I want to reach.  Then, this person, my decision-maker, is basically obligated to speak with me because a higher-up added him/her to the email thread.

Higher-up people are more responsive

Aiming high has other benefits, too.  Not only is it easier for them to  delegate down, but there is also a reason people in high positions are where they are.  Even though they may be busier, do you think you get to be VP of HR if you’re not responsive to emails?

You are the CEO.  Act like one.

Still sound daunting?  Even though you may feel small, you should remember that you’re the CEO of your startup. You should be dealing with others at the same level.

In my next post, I’ll talk about how you can find Steve Ballmer and others’ email addresses.

Who do you email when you don’t know who your decision maker is?

In late 2008, I was about to turn in my 2 week resignation at Google to start a company when Sequoia sent out a presentation to their portfolio companies.  In their 56 slide presentation of doom and gloom, they told their companies to batten down the hatches and expect to survive a year without external funding.  I ended up leaving Google during one of the worst economic downturns in the last decade, a seemingly stupid move at the time but actually one of the best moves I could have made in my career.

Since then I’ve moved to the other side of the fence as an investor.  From my purview at 500 Startups in talking with many seed investors – both angels and VCs – this is what I predict will happen in 2016.  (Note: these are my opinions and not my employer’s):

1. Raising seed capital from VCs who invest in all stages will become challenging.

Investors who invest at all stages are increasingly reserving more capital for follow-on to keep their existing portfolio companies afloat longer.  The IPO markets have been tough, and late stage investors are realizing their unicorns actually are just My Little Ponies in a Halloween costume.  It’s just really hard to get liquidity these days in the late stage game.

2. Angel investors will reduce their seed investments.

When polling several angel investors, the general feeling is that angels will also be parring back on their startup investments.  For angels, they are not tied to investing in startups per se – they simply want to invest money in channels that will yield good returns.

Some say that if/when the Fed increases interest rates, people will pour their money back into interest-bearing accounts.  Although the interest rates will still be significantly lower gains than, say, holding an index of good startups, if angels cannot get liquidity for their earlier startup investments, they’ll prefer accounts that allow them to take out their cash immediately.

3. VCs who invest solely in seed companies will continue investing at the same cadence if not increase their investment speed.

Micro VCs such as 500 Startups will continue to invest business-as-usual in 2016 and may potentially even increase our investment cadence opportunistically.  The best times to invest are when others are fearful.  I’ve heard from other VCs who invest solely in seed startups that they plan to do the same.

That said, because I know that it may be challenging for our portfolio companies to raise from downstream investors, it will be extra important for me to believe that companies I invest in will 1) survive even without downstream capital and 2) have the traction to potentially bootstrap for a while if need be.  What this really translates to is that I’ll be extra careful to make sure that a company has really solid unit metrics; growth matters, but unit economics matter more, especially in times like these.

4. All points above don’t apply to international investors.

The general assumption of the above points were for American investors.  That said, international investors are investing very differently.  I see interesting market changes in other places, where many investors are divesting their money into American markets or away from older industries.

Never before has it been more advantageous in the startup world to speak a second language.

What is different between now and 2008?

It seems that every 8 years, money seems tight.  In 2008, raising money as a startup was brutal.  In 2000, we had the dot com bust.  In 1992, we were in a recession.  In 1984, we were pulling out of a really long recession (or so I’m told).

This time, it’s not going to be doom and gloom.  There are plenty of VC firms that have recently raised capital; there is a lot of available cash for startups.  The economy is generally doing well, but investors are cautious.  They are waiting to see what happens to existing unicorns before ploughing more money into new startups.  They are waiting for liquidity.  And yet, there is still plenty of money to go around that needs to be invested.  So, if you are a seed stage startup with a lot of traction and solid unit metrics, you will get funded.  It will be business as usual for you.

However, if you are a seed stage startup with an idea and zero traction or if your unit metrics don’t quite look good or if your growth is say, 5% MoM, it will be a lot more challenging for you to raise in 2016 than it was in May 2015.

What do you suggest?

If you have decent traction numbers for a seed stage company, you should raise money at the beginning of 2016.  Make sure you have enough cash for 18 months, if possible (or can survive off revenues).  Keep your burn low.

If you don’t have the numbers at all, I would go heads down right now and bootstrap to get them.  Times like these are actually good – they force companies to focus on their business because they have no other choice.

Although it was scary leaving my job at Google in 2008 to do a startup (we could not get any funding), ultimately, it helped me focus on the business and not get distracted.  And, times like these also weed out people who are serious about their business and those who are wantrepreneurs.

No need to batten the hatches this time around.  But take an umbrella.

Special thanks to Dave McClure and Brian Wang for their input on this post.