Fundraising Timing and Practice: Do Not Wait Until You Need the Money

Fundraising reminders (I have covered most of these before: you need continual practice, you can raise money when you still have money, and you should approach the VCs you most want later in the process, among other things). You need to find a way to rise to the surface and catch their attention. The best way is to create a compelling story and understand your audience. Even in Silicon Valley, most VCs are not technical. So focus on the “why,” not the technology. Fitting everything you want to say into 15 slides is no easy task. You need a smooth narrative that appeals both intellectually and emotionally. It must be high-level enough to make the main points easy to grasp without seeming shallow or lacking detail. This is an art. Like any art, it takes practice. You may be terrible at first. Pitching is hard; you need to rehearse, vary, adjust, and revise what you say. You certainly do not want your first pitch to be to the top VCs in your field. VCs often share information, so if one ignores you, others at the same level may also pass. If possible, begin with a “friendly” VC who will give feedback and help you improve. You may then get a second chance. Remember that you do not need to be perfect at the first meeting. You can say, “I wanted to give you an early look. You might be interested, and I would like your thoughts.” Listen and learn. You need not accept every suggestion or criticism, but should understand the reasons behind them and adjust accordingly. Once you understand the pieces on the board, you can plan your moves better. Tailor the story to each person you meet, and you will gradually feel ready. Just do not forget another factor that can sneak up and defeat you: time. Fundraising takes longer than you think. Plan for three to five months. It may go faster, particularly in a founder-friendly environment. But do not bet on that. Too many companies wait until cash is almost gone, then face a funding gap and near-bankruptcy before desperately seeking money from any source. Always start pitching before you need the money. You need to be in a position of strength, rather than surrendering to pressure and making bad choices. Also watch holidays: August, Lunar New Year in China, and Thanksgiving through New Year. People often forget that VCs take vacations too. Keep these tips in mind along the way. • Do not play games. Just as you do not want an investor who plays games, investors will lose interest if you cannot be candid with them. • Listen to feedback on your pitch and business plan. Change when the feedback makes sense. But hold to your vision and your “why”; do not immediately change your mind because an investor says a few words. • Tell investors clearly how much money you need and how you will spend it. Your job is to create value for them and reach every important milestone, continually increasing the business's valuation. That way, at the next round, you will not dilute existing investors', employees', or your own equity. • Founders may believe their valuation should rise even if they miss their milestones. But investors are running a business. If you fail to meet your goals, your valuation cannot rise, and your own equity will shrink. When the business struggles, you may need to dilute yourself further to give employees more shares and retain them. • Do not assume your valuation will track nearby companies. Every investment stands on its own. • Investors do not like founders or executives to be “fully vested.” They want your interests tied to the company. To demonstrate commitment to new investors, you may even need to subject shares you already own to “revesting.” • Remember that investors need research to inform decisions. As part of due diligence, for example, they will want to speak with customers. You can build a data room to organize documents and make that work easier. • In follow-up meetings, confront risks and propose ways to reduce them. Be clear about the people you need to hire and the major challenges ahead. • Try to find two equally influential investors to balance each other. VCs know and speak privately with one another; nobody wants to offend a potential partner. If one investor starts playing games, the other can speak up. Your business may not matter that much to them over the long term, but people generally do not want to damage their reputations among other VCs, particularly among limited partners. Finally, remember that even if the first meeting goes wonderfully, everyone loves the pitch, you like the investors, and the atmosphere could not be better, they still need to return and convince their investment committee. Otherwise, you get nothing. The process varies by VC firm. Keep asking: what is the next step toward a yes? The second? The third? It is like chess: you always think two moves ahead. In fundraising, think two investment rounds ahead. #創造用非傳統方式做有價值的事 (Build: An Unorthodox Guide to Making Things Worth Making)