Welcome to Issue 9!
This week’s edition is about raising venture capital.
After writing a 310-page book on the subject, it follows that a good amount of folks ask me about raising VC money. Maybe other people feel different, but after writing a book about raising VC money, I’m sick of talking about raising VC money. But alas, it remains a critical subject for the CEOs I coach—and any other CEO—to understand.
So here’s a very short update on how I think about raising VC. It’s almost word for word what I tell people in-person, over the phone, or on zoom when they’re about to kick off a fundraising process.
First, if you’re the CEO, your task is to create a market for equity in your company. Investors are buying shares in your company believing bigly that they will appreciate. And not only that, they need to believe that those shares have a very real chance of returning their fund many times over one day. So markets have supply and demand. Your stock is the supply, which means you’re in the business of demand generation for stock in your business.
Second, VCs like to think they are rational creatures who make rational decisions with spreadsheets and mental models from Charlie Munger. But the truth is that they are human just like the rest of us, and before we take a rational action, we have a gut instinct or emotion that tells us we like something or we don’t like something. And for a VC to invest, they need to love it. So, along with point #1, before you get to the rational spreadsheet part of your pitch, you need to hook investors with an emotional pitch…one that gets them excited about the future that you see and how your company is positioned to make a ton of money in that future.
Third, before you convince a single VC (or even try to) you need to convince YOURSELF. If you’re the CEO, you’re the biggest shareholder. If you’re kicking off a fundraise and you have a vague fuzzy nagging gnawing feeling that your go-to-market strategy ain’t workin’, then VC’s are gonna sniff that out like an eight-year old walking past a Cinnabon in the mall. So as you prep for fundraising, take a good hard look at any parts of your business where you have hard decisions to make or vague fuzzy nagging gnawing feelings.
Fourth, if VCs are passing on your company, you need to ask yourself, “How could this be the greatest gift I, the CEO, have ever received?” Sounds wacky, right? But if you think your company is hot shit, and you go to market to raise and nobody else thinks you’re hot shit, then that’s a tremendous opportunity to learn where the mismatch in perception is coming from. “Trust the no but not the reason” is an old founder adage. Almost every VC has a story of someone asking for feedback after a pass, but the founder continues to hard press them to invest. I’d like to suggest an alternate adage, “Trust the no. Accept it. Then earnestly seek to learn from the smart people who just told you your company might not be as hot as you think it is.”
Fifth (and finally), after my fourth advice, go back to my third. If you can convince investors to be honest with you after sincerely informing them you have no intention to bully them into investing after they’ve said no and they’ve opened up with an honest reply…and you can look me dead in the eye and say that there is no truth at all to what they are saying and you would bet the company on the VC being wrong, then draw up a new list of investors or sit down and come up with plans B, C, and D.
The rest is tactical. It’s building a list of investors, doing your damndest to get an intro or write a clever and thoughtful cold email, doing the meetings, and hitting the pavement. I wrote 310 pages of tactical advice in my book, and if you don’t believe me because you think I’m hocking my own product, then buy Brad Feld’s book—just don’t tell me that it’s not worth a few hours of your time to learn how to raise the $3M you claim is the bottleneck to building your company.
Other Great Recent Links on Fundraising
Logan Bartlett at Redpoint shared their, “State of the Current Market” presentation, which is full of insights on the recent public market sell-off, the flattening out of series A valuations, and some great thoughts on how this down-cycle may play out. It’s an essential read for CEOs. FWIW, while Logan is a hilarious VC troll on Twitter, he was the most insightful Mattermark power user and I expect him to continue to rise in the world of VC.
Maia Bittner, repeat founder and investor (and host of the fintech book club), shared a beautifully succinct framework for thinking about investor pitches that summarized a lot of what I’ve come to think about VC over the years. Bittner argues that an investor only needs to buy into one of the following (but buy-in wholeheartedly): (1) your team can demonstrate clear traction, (2) your story and vision are emotionally compelling, or (3) you can showcase a team with a proven record of execution.
That’s it for this week. I’m looking forward to what’s next.