Seed Stage Fundraising
Two years ago Corey Ford, the Managing Director at Matter, and I were introduced through Designer Fund and the d-school at Stanford. We ended up sharing a workspace at Hattery, and formed a friendship while working on the day to day challenges of our startups.
As Corey formed the Matter program, he asked me if I would share some insights from my fundraising experience with his first class. I agreed, and at the beginning of each Matter class to date, I have presented a candid account of my experiences as a first time founder. I share my mistakes and successes to help the teams learn from my experience.
Founders who have started a company in the previous 18-24 months give the best advice. I deeply appreciate the time that entrepreneurs like Evan Williams, Biz Stone, Jason Goldman, Alex Rainert, Ben Blumenfeld, and Perry Chen have given me to help make Neighborland an impactful and sustainable business. There was always one condition from these mentors — that I pass along this knowledge to fellow founders working to make the world a better place.
Here are some of the insights from my fireside chats on fundraising at Matter:
1. Be Present
After meeting Bijan Sabet from Spark, I was invited to present at his partner meeting. With all of the investor meeting requests we were getting in San Francisco and Silicon Valley at the time, I didn’t find the time to fly out to Boston in person. We set up a video call, and the connection was poor. We flopped. Show up in person at partner meetings. Fundraising is a one strike game.
2. Be Prepared
Often, investors will want to meet outside their office. You should be prepared to present anywhere at anytime — outside at a café, without an internet connection, on your phone, on your tablet, at a loud restaurant. You should practice in all of these scenarios. Make sure that your devices are fully charged, you have versions of your latest pitch on every device, and you have redundancies (ex. USB key, extra dongles for old projectors). Imagine you are in a partner meeting, and the lead partner walks in the door. You don’t have the right dongle, or your laptop freezes up. Don’t spoil a golden opportunity with a technical mishap.
3. Set Constraints
Every day that your team ships a good product, your company’s value increases. Once you are actively fundraising, it’s in the investors’ interest to let the deal develop slowly, and test whether the inflection point they see plays out. As the leader of the negotiation, you need to set realistic constraints for everyone and draw the line for partners to make their decision.
4. The Term Sheet
Once you have verbal interest from investors, it’s critical that you focus on drafting a term sheet with each investor that is interested. You should articulate the terms that work for your team as quickly as possible. It’s good practice to write your own term sheet, as it will help you model the terms of the deal, and prepare you for making a decision. Always optimize for simple terms and vision alignment with your early stage investment partners.
5. Summertime and the Thanksgiving Cliff
Venture investing slows down significantly in August, and after November 1st. Aside from the holidays, investors are evaluating their current portfolio companies’ performances at these times. It is very difficult to close a financing in August or after November 15th. Focus on the beginning of the year, spring, or early summer when investors are more comfortable making new investments.
6. No Means “Not Yet”
All of our current investors told us “no” at first. Some of them told us “no” three or four times before joining our team. Think about it from a their negotiating perspective — it makes sense. Investors who have no prior relationship with a founding team will understandably be skeptical of their ability to create a business that scales. Answer their questions thoroughly, respond to their feedback quickly, and demonstrate your intelligence through your ability to execute on your shared vision.
7. Leave It All on the Field
During a fundraising, you should form meaningful relationships with potential investors, whether they decide to invest in your team or not. Be prepared, show up early, be adaptable, be honest, and never quit. Leave it all on the field.
8. Enjoy the Journey
There’s something special about your first rodeo. You’re going to fall off the mechanical bull. Pick yourself back up. Learn from your mistakes. On those difficult days when you’re ready to quit, remember why you started. And most importantly, enjoy the journey.
These are just a few tips for building valuable relationships with your investors. I always recommend that our teams at Matter study Mark Andreessen’s “The Only Thing that Matters,” Mark Suster’s “Invest in Lines, not Dots,” Brad Feld’s “Be Smarter than your Lawyer and VC,” Ann Miura-Ki’s Business Model Generation, and Paul Graham’s “Startups in 13 Sentences” before starting the fundraising process.
Feel free to contact me with any questions, or share your feedback in the comments in the right column.