When I first jumped into venture, there was a wave of founders who believed that a great product will sell itself. But in the past few years, under the proliferation of startup content, discourse and amazing Twitter threads, while anecdotal, I’m happy to have seen far fewer founders who believe in that extreme.
Nevertheless, that dogma hasn’t completely disappeared. Rather than sales and marketing, I’ve realized this to be more the case on the fundraising front.
How often are you in the batter’s box?
This past week, a handful of pre-seed founders asked me for fundraising advice. On Monday, a founder I had chatted with at the beginning of the pandemic reached back out to let me know he was now starting to fundraise for a new idea. Naturally I asked him what he learned from the last idea.
To which he responded, “There weren’t enough investors interested in my last idea.”
I followed up, “How many did you talk to?”
“Twenty.”
That’s not nearly enough. Especially for what was his first institutional round. Moreover, like most other founders, he wasn’t an insider. As such, I believe he should have pitched to more. A lot more.
He’s not alone. Two other founders I chatted with felt they had already tried everything after getting rejected by 30 and 40 investors, respectively.
I mentioned in a blogpost back in April that if you’re an emerging fund manager raising a Fund I, think of it like raising 10 Series A rounds. For most Series A rounds, a founder talks to about 50 investors. So for a Fund I, you’re likely to talk to 500 LPs to close one. An LP I talked to for a blogpost that will soon come out chatted with a GP who pitched 625 investors to raise her first $18 million fund.
Why do I mention this? While this is equally true for emerging fund managers raising a Fund I — a fund that’s pre-product market fit, if the average Series A founder needs to pitch 50 investors, as a pre-seed founder, you need to talk to double that number. If you’re lucky, you can stop pitching sooner. But at the very minimum, you should expect that ballpark number. And that’s also why fundraising is a full-time job.
The more realistic your expectations, the more efficiently you can set up your pipeline, the faster you can get back to building your world-changing idea.
The takeaway
Never run out of leads. You never want to be in the position where you have to go back to someone who passed on you. Keep your funnel open. Every time you pitch a VC or an angel, especially those that say “No,” ask them: Which investor would you recommend who might be interested in what I’m building?
A lot of founders try to optimize for warm intros. But most people who say No to you won’t go out of their way to help you, especially asynchronously. They’d much rather spend time on their own portfolio companies. So, don’t add in asynchronous steps that would increase friction. You don’t need warm intros. You just need names. And if any investor gets recommended more than three times, it’s worth just cold messaging that person sharing that they came highly recommended from the investors you’ve chatted with so far.
For those who say “Yes” to you, it is likely you won’t ever reach profitability with the capital they gave. Early-stage investing, for instance, the pre-seed, luckily, is very collaborative. If you’re raising a $1M pre-seed round, that leaves room for a lead investor of $500K, $3-4 $100K checkwriters (emerging fund managers, syndicate leads, or active angel investors), and a bunch of smaller, but extremely valuable investors. Ask each for who they’d like their co-investors to be. Even if those recommendations don’t commit this round, collect the names for your next round.
During your first institutional raise — hell, even prior to that — you’re an outsider. No one’s heard of you. But there are still people out there who believe in the world that you want to create. You just have to find those early believers. Believers in you. Believers in the future you see.
Justin Kan once shared this great line:
Focus on distribution.
Photo by Nick Hillier on Unsplash
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Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.
