After failing miserably to raise 18 months ago, digging deep and bootstrapping our way to profitability, we made another attempt earlier this year and got a huge break by getting into 500startups.

We are now in the middle of raising our seed round and are doing a much better job at it than previously. I wanted to share some of what we’ve learned that helped made the current attempt a successful one.



Quick summary (TL;DR):

When To Raise

Raising Funds Is A Fulltime Job

Raise Your Seed From Angels. Leave VCs To The Next Round

Building An Investor Pipeline

Getting Intros And Building A Network

Don’t Pitch A Deck, Tell A Story. And Make The Ask!

Manage Your Time And Expectations

Sweeten The Deal For Advisors And First-Movers

Manage Your AngelList Page Effectively

ABC – Always Be Closing

When to raise

In a previous post I talked about how raising with just an idea could be easier than with a product with limited traction. What this means to you, is that if you have already launched something, you need to be ready to show traction and some product-market fit to raise effectively. The amount of traction you need will vary depending on your market and team, but don’t expect to have an easy time with a product that no one currently uses or pays for.

If you have no traction, do some customer development and get your traction numbers (users, revenue or other relevant metric) to the point where they start to look interesting. What that point is depends greatly on your market, but you can see some ballpark figures in this slide.

Raising funds is a fulltime job

When you decide it is time to raise, one of the founders (typically the CEO) should be doing it as a full-time job. This was another mistake we previously made – by taking one meeting every 1-2 months, we failed to build any momentum with fund-raising. To close a seed round, expect to take between 50-100 meetings – you can’t hope to accomplish that in a reasonable time without a full-time commitment (which includes getting intros, doing followups, traveling, preparing term sheets and other related time expenses).

In addition to the time and attention requirements, raising continuously for an extended period of time, will naturally make the person doing it better at it. It’s hard to build up your pitching skills if you are only pitching every once in a while.

Raise your seed from angels. Leave VCs to the next round

A seed round is typically small enough ($1M-2M) that you can raise all if it from angels – and seed funds. Adding VCs to the mix adds a lot of complexity and overhead to the process, as they typically require much more effort from you to commit compared to angel investors. Even VCs that claim to do seed rounds typically take several months and many meetings and due diligence to close. This might be worth it for you if it is a notable investor or someone interested in writing a big check and filling out your round, but my advice is to leave VCs primarily for future rounds.

This doesn’t mean you shouldn’t meet with VCs at all – take a meeting with VCs you would like to see in the next round and start building a relationship. The next time you talk (hopefully after a successful seed raise) you won’t have to start from scratch. VCs like to invest in lines, not dots.

Building an investor pipeline

On the 2nd day of the 500startups program, we had a joint talk by Paul Singh and Christine Tsai about fundraising (I wrote about it here). The biggest take for us was about building a large investor pipeline. When we previously tried to raise 18 months ago, we thought we did well by securing around 10 meetings in 3 weeks in a visit to SV. That was just us being clueless.

Raising (not unlike dating), is a numbers game. Build a list of 100+ investors that should be relevant to your startup – they have experience in your market, have made similar investments, are value-add or all of the above. All of the information is now easily accessible thanks to AngelList. We spent around 10 hours in aggregate going over investors listed on AngelList, via search filters about relevant markets or through investments in relevant startups.

We also looked for people listed on AngelList that filled our ideal profile for an angel investor (in our case it was a CTO / developer at a relevant company in our market). When we found someone that looked interesting, we profiled him on linkedin and through their presence on Google (blog, current venture, tech media articles). If we thought they would be a good match, we added them to our list.

Using those guidelines we got to about 100 potential investors listed in a spreadsheet in about a week.

Getting intros and building a network

Raising without a network is a hard proposition. You might get lucky and get your first investor in a few meetings and he’ll be able to introduce you to his network, but otherwise expect an uphill battle getting intros and meetings.

Getting into the 500startups program was a huge boost to our fund raising effort, because of the size of their network, and especially considering we were previously based in Israel (thus no existing network in the Valley). An international startup coming to the silicon valley to raise without a network is almost surely a losing proposition (as we learned ourselves 18 months before).

Make sure you have a network in place before you start raising. Network with other startups in your space and attend meetups regularly. The best intros are from entrepreneurs and not other investors. Even though we had the option of asking for intros from the 500startups partners – we try to find other connections first and save their intros for people we can’t reach otherwise.

Get other startups excited about your product. A founder giving you a warm intro into one of his investors is worth much more than an intro given by an investor (either a current investor or worse – an investor you met that decided to pass). If you can’t get other entrepreneurs in your space to get excited about your product, maybe you are not ready to raise yet. In the same manner, connect with high-profile people in your space and try to get them on board as advisors.

Build your network and figure out who can intro you to whom. Make sure you have a good contact for at least half your list before you start setting up meetings. The last thing you want is to lose momentum half way because your introduction sources dried up.

Don’t pitch a deck, tell a story. And make the ask!

When we first got into 500startups, our pitch sucked. In fact, it’s almost amazing we got in with that pitch. Luckily for us, one of the partners (the up-and-coming Parker Thompson), saw potential in us and we made the cut. With his help and with constant refinement after each investor meeting, we came up with a good story about where we fit in the market and where we see ourselves a few years down the road.

One of the most common mistakes entrepreneurs make when taking an investor meeting is pulling out their deck and just reading the slides out loud. We did just that in our previous funding attempt. There are many good articles out there about building a strong deck, and perhaps that’s a requirement when talking with VCs – but when raising a seed round, when your company is very early stage, you want to start a conversation instead of delivering a slideshow.

Build a rapport with the investor you meet. Try and understand what made them interested enough in your startup to take the meeting. Hopefully, if you curated your investor list into people who *should* understand your product, you don’t need to spend too much time explaining the “why”, but more the “how” and “how big”. This will take some trial and error to get most possible conversation branches about your startup down pat. That’s fine – just leave the “big sharks” for later, and start with investors that will be more forgiving with a less polished pitch.

Make the ask. Don’t just meet with investors and have a nice conversation, only to split up without asking for a commitment – Don’t expect the investor to do that for you (unless you are a super hot startup). Tell them what you need and ask if they are interested in participating in your round. Don’t meet just for feedback if you want to raise money (although asking for feedback first is a good angle to get the conversation going).

Manage your time and expectations

Very few investors (in the U.S) will say “No” to you outright. When talking to angel investors, if they’re not excited at the end of the 1st meeting, chances are they won’t invest. Their opinion might change with your funding progress – i.e, some might commit after you have most of the round committed already or notable investors on board – but especially when you are looking for first money-in, don’t bother chasing after people who don’t look excited or ready to make a commitment.

Even working full-time, you have limited time every a week to take meetings and do follow-ups. Manage that time efficiently and learn to tell when following up and taking more meetings with someone is a waste of time. VCs are the worst time-sinks in that respect – which is why I recommend not taking more than 1 meeting with each (and not expecting to raise from them) during your seed round.

Have a structured follow-up process. Be organized and build a process around it.

Sweeten the deal for advisors and first-movers

The first person to say “yes” is your real investor.

Bryan Goldberg, “Dave McClure, Risk Taker“

Getting first money in is always the hardest, especially if you are starved for cash. Being the first to put money on a seed stage company is a risky proposition which most investors do not take. To make it more enticing, and to reward the higher risk taken, you should offer a better deal to your first couple of investors.

It could be via lower valuation (or lower cap if you’re using convertible notes), or via advisory shares if that investor is going to be a part of your advisory board. Advisors especially add credibility to your startup if they are well known, successful figures in your space – it adds strong social proof which could convince some investors who might be on the fence. For us, getting Jeff Hammerbacher on board (co-founder of Cloudera) made things noticeably easier. We started getting inbound attention from investors who know Jeff and trust his judgement, as well as improved reactions when we told potential investors he was one of our investors.

Manage your AngelList page effectively

AngelList can be an amazing source of intros by itself – and the core of that is your startup profile page. Add committed investors, new team members, customers and even lawyers to the page. Put some effort into the content and visuals you put there. Use their sharing options to help with discovery – such as the follow/view button, and this widget –

If you can get featured (manual selection) or trend (automatic placement) – you increase your exposure to investors by a great deal. While you can’t really control getting featured, trending is influenced by the activity on your page – investor introductions, job interest and confirmed customers. Keep your page active and try to concentrate your updates together. Don’t try and game the system, but be active in putting your funding progress on your AngelList profile.

ABC – Always Be Closing

Closing a funding round is a tedious process. Once you start, you need to be always in a closing mode – you never know if the next person you talk to will lead to a funding commitment, directly or through another intro. Don’t get discouraged by the rejections – that’s just a part of the process. Believe in your product, assimilate feedback from meetings and keep improving your pitch and story. Always be closing.

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