By Kenzi Wang, co-founder and CEO, Traction Labs
One of the most harrowing experiences for an entrepreneur is going into a room with strangers, asking them for money, and then asking them to be forever tied to your company — all in 30 minutes. Put another way, that’s like meeting a potential spouse for the first time and asking them to immediately have a joint bank account with you and then get married in a matter of weeks.
While in dating we have a lifetime of trial and error spread out over years, fundraising happens most often in a matter of months. The margin for error is greatly reduced as the number of potential suitors is nowhere near a 50/50 split between founders and VCs.
While basic material outlining how venture capital works is out there (Brad Feld’s Venture Deals is a great book) and VCs have written numerous blog posts on how to raise capital, CEOs haven’t written much in the way of a course or systematic material on the topic of fundraising.
Most people see fundraising portrayed — hilariously — on “Shark Tank” or HBO’s “Silicon Valley.” In the real world, though, it’s a very different story. And that’s why for founders, avoiding these 10 common mistakes is instrumental.
- Pay attention to basic sequence etiquette
Just like any form of social communication during events, there’s proper etiquette and sequence when you meet with different stages of investors. If you don’t know how to handle the situations and the objectives of each interaction, you can be viewed as too green and as not having met with enough investors. For example, your first interaction might be social, when you should be trying to just set up a rapport. During initial meetings, some entrepreneurs try to jump too deep into a pitch, which can turn off investors.
- Don’t mix sales pitch with VC pitch
Many founders envision Steve Jobs as the prototypical founder/CEO. What they don’t realize is that at public events, Jobs played to the masses with his sales pitch, which is very different from selling investors. Being enthusiastic and selling “the dream” is a typical trait of product sales, while a VC pitch needs to highlight how you will be able to get from Point A to Point B, instead of only the end result. An example of this is pitching a flying car to a group of investors and focusing on how great a flying car is rather than explaining how a flying car can be built and how it can dominate an entirely new market.
- Don’t be vague
Nothing turns off investors faster than the terms “huge market” and “incredible technology.” If you don’t provide concrete details and substance to back up claims, your pitch becomes that of a stereotypical used-car salesman. Back up every one of your claims with bullet-pointed facts.
- Don’t suck up to investors
When a founder is seen as chasing investors and desperate for all the obvious reasons, his fate is sealed and almost irreversible. A confident founder stands her ground and has the same power dynamic she would have with a colleague. Don’t forget: In a hot investment round, interested investors will clamor or camp outside a founder’s house to get in.
- Run a process
Some founders make the mistake of “Always Be Raising” by meeting one or two investors a month — sporadically and in an unplanned fashion. This kills momentum and makes the team appear as if they don’t have a plan. The proper — the only — way to build momentum in a fundraising round is to line up as many meetings as possible in a short period, e.g., 20-plus meetings in a month, to improve the pitch and create a sense of urgency for closing.
- Don’t pitch investors out of order
Raising capital is much like playing a videogame: As you get more and more sophisticated investors into your round, you gradually level up. Some investors (angels and LPs) are easier to pitch to than others (VC firms). If you pitch the more difficult investors first, you might be rejected too often and too early on to improve your pitch. The best advice here is to meet with some of the less difficult investors (like angels or LPs) and gradually level up to more sophisticated investors (like seed funds, micro VCs, and then institutional investors).
- Learn through trial and error
The whole purpose of running through a process, and meeting with a correct sequence of different size investors, is to improve your pitch and presence. Your deck will need to be updated almost every time you learn something from a pitch meeting. And you will make mistakes. Your deck will get shorter and shorter as you progress, and your pitch should get crisper and crisper.
- Be in the present
Some founders are too futuristic-looking and they lose track of where they are, in terms of fundraising, for the current round. Your deck needs to tailor to the stage of funding event you are at. If you are at a seed stage, you don’t need a 30-page detailed deck with departmental metrics to show investors. It will only reveal unnecessary red flags for them that might keep them from taking a meeting from you.
- Don’t be too outcome-dependent
This is most likely the result of having had too few meetings or not having enough money in the bank. Your emotional dependency on the round will largely show in your demeanor and interaction with investors, whose job is to sniff out your weaknesses. So to actually be able to close out the round, you should not have too much emotional attachment.
10. Treat fundraising like a full-time job
Most people understand that closing a round takes a toll on the body and mind — but they do not understand why. The most draining part of fundraising is the emotional roller-coaster aspect of the process. As you talk to different investors, you must keep track of what you’ve said and what stage you are at with each one, and that becomes very complicated quickly. It can remove a lot of fun from other aspects of your life. It becomes too much if you don’t allocate enough time and effort to it as a process and treat it only like a feature of your job.
In fundraising, the most relevant saying I’ve heard is, “fundraising becomes easy when it’s no longer hard.” No one is born a fundraising champion. I assure you: Every successful CEO who’s raised a large amount of capital has been rejected over and over again. But it’s the grit and wisdom derived from overcoming these challenges that count.
In general, the fundraising part of embarking on a startup is an incredible journey, a quest toward removing all your fear and self-doubt. Raising capital is never an overnight success story. It comes with a ton of patience and practice.
Another saying I’ve repeated to my portfolio companies is: “Trust the process.” Once you’ve crossed the threshold of winning over a few key investors, the entire spectrum will flip, and all of a sudden you become a swan instead of an ugly duckling.
Author Kenzi Wang is a serial entrepreneur and tech investor with deep experience in enterprise and marketplace. He’s the founder and CEO of Traction Labs, incubated at Y Combinator and funded by top-tier investors, including NEA. Traction Labs is the San Francisco content-marketing platform with many Fortune 100 clients, including Sony, Salesforce, Yahoo and HPE.
Photo sourced from Traction Labs website.