As I write this, I’m sitting here in a hotel in New York City wrapping up a whirlwind tour of fundraising. Let me first say that I am tired. The kind of tired where you feel as though your entire energy has been siphoned away during the course of your activities. But, it’s been productive.
If you have a startup, you most likely are used to the fundraising exercise. You want to get a certain amount of cash from someone willing to give it to you. This is really a similar exercise, but like it’s been enhanced by some wonder drug or a kale smoothie or something. It’s compressed and distilled into a pure exercise in asking for cash in the most efficient way possible.
I figured there is value in describing this process for those who are interested. It’s not an activity that everyone will engage in — even those who actively fundraise. This is something out of the ordinary even for me … and I’ve been through a lot of variations of asking people for money. But, to understand the process is to be better prepared.
Startup Speed Dating
In full disclosure, I’ve never been on a speed date. In fact, my dating life ended almost a quarter century ago when I married my wife. But, I have seen the concept on television and the media and get what it’s about. Given that dramatized account, this type of fundraising event is almost the same.
The process begins when a matchmaker of some form arranges a critical mass of meetings with people who might be interested in investment. In our particular case, our dates were all money managers who were decision makers or birddogs for pools of funds looking for “interesting” opportunities. These could be family wealth funds, sovereign wealth funds, hedge funds, or just personal finances of very wealthy individuals. In any case, this isn’t the typical Venture Capital firm.
When dealing with the conventional VC firm, there is a well orchestrated dance that occurs. The founder has an intro with someone who is usually an analyst or maybe a partner (if there is a relationship). There are some interrogation meetings where the firm feels out the prospect and asks the questions we all know and love … “What is your upside?”, “How defensible is your idea?”, “Who are your competitors?”, “What is your three to five year growth plan?”, “How do you plan to scale?”, etc. And this like occurs over a certain period of weeks usually. Eventually, you make it through the process and they give a yeah or neigh decision.
In investment speed-dating, you are set up with between one and four potential investors during a meeting slot. They may or may not have a very cursory amount of information about your startup and you likely have very little information about them. The first step is the introductions all around. You are then led into the company history, description, and opportunity. At this point, if things are going well, you might find that a good discussion is developing around possibilities and potential synergy. If things aren’t going well, you quickly realize this might be the longest hour of your life. Eventually, talk turns to the specifics of the raise, terms, purpose of funds, and all the other high level details that normally find their way onto a term sheet.
The challenge here is one of quickly identifying what these investors are hoping to achieve and presenting your vision in a way that is relevant. In the world of VC firms, usually this is done before hand. You can pretty easily find out based on their published material and even their portfolio what kind of venture they target. With this type of roundtable fundraising, you don’t and usually can’t do too much prior diligence. As a result, you are testing your improvisation skills at a professional level.
Success or Failure
Generally speaking, if you are in a situation like this, you probably aren’t a big fish going after a later round. You are probably looking for Angel, Seed, or maybe Series A though the latter is a stretch. As such, your asking amount is pretty low and typically somewhere in the few hundred thousand to a few million. For many of the investors in this situation, these amounts account for noise in the broader portfolio’s signal, but there’s a certain amount they want to put into speculative ventures.
If you are unsuccessful, you will shake hands at the end of the hour and likely never hear from these people again unless you cross paths with something different. It’s very clean and there’s no waiting on an email that may never come to let you down.
If, on the other hand you are successful, you may get a check.
As my CEO and I went through these meetings, we had quite a bit of failure. It was expected and just par for the course. We didn’t take it to heart — again, as I said before, it’s cordial and clean. However, we did have a couple connections that decided we seemed pretty cool and had some potential. Within an hour of the meeting and on our cab ride back to our hotel, we had investor calls wanting term sheets with open checkbooks at the ready.
That’s a good way to spend a couple days.
Despite the narrative laid out here, this type of fundraising activity is not for the faint of heart. Committing to two solid days of aggressive pitches in a noisy hotel restaurant requires a maturity within the venture and the team. There are questions of all types that will get thrown out. You have to have an answer and if you don’t you need to be able to think on your feet. You have to know your business model, your unit economics, your revenue and cost drivers, and your growth plan like you were born with the information. You need to be able to articulate it all to the level and benefit of your questioner as well as the other observers. And you need to develop a personal connection over the span of a couple cups of coffee.
You especially need very well developed bladder control. You will drink A LOT of coffee, water, tea, or whatever it is and given the time you have, you don’t want to waste it in the restroom.
Of course, despite this being a speed-round of pitching, the same qualities about how you handle the face-to-face meeting applies to any fundraising. You need to be prepared to the absolute best of your abilities and then just be willing to leave everything out on the table to get the deal done. Money is out there and there are a great many places that want to give it away to promising ventures. Your only challenge is connecting in a way that gives someone confidence that you know what you’re talking about, you know how to get it done, and you’re a person they won’t mind writing a multimillion dollar check to in the hopes of getting a return as you germinate the cash properly.