Fundraising

by Ryan Breslow

Some investors take their interactions with founders personally. They may say unkind words about you, either directly or behind closed doors. Avoid these high-ego investors at all costs; they’re not worth the pain. You wouldn’t believe the number of investors who harbor feelings of jealousy, resentment, or clinginess to founders’ successes… even though their job is all about supporting founders! Instead, bring on investors who are authentic and genuinely want to help you succeed. That doesn't mean blind agreement: great investors will speak up when they disagree, give their advice in an authentic way, and ultimately respect the final decision the founder makes. This takes the element of fear out of the partnership and ultimately leads to better outcomes for the business. To all investors who act as genuine partners to their founders, thank you. You are playing such an important role in the ecosystem.

Uniqueness is essential. Investors meet with hundreds of founders and only invest in a handful of them. If you really stand out, it's far easier to win.

I like to keep these qualities in mind, and strive to embody them: Visionary Creative, bold, unique vision Thinker Critical thinker, open-minded, willing to change your mind Warrior You will run through walls to win If you’re able to convey all three attributes, you’re going to succeed with investors. You’re also going to attract talent. Finally, don’t forget to be authentic. That is the key that unlocks everything in life.

The best “champions,” or intermediaries through which to meet investors, are other founders and mentors who are not investors themselves.

A Node is your immediate contact while an Investor is the target you’re pursuing. Hey _Node_, hope all is well! I noticed you [are connected to _Investor_ on LinkedIn / raised money from _Investor_] and heard from a few folks they’re pretty smart. They have relevant experience to what we’re building and I’d love to get to know them. Would you mind making an introduction? Here is a quick email draft you can copy and paste. Feel free to modify as you see fit! Thank you so much. "Hey _Investor_, hope all is well! I have a friend, Ryan Breslow, who is building Bolt. They are doing one-click checkout for the entire online commerce landscape. Ryan is sharp, and I think you both should get to know each other. Can I make the introduction? _Node_ "

Hey _Node_ — how well do you know X? Or combine the two: Hey _Node_, hope all is well! I noticed you [are connected to _Investor_ on LinkedIn] and heard from a few folks they’re pretty good. They have relevant experience to what we’re building and I’d love to get to know them. Do you know them really well? If not, I’ll find someone else, no stress. If you do know them well, I’d love an introduction. Here’s a quick email draft you can copy and paste. Feel free to modify as you see fit! Thank you so much. "Hey _Investor_, hope all is well! I have a friend, Ryan Breslow, who is building Bolt. They are doing one-click checkout for the entire online commerce landscape. Ryan is sharp, and I think you both should get to know each other. Can I make the introduction? _Node_ "

The best way to get to know an investor is through dialogue, not decks. I’ve raised tens of millions of dollars without decks.

The most dangerous investors are the ones who drag out the process, wasting your time while ultimately saying “no.” Overseeing hundreds of fundraises, I’ve never seen this kind of process result in a “yes.”

Some will give you a “no” but not give you real reasons why. If they’ve been vague and unhelpful, ask them to give you the real reasons. If you’re going to get a “no,” you might as well learn why. Still, don’t let it demotivate you, and don’t take their reply as absolute truth. Sometimes, their reasons are worth taking into account. And sometimes they aren’t!

Still, don’t assume you have capital committed until the money hits the bank.

Here are some signs of bad investors: ● Large ego ● Treating you with anything other than the utmost respect ● Unsophisticated questions (they really just aren’t getting it, or perhaps they’re even excited but for the wrong reasons) ● Extra investment steps (for example, holding you up by saying, “I want you to meet with my friend who knows about this”) ● Missed deadlines (or general slowness) ● Unclear investment criteria ● Bad energy (judging investors based off your energetic connection with them is incredibly important) Disregard the investor’s brand and prioritize your assessment of them as an individual. In fact, bringing on an investor with a strong brand has real downsides. You’ll run the risk that they have outsized influence over your board, your other investors, and your organization. It’s hard to butt heads with someone who everyone is afraid to disagree with. You’ll end up spending most of your time managing your relationship with this person rather than managing your business.

You should also make sure that the investor you’re working with has decision-making authority in their firm. This is critically important. If they don’t, when your business faces hard times, other partners in the firm may start stepping in out of nowhere.

NEVER give up a board seat in a seed round. And, to the degree possible, try to do your rounds without a Preferred Board Seat. Observer seats give them a seat at the table without the control. Common seats give them a seat at the table, but while holding them accountable to push the company forward since the common shareholders, with you as a founder holding most of the common vote, can let them go. You can emphasize to this investor that your intention is to have them on the Board forever. If they add value to the business, you’ll naturally want to keep them around for as long as that is the case.

A common pitfall I see is multiple cofounders trying to tag-team fundraising. This is nonoptimal. As with any business objective: one person needs to be ultimately responsible. With fundraising, one cofounder should take a leading role. The other cofounder should focus on keeping the business running and should be leveraged in a supporting role to: ● Attend a 2nd/3rd meeting with the investor (increases buy-in and adds another touchpoint) ● Amplify the shared network and investor introductions ● Help check references ● Take the blame for being a hard negotiator :-) As I hope I’ve illustrated, fundraising isn’t an afterthought — it requires this kind of discipline, follow-through, and planning to get right. Make that one person’s whole job, not two people’s shared job.

Tracking & Managing the Process Track your process to make sure nothing falls through the cracks. Using Salesforce or a CRM is overkill; I typically use an Excel spreadsheet with the following columns: ● Firm ● Target investor ● Last touchpoint ● Next step ● Interest level ● Notes on prior conversations (where did they light up, what concerns did they have, etc.) You could also create columns for specific stages (e.g., intro call, deep dive, references) and check them off as you go. Organization is half the battle here. If you’re careful and deliberate about capturing data, it helps not just to raise your first round, but also subsequent rounds. You aren’t building this spreadsheet as a one-and-done exercise — it’s a tool that follows you for the life of the business.

Approaching Existing Investors If you ever need to raise more money, there’s no better audience than your existing investors! I find that the best way to reach out is with a super short email blast. For example: “Dear Backers, [2-3 sentences on what you just accomplished, extremely excited] We’ve also got a very exciting opportunity. Based on our milestones, we are gearing up for a serious product launch and will raise another $1M at a special-priced note to accelerate a few components. If you’ve wanted to get more deeply invested, now is the time. I imagine this being accounted for very quickly, so please ping me...

Rejecting Investors If you’re in the fortunate position of having too many interested investors, good work! However, this can be a tricky situation. You want to keep all relationships intact to the best of your ability. If you need to pass on someone, say something along the lines of, “We unfortunately had to move forward with investors with whom we have longstanding relationships, or started talking to earlier. However, you're someone that I think ...

Raising from Series A/B firms for a seed Bringing a Series A/B firm in for a seed round is risky business. They’ll want to talk to you to get an early look and learn about what you’re up to. But don’t get too excited! In fact, I’d recommend avoiding those conversations entirely. Whatever capital they commit will be trivial relative to their total balance sheet. No Series A/B firm is serious unless they lead your A or B, and, if for some reason they decide not to do so, you’re screwed because that’s a red flag for other investors. This is called “signaling risk.” Basically, by investing in your seed, they intend to block out others from your next round. It’s a win-win for them because they either lead your next round from a privileged position or, they pass and you’re the one who’s screwed as a founder. So, your incentives are completely misaligned! You may have heard success stories, but that’s a sampling bias — you’ll rarely hear about the companies that do not get the follow-on term sheet. Note: A fund investing in your company at the seed stage is completely irrelevant to their willingness to write a check to lead your Series A or B. The only thing that determines their willingness to invest is your traction and momentum. Letting them in makes them no more willing to invest, and anyone who tries to convince you otherwise is deceiving you. There might be relationship benefits, but you can build on the relationship without letting them on your cap table!

Revealing too early that you’re fundraising This is another all-too-common pitfall. Your nodes and introducers need to insist on them meeting YOU and not look like they’re trying to facilitate an investment. Remember, always come back to a relationship-centric process. You would like to get to know X or Y person. That’s all.

Not focusing enough on the raise Fundraising should be a full-time job for one founder. Plan for three months minimum. If you get it done earlier, t...

“What other investors are you talking to?” You NEVER want to share other investors’ names until those investors have wired their money. At that point, share away. I’d say something like: “I’m managing a lot of conversations right now, and as we get deeper, I’m happy to share that with you!”