VC fundraising as just another date

By Frances Luu and Tae Hea Nahm

We meet many founders looking to raise money from VC’s.

You can tell that many are fundraising for the first time. This is not surprising since we focus on early stage startups and fund many first-time founders.

We understand their anxiety. No one likes to ask for money — whether you are a founder raising money for a startup or a VC raising money for a VC fund. There’s always a fear of rejection or settling for less.

Before Frances started at Storm, she thought fundraising for a startup was similar to selling THE World’s Finest Chocolate bars as a child. Kids would solicit door to door, tell a compelling story and then someone would thankfully buy the chocolate bar. She believed founders would do the same — meet one VC after another, tell a compelling story and eventually a VC would write a check. However, there is more to VC fundraising; it’s about building relationships.

As we discussed ways to calm founders’ anxieties, we came up with the dating metaphor to explain the VC fundraising process.

Think of VC fundraising as dating leading to marriage in a two step process:

• First the individual VC becomes your champion — just like your date,
• Then the VC Champion gets approval from the VC partnership (who resembles the parents of the VC Champion) — just like your future in-laws.

Getting Your VC Champion

When you begin fundraising, learn from the dates that didn’t go well and understand that rejection is okay. Like dating, there are a lot of fish in the sea but somewhere out there, there’s a fit for you, your champion.

It helps to understand your VC Champion.

The challenge is: how to get the serial dater to commit?

The first step is to get the serial dater to spend all his/her time with you. That in itself is a big commitment for the VC champion, since it effectively prevents the VC from actively looking at other deals. And, the VC must make new investments.

One suggestion to getting priority from the VC champion is to pick the right introducer:

who makes the introduction to the VC matters a lot.

The ideal referrer can accelerate the VC champion’s due diligence even before the founder meets the VC champion. The ideal referrer is trusted by the VC champion and can validate the founder and the startup’s business.

Basically, the VC champion wants a deal to make his/her career within the VC firm. That means:

• A “meaningful” financial return to that VC firm. Returning 1% of the VC fund is not meaningful. Anything above 50% is.
• A “hot deal” for the VC firm. Will the deal help raise the VC firm’s stature? Are you that hot date the champion brings to the party?

At some point, you sense the VC champion wants to do the deal. You spend a lot of time together, have the hots for each other and want to seal the deal, but…

Your In-Laws — Getting the Parent’s Approval

Your champion needs the partnership’s approval before moving on.

Getting partnership approval is quite different than getting the VC champion. First the founders may not even see the partnership until the end of the process. Also the VC partnership have different goals than your VC Champion.

Not my deal. Each partner is very busy with his/her own deals. So, the other partners have limited time on other partner’s deals. So, the founder usually has one shot with the partnership, versus multiple meetings with the VC champion.

Protect the firm brand. While the VC Champion is focused on that deal, the other partners are focused on the firm and protecting the firm brand.

To move forward, you have to meet the parents!

Usually, VC Champion tries to persuade the other partners to meet with you with a short summary, whether presented in a short conversation, a short email or a quick overview at the weekly Monday partner meeting (say 5 minutes). One suggestion is for the founders to author that short summary for the VC Champion to present to the partnership. Otherwise, it could resemble the children’s game called telephone (as shown on the left) and the final story is not the same as the first (yours).

Another suggestion is to know the VC partnership’s strategy, such as sector, stage, geography or lead/follower. And, more importantly, the VC partnership’s biases. They may have made a lot of money or lost a lot from a similar investment. Maybe they’ve already spent time with someone similar to you, which could be good or bad.

The partnership can appear daunting but you have a champion! The champion should help guide you through the partnership meeting, especially since neither you nor the champion want to look bad.

As for the partnership presentation itself, I like Jerry Weissman’s advice on preparing for IPO road shows. He is a former novelist and TV producer and has helped many Silicon Valley executives (eg Yahoo!, Intuit, Netflix, Cisco, Guidewire, Trulia, RingCentral, etc) prepare for their IPO road shows. He said:

• “Nothing beats a good story. [fundraising] is all about selling. And what is selling but good storytelling?…
• The Greatest Story Ever Told. There is only one story the [investor] audience wants to hear: Why is your company an attractive investment opportunity? Executives typically spend their time making presentations to their partners or customers. But what’s desirable for customers will not always benefit investors. [One suggestion is to use your key metrics to tell your story.]
• You are the Author. No presentation exists independent of the presenter… In the case of a road show, that means the CEO or CFO must write the presentation.
• Hype Doesn’t Help. Institutional investors see four to eight new companies every day, five days a week… Presenters have to respond to that skepticism…
• Attention Must be Paid. You have 45 minutes to persuade a skeptical audience about a company you’ve worked several years to create.”

To some, comparing the IPO road show pitch to a seed pitch seems unrealistic. But, as we are watching the founder CEO make the Seed/Series A financing pitch, we are trying to visualize the same person making the IPO road show pitch in a few years. After all, we hope the founder CEO can go the distance.

At the end, just have fun!

You can make your dream into reality. When it comes to fundraising, yes, you are asking for money, but it’s more than just financing, you also are seeking long-term support.

A happily ever after does exist. Invest time in a champion who’s willing to understand and help fulfill your dream.