Raising Funds: Q1 2021

Strong performance in the markets has encouraged many companies to accelerate their fundraising plans. Investors, in return, seem willing to discount certain metrics that used to be required to justify the next raise or uptick in valuation. Nobody wants to miss out.

While the tech media headlines seem full with new such announcements each day, I am not sure that it is that easy for everyone.

Take for example a first time founder. They probably have a limited network to begin with. And it takes time to develop the necessary relationships and to build trust. The same fund that just wrote a large check to a serial founder may not show as much enthusiasm for this new founder’s company. They will want to conduct more diligence, spend time with the team and get to know them, their product and their market much better before making a decision. That longer process may leave the fund with less capital to invest, a potential conflict if they already backed a company in this space (or if a portfolio company pivots in that direction) or just lost in the noise of other deal flow.

Sure, if this founder came from the right military unit, university program, unicorn, etc. that would help get some initial attention. The selectivity and pedigree of these previous roles are a clear indication of the top-tier individual/team. Or at least it used to be. But funding is far from guaranteed just because you have the right logos next to your name.

So what does one need to do to get a new investor onboard? Here are some ideas for you to consider:

  1. Stand out. In a positive way.
  2. Prove that you can own your niche – industry, technology, market segment.
  3. Become “the” expert in your space.
  4. Develop your story, materials (deck, financials) and team to support the above.
  5. Don’t hesitate to ask. Worse they can do is say “no”.
  6. Be persistent, yet courteous.
  7. FOMO

I am not sure about this last one. But it seems to be a powerful element in the VC industry where we can find herd mentality driving decisions. I prefer to focus on developing momentum, achieving smaller wins as building blocks for success that could inspire others to join you on your journey. At some point (the tipping point) it will become an avalanche of interest. That is a better place to be than FOMO driven interest, IMHO.

In raising a fund, emerging VCs face many of the same challenges mentioned above. Based on my personal experience only, it is even harder to raise capital for a fund than for a startup. With a fund the investor has even greater uncertainty since they do not yet know what the portfolio will look like. There is no FOMO.

I think that the key here is rolling intros. Introductions from those who decided to get onboard, to others they can potentially influence, or at least get you an audience with to make your pitch.

My suggestion: Ask everyone, whether they said “yes” or “no” to your pitch, to introduce two others from their network who might be interested in what you are putting together. This will create a flurry of warm intros to mostly relevant supporters. Close one, and then another, as you start to create that snowball effect mentioned above.

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