The Best Advice I Ever Got About Raising Money

This article shares the best advice I ever got about raising money. It was instrumental in getting a Series A round for our company.

This is the second article in a series of articles on #startups, #marketentry, and early stage sales. If you like it, please LIKE it. Your comments are most welcome, and I will do my best to reply to questions.

Believe it or not, just a few weeks before 9/11/2001, I took on a gig as a first-time CEO. Our big milestone at the time was to raise money. But when 9/11 happened, the public equity markets imploded. Along with the economy as a whole. Venture funding, too, came to a grinding halt.

In the wake of the major recession that followed, venture firms began to retrench. Sequoia Capital’s “The Sky is Falling” RIP slide deck was posted to the web. VCs who still had funds to invest would save their capital for follow-on investments in their current portfolio companies. Summa summarum, NO ONE was making new investments. Ultimately it took us 2.5 years of extreme bootstrapping to raise the round. Happily, miraculously in that environment, we finally succeeded in April of 2004. After having met with 72 venture firms in total. It was painful. No, excruciating really. When we finally heard the words “the partners have decided to move forward”, we had to pinch ourselves in disbelief.

It was painful, but illuminating. As part of this experience I got the best advice I had ever received about raising venture money. As we went through some of those early venture meetings, I noticed a pattern. Most of the VCs who were unfamiliar with our industry would ask the same kind of “pre-packaged” questions about the customer problem, market size, barriers to entry, etc. We would educate the VCs about our market but learn very little in return. Our goal with these initial meetings was always 1) get them interested enough to take a second meeting, and 2) if not, at least learn something new that we could use to improve our business or our pitch. I started to think of the “pre-packaged” VC questions as “VC 101”. They were not based on any kind of insight into our industry. They were the questions that all VCs knew to ask. These guys were “painting by the numbers”. They barely scratched the surface on our business.

At around this time I was lucky enough to find a mentor. A seasoned CEO, board member and VC. I told him about our experience with the venture community and explained that we were “bootstrapping the company”. He grimaced in pain and pointed out that bootstrapping was not fun. He didn’t need to tell us that. Then he said, “if your business idea has legs, you should be able to find at least one intelligent human being in Silicon Valley who would fund it”. And so far we hadn’t. Then he dropped a true “wisdom bomb” on us. His advice to us was to find the 15 - 20 smartest people in Silicon Valley with respect to OUR SPECIFIC BUSINESS. People who had invested, not in our direct competitors, but in some related or adjacent industry. People who would intuitively “get it”. Then he told us, “If NONE of the 20 most industry savvy people think your business idea is good, it probably isn’t. Then you will need to go back to the drawing board and adjust your plan.”

This was a less-is-more approach. Instead of QUANTITY - how many VCs could we talk to - it focused us on talking to the RIGHT ones. It was doable but definitely not easy.

We broke it down into a few steps:

• Build a list of the right investors
• Find a warm intro where possible
• Ask for a meeting

The amazing thing was it worked! We got better and better feedback on our business and were able to improve the business and the pitch as we met with industry savvy investors. And finally we found a “champion” whose enthusiasm won over his partners and got us an A-round after 2.5 years in the desert.

Fortunately there are far better tools available today than when we did this back then. Recently I went through the thought process of how we would do this today: