Fundraising | Scaling Your Startup S2 E4: SoleSavy's Dejan Pralica & Density's Andrew Farah | E1210

Top Takeaways

• Meet with 20-30 founders who have raised venture capital and are one or two stages ahead of you to ask for advice on your pitch. (Bonus: If founders like what you are doing, they will invest in you and/or introduce you to their VC GPs that invested in them.)
• Communicate your story. Investors need to know why you are solving the problem.
• Lead your pitch with Team, Product, & Traction.
• Fundraising done wrong takes your eye off the business. Running a structured process allows you to quickly raise and get back to focusing on growing your startup.
• Use investor updates as a way to re-engage investors. (Your WHY + Revenue Growth = FOMO)

"If you are really enthusiastic about why and the logic is sound, it is impossible to argue with ambition." - Andrew Farah

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Guests

Andrew Farah, CEO & founder of Density

• Raised over $100M and is operating in growth-stage mode.
• Density sells a Hardware-as-a-Service product that monitors building space for commercial real estate.

Dejan Pralica, CEO and Co-Founder of SoleSavy

• Closed an oversubscribed $2M seed round (Largest Check Size: $500,000, from 33 Investors over 10 months)
• SoleSavy is a paid community for Sneaker-heads that blends the best parts of ecommerce and community.

Andrew's fundraising strategy & philosophy

• Andrew believes more world-changing businesses could have been built if founders knew how to fundraise better.
• Information Asymmetry: VCs invest constantly. Founders only fundraise every 18 months.
• Great VCs are like experienced pilots. When a crisis happens, they can look at the chaos of your company dashboard and tell you what to ignore.
• You're not competing against incumbents for money; you are competing against everybody else who's fundraising at a similar stage.
• You need to iterate on your deck and story with every meeting you do.
• It's difficult to run a business and fundraise at the same time, keep your fundraising window short so you can focus on fundraising exclusively during that time.
• Running a tight process dramatically improves the likelihood you can close a round and create a competition to increase your valuation.

The sequence of a great pitch

You want to structure your deck to keep investors engaged with a clear understanding of your story.

#1: Team - Lead with team, your ability to recruit talent is how you will solve future problems as the company scales. (If you are at the seed stage without a big team, go to step 2)

#2: Product - Put product early. Investors understand your company better when they know how you do it.

• Show your actual interface moving. Short clips of a user interacting with your user interface are 10x better than mockups or static screenshots.
• A moving product speaks volumes to the maturity of the company and the capability of the team to ship.

#3: Traction - When your numbers are good, show them, don't bury at the end of your deck.

• Revenue and user growth.
• Customer acquisition cost (CAC) & Lifetime Value (LTV)
• Calculate your total addressable market (TAM) from the bottom up. Don't use Gartner report number. Instead, look at your current customer base and find everyone that looks like them.
• Count your potential customers. Do the work to quantify how large the opportunity is.

Other deck tips

• Use a "barbell strategy," alternate between slides rich with information and data and those with big imagery and ideas to balance the tactical execution of the business and the vision for where it should go.
• Don't talk about competitors, instead talk about competing technologies and ways of doing business.

"If you are really enthusiastic about why and the logic is sound, it is impossible to argue with ambition." - Andrew Farah

How to run a tight process

• Don't just meet with investors when they ask to sit down with you. Instead say, "right now we're not capital constrained, we will let you know when we open a process."
• You need practice before you pitch VCs and you need to love every slide you have in your deck.
• Learn the language of investors: listen to their talks and interviews before meeting with them. Put your business in the context they are familiar with. (Examples: Andrew learned "accumulating advantage" and "dominating a small market" from a Keith Rabois talk. He used this language when pitching Founders Fund)
• Fundraising will take three months: There are 2 windows, January 2-July 4, September 10 - Thanksgiving. Plan accordingly.
• VC associates will be helpful allies to keep momentum when fundraising, but only a General Partner (GP) can push it through.
• Your last pitch is your best pitch, so meet with the most important investors last.

Andrew's tactical fundraising schedule

0-30 days: Meet with 20-30 founders, one to two stages ahead that have raised VC who have raised venture capital.

• Bring a rough deck, get feedback on how they would improve it.
• Ask them what works and what doesn't when pitching VCs.
• If founders like what you are doing, they will: invest in you and/or introduce you to their VC GPs that invested in them.
• Your deck will be materially better after this process.

30-60 days: Conduct VC screening meetings to understand who they are and their priorities so you can pitch them better.

• Screening meetings should be about 30 minutes long.
• Ask to meet with a specific GP.
• In the first half, grill the VCs with questions and take notes. This will give you valuable info for who is a good match and how to pitch them later. It also demonstrates you are serious about the process.
• In the second half, let them ask any questions. The best VCs will come prepared with interesting questions. Don't let this meeting go more than 15 minutes to limit the chance you mess up.
• Schedule future pitch meetings now because VCs are not busy a month out.

Sample questions to ask VCs:

• What's the size of your fund?
• Where are you in your fund cycle?
• Are you raising a new fund soon?
• How many investments have you made?
• How many boards Do you sit on?
• How do you make decisions?
• Is there an investment committee?
• Do you have competing investments in a similar space? What's the average check size?

60-90 days: Pitch VCs using your polished deck, then close the round.

• Do 2 meetings a day, put the most important investors at the end. Your top investor should be the second pitch on a Friday.
• Running a tight process helps you generate competition and allows you to assess the market accurately.
• Don't nickel and dime over minor differences in the valuation. Ultimately you want great long-term partners that can make sure you have access to more capital when you need to grow and can provide advice as you grow your business.
• You want a combination of repeat investors and new capital. VCs are partners that can extend the reach of your network.

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Dejan's fundraising philosophy

• Fundraising is about storytelling. It’s not about the “what”, it’s about the “why”
• Investors are part of your personal community as a founder.
• Fundraising is a journey. Its' incredibly volatile experience for most founders. There are ups and downs.
• Fundraising done wrong takes you away from your business. Nothing is more important than your business.

Dejan's 20 Rules for Fundraising

#1: Make it as fun as possible. It will take a toll on you mentally, so you need to operate through storytelling and community building.

#2: To build your community you need to tell a compelling story. To do all that, you need to build the foundation of your community by telling a compelling story.

• Fundraising is all about storytelling. Storytelling is what your brand and company STANDS for.
• In early stages don't make the focus on TAM & MOAT, it's ok to mention it but it's boring way to think about this is through your TAM and or MOAT. Focus on telling your STORY.

#3: Don't sell your business on the how or the what. Sell it on the why! Why is the most important.

• WHY Do you do what you do? What is your purpose?
• HOW do you do what you do?
• WHAT do you do?

#4: Make yourself stand out!

• Investors see HUNDREDS of decks
• You need to make yourself stand out. Tell your story and why your company and your vision matter.

#5: The WHY is more interesting than the what

• Take an example from Shopify president Harley Finkelstein: "Shopify is not a technology company. We are the entrepreneurship company. We enable people to achieve their own unique version of success"
• Shopify’s What and How (Boring): Shopify is an application programming interface platform and app that allows you to create an ecommerce website.

#6: Investors are your personal community.

#7: Your idea of an ideal cap table doesn’t exist.

#8: It’s not about the money (kind of).

• Once you realize you are building your community and you throw out this perfect cap table in your head the next thing you need to do is get the money out of your mind.
• Yes, you are fundraising capital for your awesome business but this can not be the decision-maker for WHO you work with.

#9: Find investors who can bring you and your company value Money will only get you so far. Who you surround yourself with and put around you, is what can help take you and your company to a new level.

#10: Ask yourself: When things go wrong and you need help, who will support you?

• Good investors are your support system.
• You need a support system through thick and thin so do your reference checks.

#11: Never forget that VCs invest in the founder just as much as the business

#12: You need to inspire.

• Fundraising can be a long process, you need to plant your seeds. Telling your why through storytelling is what's important because with time, and investor updates, that why will inspire and resonate.
• It might not be a yes today, but it could be a yes tomorrow.

#13: Keep your Nos on an email list

• Investor updates are your best friend. If someone initially passes, ask them to be put on your monthly investor update.
• Dejan converted two of his biggest seed checks from NOs to a resounding and impactful YES over the course of 5 monthly investor updates.

#14: Don’t blast all BCC your warm leads.

• For everyone else on your investor updates list, make sure to keep it personal. Do not BCC all.
• Start every email with something distinct that will help you stand out and show that this email was written for them and not 100 others.
• Keep a tiered list for your investor updates (based on how interested you think they are and long-term fit with your vision), do not send all VCs your most detailed updates.

#15: Get to know them through social media

• Take learnings - such as something they have been actively talking about on Twitter - and use that in your emails so it shows you are paying attention to them.

#16: Have patience. Your community will grow. Fundraising is not a race.

• It will take time and your community will start with 1 and then grow to 2, 3, 4 commitments but it will take time.
• As much as you nurture the growth of the business, nurture the growth of your VC community.

#17: Tap into the networks of your NOs

• If you get a no. Read the room. If there is an opportunity to ask for an intro in their network, you should do it!
• Dejan's best intro came from a no. Don’t be afraid to ask if anyone they know is a fit for your company. The worst that happens is you’ll get a no or no response at all.

#18: Naturally, the right people will hear your WHY and invest in you.

#19: Build FOMO.

• Your WHY + Revenue Growth = FOMO

#20: FOMO is your superpower.

• Use your WHY to power your community, use your community to build FOMO and use that FOMO to close the round.

Thanks to our partners for supporting the show: OurCrowd, LinkedIn Marketing Solutions, Netsuite

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