Raising Funding with Nathan Beckord on The Silicon Valley Podcast

#Raising Funding with NATHAN BECKORD - The Silicon Valley Podcast

Nathan, can you tell us about your background a little bit about it?

My background right now, I run Founder Suite, which is a software platform for raising capital, but before that I spent some time helping companies raise capital

I started my career doing investment banking. This was years ago during the .com bubble boom, and then went off and hung out my own shingle. A company here called venture archetypes, helping companies raise capital, then decide to build a software platform for raising capital.?

My entire career has been working with startups, helping them raise money and that's what I really love doing. It’s fun to come on here and talk about raising capital.

Now, when I talk to people that aren't from Silicon Valley, what they tell me is, I visualize Silicon Valley as I get on a plane. I arrived at the San Francisco airport. I get off the plane. I get my bag and then I have a check in my hand for my startup. Then I don't even leave the airport. I just circle back, get back on my plane and go home. How realistic is this vision of just everyone handing out money to startups here??

You can't swing a cat without hitting a VC here and they're just dripping money now. No, of course, that's not true. There's a lot of money in Silicon Valley, right? It is still, even with the kind of dispersion that's happened with COVID and everything. It's still the epicenter of venture capital far and away, number two and number three, in terms of how much money is to put here, but it's still very hard to raise capital.

I've known startups who have done something similar to what you just described, where they kind of jet in. Meet a bunch of investors, walk away with a term sheet or a check, but that's extremely rare. And all of those did a lot of legwork and prep work before landing at SFO to kind of grease the wheels and get investors teed up.

So, you're not going to just come here on a Friday and walk with the check on Monday, unless you've spent 6 to 12 months kind of building relationships, getting the traction necessary to excite investors and everything else.?

How come such a small percentage of companies actually raised funding because it sounds like, well, there's this process that people go through and if you just follow this process, that end result should be that check. Do people just not know this process or why is there such a small percentage that actually gets some funding?

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I think that not everyone knows that, I don't know the exact statistics, but it's in the single to low double digits of what companies go out to raise money, actually raise money, 5 to 10% is probably a reasonable benchmark. I don't know if anyone tracks that exactly.

But that's 5% to 10% you think for their next round or to get to that exit??

For the next round. I think I've heard statistics that, you know, only %5 to 10% of companies that try and raise money are successful in raising money. And so, there's another misconception that it's easy to raise money. It's actually very, very hard.?

Of the 90% that aren't able to raise money. Why can't they? Again, it's a lot of those factors, maybe their traction's not very good. Maybe their pitch is not very good. I would say, the top five reasons why startups fail at raising money is number one, their pitch is bad.

It's actually quite hard. I feel you should do your own pitch and to build a good pitch. When it's your own story, you know, founders often want to pack their entire journey thus far, where that's really not what investors need. They need something crisp and light and high level.

I would say, founders don't do a good enough job targeting right investors, they spray and pray, and that can actually hurt you even if a relevant investor feels like you didn't do any research on them, that you're just kind of reaching out to a thousand investors coldly, that can turn them off. Not doing the targeting.?

Another would be not having the right traction. When I raised money for the founders suite, I actually had tried two other times. I tried once, didn't get much interest from investors, took a break, spent six months working on the product, went back again, tried it again. Didn't get much traction again with investors, took another break, got my momentum and traction up again. And then the third time's the charm, I was able to raise money, but that's pretty common.

Investors will say, Hey, you're too early. I like what you're doing, but you're just a little too early for us to come back when you have proof of concept market validation, revenue, or whatever that may be.?

Nathan, do you recommend working on the data room before doing your pitch deck and everything or simultaneously, or after??

That's a great question. I've never really thought about it. When I've done this in the past, and when I used to work with clients, we would often start with the pitch deck only because the pitch deck is all about story, like building a story. And that's kind of the starting point for me when I think about it, like, what is the story we're going to present to the world, to investors?

I usually start with the story and then how do we tell that story in numbers? That's where we get into the financial model and stuff like that. I think I would probably do the data room last, but I totally see the argument of starting it upfront. So, you're thinking about your business as a whole entity. Yeah. I've never really thought about that. That's a good question.?

Where do founders have problems? Where do they just say, yeah, I'm just going to go from A to Z and forget this in the middle??

Founders do skip that qualifying the investor list part a lot. Contrast is to 10, 15 years ago, or is actually hard to find investors. It's not that hard-to-find investors anymore.

You have databases like founder Suite, Crunchbase, Pitchbook. There's multiple online databases and investors. It's not that hard to find a starting list of investors, but then where people do skip is they don't qualify that list. And so, they're reaching out to a fund that does their sector, B2B software or FinTech or something, but they're a later stage fund and you're a seed stage deal.?

It doesn't make any sense to reach out to a growth fund if you're raising a seed route and the investors like this guy, didn't clearly didn't do the homework on me. The more you can tailor it to your outreach, your pitch, your whole messaging around each investor, that you really know what they're doing. Maybe you followed them on Twitter. Maybe you can reference some other deal they did.?

This all goes to show that you've done your homework and that you're really reaching out to them and then it's a fit. Investors usually will welcome that outrage, even if you do cold, which I don't know, that's another topic, but even if you've done cold, you clearly show that you understand this investor's thesis. They're often welcoming to that, cause there's a match there. That's where I see people skip a lot.

The whole fund-raising process is kind of very similar to selling a product. Our sales skills are very important. I mean, if you don't have those skills, are you just, is it hopeless? What should people be focusing on to grow and develop to give them the best opportunity throughout this??

A lot of founders, a lot of startups, might be run by technical founders. That's actually very attractive to many investors. They'd like to see technical founders, especially at the early stages. But a lot of times technical founders aren't necessarily good salespeople. Maybe they're introverted. Maybe they just kind of don't have great people skills, whatever it may be.?

So, being able to sell and to hustle in a positive way is a good thing. I think it's pretty important. One of the things I tell founders sometimes is you've got to channel your inner hustler. Even if you aren't a natural extrovert or a natural hustle, you've got to kind of not be afraid. Get out there and talk to investors, get on the zoom, get in a face-to-face meeting with them, bring the energy to those meetings, get them excited about what you're doing and ultimately ask for the next step.

The next step could be another meeting, it could be to get them into your data room. It could be starting to talk about terms, it could be simply asking them if you are interested in this deal? And if so, what happens next? Kind of pushing things towards the next step.

One of the kinds of corny jokes I made. The way your CRM is structured. It's like a Kanban board. You have stages of fundraising from research, contacted pitch, diligence, committed, said no. And then each investor's card. And one of the stupid jokes I make is like, it's kind of like a chess game where you're moving all these pieces across the board and you've gotta be kind of actively working these pieces and moving them across your board into the next phase.?

So, everyone who you've pitched, what can you do to kind of hustle and nudge them into diligence discussions. Everyone who's in diligent. What are they waiting on? What can you do to kind of move those people into putting down a term sheet or otherwise coming in around, if you already have a lead?

So, long-winded way of saying, yes, I think sales and kind of quote-unquote hustle skills are important. Get to keep it all moving. I think also just relationship building skills, which is sometimes different than sales.?

Sales can sometimes be transactional where you're just trying to get someone to say yes or no. Relationships can be something that you're nurturing over a period of time, and that's a whole other topic, but that's also very important too, and that can be much. Less salesy and more nurturing if you want to call it that.

Speaking of nurturing during this process, you need to have access to your pitch deck, and you've talked to them and you're getting feedback constantly. When you're changing your pitch deck, when you're updating and modifying, how often should you send that notification of updates to people you've talked to, or how often should you be updating this material or is it kind of one and done, forget??

Here's a somewhat controversial topic in the fundraising world, whether to send your deck, for example, your pitch deck as a link and having that deck hosted online, like on a site like Founder Suite or DocuSend or Google slides, or whether to send your deck as an attachment because a lot of investors prefer the attachment. That way they can save it to their own CRM or whatever, they can view it on their phone, all this good stuff.?

The argument for having it online is that, like you just said, you can constantly update your materials. And when I was out fundraising, I would have my starting deck. I would go out on the pitch. I get a lot of feedback and you have to be selective in what feedback you take, because your head will spin around if you just take it off.?

Finding patterns in the feedback, working that into improving your deck and then uploading or updating your online deck. And so, that way the online version is always the latest and greatest. Now I don't send out a notification every time I update the deck because I'm probably updating this deck almost every day, a couple of times a week, at least.?

But even if you sent a link to an investor two weeks ago, it's always pointing towards the latest and greatest version of your deck. And I think that's a really nice thing to do. So, the short answer is yeah, kind of constantly tweaking your deck, overcoming, if you can tell one of your slides is confusing to investors, maybe it's your market rollout strategy, and everyone gets stuck on that or is puzzled by improving that.?

Also, if you can have someone else write down every question investor's asking, maybe you record the zoom. Maybe you have your co-founder in the room just writing down all the questions, building a bunch of appendix slides to answer those questions can really be helpful too.

So, bottom line, your deck should just be getting better almost every day of your fundraising process, and that helps, you're getting momentum going on your deal and your deck and your story is getting better. Those things kind of reinforce each other.

During fund raising, which documents are needed that you should have prepared or ready before going out? Is NDA important?

Most investors won't sign an NDA and I think it can hurt you a little bit as a founder, if you're asking investors to sign an NDA because most won't, and so then you've got a point of friction already.

I think you should almost have a set of materials, like your pitch deck, even a high-level model that you can share with investors that don't have all your secret sauce in it. And then you put your really sensitive stuff, like intellectual property, in a data room, and then you can track which investors are looking at that.

I would say to answer the question, like, what else should you prepare? I would go off on a little bit of a tangent here. One of the things I like to tell founders to do is to actually build relationships and nurture relationships with investors even several months in advance. And that can be done by using company updates to kind of nurture these relationships with investors, right?

In a perfect world, you, as a founder, want to raise money in September. Maybe you start building this target list of investors reaching out to these investors with what I call the permission email. Now, call it April, and the permission to emails like, Hey Sean, I see you've invested in these companies. You've done a lot of activity in our space, which is SAS. I'm launching a new startup called Founder Suite doing SAS FinTech.?

We just launched it a few months ago. I'm not raising money right now, but I plan to be this fall. We're going to kick off our seed round. Can I have your permission to add you to our update list? We send out a monthly update. One page just talks about our progress.?

I would love to give you an early peek at what we're building and you start to build this company update on a pretty regular schedule. And if I'm sending you an April, May, June, July, August, you've now gotten to kind of see my company develop over six months.

You've seen our progress. You've seen the product unfold. Maybe you've seen us make a few key strategic hires or bring on some high-profile advisors. You're seeing the thing takes shape and is kind of like a flower, and then in the August update, I put in a little thing, hey, we're about to kick off our seed round. Do you want early access to our deck and data room?

I've seen deals that actually picked up before they go out to market because the founders did that prep work of kind of nurturing relationships along the way for six months using company updates.?

Long-winded way of saying, in addition to having your deck, your data room, having a regular company update that you send out monthly can be a great marketing tool. It's just like marketing compliments sales. This is a way to market your company before going out to rise again.?

Nathan, is there any last, tidbit story, wisdom, anything you'd like to share with us?

Yeah, I think raising capital can be pretty intimidating to founders. Maybe you're 3 years out of college, you're an engineer. It's like, how the hell do I go pitch all these money people down on sand hill road? How do I crack Silicon Valley??

I'd say, don't ever think about it, just start doing it. Get a nice story together because stories are really what people are investing in, especially in the early stages, investors are investing in a story. What is the story this founder is telling me? And do I believe at the end, is it a big vision I can get excited about??

Start to get your story together. Start to do the research. This is going to take time. It's a step, a lot of people skip or shortchange, start to do the research in building that target list of investors. Start that process way in advance of when you plan to raise money, because it can take, when I was doing these four companies as a consultant, I would say it would take me 50 to 100 hours of research to build a really high-quality target investor list.

Start that process early and then start the investor update outreach, the permission email, and the company update thing early. You do those things. Good pitch. Good story. Well-qualified list and start to nurture those relationships with the monthly company update.?

Your fundraisers are going to be easy if your company's cool. Your funding is going to go much faster than if you don't do that stuff.