Raising investment? Stop wasting your time

I wrote a very short post/twitter rant on cold e-mails the other day. To clarify, I wasn’t annoyed because I am ‘so VC’ now, but because it pains me to see founders wasting their precious time with un-qualified, un-structured and badly thought out e-mails. Probably, being sent to the wrong people.

I’ve raised over $1m in VC/Angel money and I can tell you now I wasted A LOT of time writing those same e-mails/linkedin messages and even pitching investors who would never invest, but who I naively wasted my time with. If it were a sale, i’d have spent time doing due-diligence on the potential customer, i’d have qualified them and then I’d have gone into the meeting knowing there is a potential fit.

In fundraising I think people under-estimate the qualification phase. If done properly, it massively reduces wasted time and maximises actual ‘selling/raising’ time. More importantly, the qualification phase is important in fundraising because there is often time-pressure. How about spending half an hour on a tube to a coffee shop in central london, followed by an hour long meeting, to find out you’re ‘too early’ or they’re not investing right now, then half an hour to your next meeting…When you’ve got 3 months cash in the bank?

In addition, raising money is a big decision, not to be taken lightly. If it’s VC/Angel money you’re planning to raise, then you’re looking to be working with these people for ~5 years.

So i’m going to write this post on what founders can look out for from an investor to help them maximise their time. Then a follow up post using Potential VC as an example of how to do it. I’ll include some of the criteria that founders should check for, tips on what to look out for and tools to use. This should be the same for any investor at any stage (FYI not raised serious VC cash, so I’ve not done the bigger cheque sizes but I imagine the fundamentals remain the same.)

Things you’re looking out for:

Are they active?

A lot of investors are dormant. Both Angels and VCs will continue to be seen to be ‘active’ in the ecosystem, but they may not actually have any money left to invest. A few questions to try to answer are; When was the last investment they made? Was their last investment a follow on or a new company? How big is their fund and when did they raise it? (VCs)

Most VCs make a series of investments in the first ~3 years and then wait out and save cash to ‘harvest’ their portfolio to an exit. However, VCs in particular, will take meetings just because of FOMO?. They will take a meeting even if there is a 0.1% chance they’ll invest?—?this isn’t because they are bad people it is because they do not want to miss out and need to stay in the game. Due to the skewed nature of VC returns, they literally cannot afford to pass on meeting the possible next big thing. Angels and VCs will probably meet a founder even if they have no money to invest.

Do they have any specifics?

Regions, sectors, markets, verticals, types of business model. Founders should be looking through the investor portfolio and look for patterns in the companies they are investing into. Read the messaging on their website/linkedin/blogs and look out for sectors/types of businesses they have a focus on. A lot of investors will say that they do all sectors (again because they don’t want to miss out on Zucks), but in reality it is likely that they will have a fairly rigid investment thesis. For example, you’re a B2C company, the Fintech specific Angel may still meet you?—?‘because you never know’.

What stage do they invest at?

This is potentially the most important and easiest thing to find out. Back in the day, I pitched and tried to pitch so many Series A VCs when we were raising ￡300k. Why? Because I didn’t know they were Series A VCs. Again, (broken record) a lot of Investors will be decidedly vague on what stage they invest in, because they don’t want to pass on that amazing team. So find out; What is their typical cheque size? Seed, Series A, Series B? What were the sizes of the last funding rounds they did? 

A good tip is to check the overall fund size, this often gives cheque size away. Obviously, the smaller the fund, the smaller the average cheque. As a quick rule of thumb most VCs will raise a fund, invest 1/3 and save 2/3 for follow on. So if someone has a 30m fund, they will probably be doing 10m at Seed with 20m for follow on.

Again, VCs will often say they do all stages?—?when in reality they do a very similar cheque size every time.

Decision making process

As with any ‘sale’, the ’seller’ needs to know if they are talking to the right person in an organisation. This doesn’t really matter with Angels as they do all the work themselves usually. However, with VCs founders can often spend a lot of time talking to the wrong person, especially associates (sorry). Associates are the filter and unfortunately in my experience they are good at eating up founder’s time. (Sorry) Mainly because they often have little VC/entrepreneurial experience, they are on a steep learning curve and want to be seen to be working really hard. Partner’s make decisions, so to raise VC money, the Partner must sign off. It is also useful to understand how the Partner’s make their decisions, if there are 3 partners then often all 3 have to sign off on a deal.

All the above questions are quantitive and very important. However the following are much more qualitative, therefore they are more personal/emotional?—?and likely more important. If investors tick the above boxes, then below are the real game changers. The above are like; do I push to get this meeting? Below?—?do I even want this meeting?

What’s their ’thing’?

Most investors have a certain ‘thing’. Something which they are good at, or a certain area which they add value in. Some might just be known for making quick decisions, others for expertise in marketing and others for writing big cheques. What is their position? Most investors will have a certain angle and it’s important to work out what it is, this will help gauge which investors are the best fit for the company. e.g Angel’s who like to be hands on afterwards. VCs with great networks in certain areas..

Reputation.

Simple, do people like them? What do people say about them? Does their portfolio like them? Do people in your network know them? Homework should be done and the founders should be asking around their network as much as possible. However, please remember; everyone’s personalities and situations differ so take advice with a pinch of salt. Nevertheless, recommendations from respected friends in your network mean more than anything else. Raising money is all about relationships. If an investor won’t introduce you to someone for a reference then this is a huge red flag. 

You’re also looking to get a feel for what their personality is like, recommendations are great, but if you can’t always get them. Read their linkedin/twitter/blog?—?try and understand what they are like. This will help you get a sense of if they fit with your values, but also it may help when you come to actually pitch them.

Experience/track record 

On an individual level, what have they done? Are they operators/are they pure finance/are they entrepreneurs? You’re looking to work with an investor for years so you need to respect them and their opinions. Their experience also gives you a sense of where they may be able to help you. Again, take a look at their portfolio; not only will you get a feel for what they like, but do you genuinely think it’s any good?

Looking out for the things I’ve mentioned above should help the founding team save time, but don’t get me wrong fundraising is still a numbers game. To raise a decent funding round founders must do 100s of meetings. Hopefully with some of the above in mind, founders may meet 10% less people and their conversion may be 20% better.

Through a process of qualifying investors before pitching, startups can maximise time and find the best partner for their business. If founders don't do this, who knows who they could be jumping into bed with?

James