Funding for a startup is super hard! One great way to improve your fundraising game is to hear about how it was done by the pros. In this section we will look at a fundraising anecdote from Greycroft, a venture fund that makes initial investments from as little as $100,000 at the seed stage and up to $35 million from their growth fund. Here Alain Patricof recounts the tale of raising their second fund around Christmas in 2008, in one of the worst economic climates in modern history. While his story is not of a founder, but of a venture capitalist getting institutional investment (from corporate, pension funds, hedge funds, etc), the details he gives are insightful. He starts by sharing interesting statistics on his funnel:
We had 515 contacts, of this, roughly 250 passed for various reasons and 100 were non-responsive. We had 154 visits, 97 due diligence requests, 33 second visits, and 12 reference requests, to ultimately produce 9 institutional investors.
That’s less than a 2% yield of all contacts and 6% of first meetings.
Obviously these numbers won’t map perfectly to that seen by a tech founder. Usually the initial funnel for startups raising tends to be smaller. But seeing these numbers can help you understand the dynamics of getting funded. It can help you visualize the task before you, giving you comfort in knowing you are not alone in getting a ton of rejections. Patricof dives deeper, describing the rough treatment he received and how discouraging it was at times:
During the process, however, we learned a lot about various institutions and how they treat supplicants like us. Some of the highlights that immediately come to mind: courtesy on call backs in a time frame they set but don’t observe, due diligence processes which promise a month or two and take almost a year, people who invite you to full committee presentations and only one person shows up after you take two days and travel over 1,000 miles to get there in a rainstorm. And these are just a few of the examples.
The 9 Tips
The blog post continues to cite his numerous frustrations. But even more helpful are the 9 lessons he gleaned from his experience:
1. Never assume you know who will get over the finish line and make a commitment they will fulfill. At the end of the day the most unlikely group may come through for you and the most likely investor will disappoint.
2. Never assume you are done and that you have identified your group of investors. You have to keep pursuing new prospects up until the day you close as inevitably someone will get a hiccup and back away. Leave no stone unturned.
3. Never give up on an institution who says no. Keep providing them with up-to-date data and items of progress to keep them involved as you never know what will persuade them or perhaps why they said no in the first place.
4. Always, but always, ask the following questions before you leave the first meeting:
A – Do you actually have money to commit? If not, when?
B – What is the due diligence process and how long will it take?
C – How is the decision finally made?
D – If you were to commit, what would be the range of commitment?
E – Understand who the point person is in their group for follow up and decide who is most appropriate in your group to follow up. Make someone responsible.
5. Listen to what is said and keep extensive and accurate notes from every meeting even to the point of using a CRM system of some kind to record who was at the meeting and any identifying features (e.g. beard, color of hair, tall or short, or anything they told you about themselves) which might later assist you when going back to them for a later meeting. I guarantee you by the time you finish, all of the names will blend together and by the end if you see someone who you met early on, you will have forgotten everything about them including what they look like. Perhaps most importantly, remember the last thing they say as they or you walk out the door.
6. Have a very organized follow up process, and don’t wait for anyone who says they will call you back in 2 weeks or a month to call you back. Most times, because they will have had 50 meetings like yours in the interim, they will probably have forgotten what you look like and what they said they would do next.
7. Prepare in advance the list of all your company CEO’s, co-investors and personal references with e-mail and telephone numbers and collect all of the data on each company in your portfolio. Anything you can do to make it easier for potential investors will accelerate the process or maybe even get them started on due diligence sooner.
8. Don’t believe or be discouraged by stories you hear about other groups raising money who have done it faster. Most times it isn’t true, as it may have been just for a first closing. There may be special circumstances of which you are not aware or it may just be rumor. In today’s environment you should assume it takes a minimum of a year to complete the process and you better be prepared in managing your investment strategy of your existing fund so you don’t run out of money.
9. Focus early on to get a lead name investor that others will respect and follow.
Once again, Patricof was raising a VC fund from institutional investors. His path will not be identical to yours, but the fundamental elements are the same. You just need to tweak this advice to your personal process.
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Read here the full article Confessions Of A VC Who Raised Money During Financial Armageddon.