Raising venture capital is daunting.
Almost weekly, an incredible entrepreneur reaches out to me for advice because they’re having trouble getting traction with investors for their seed round.
They read stories on Tech Twitter about billions of dollars swashing around Sand Hill Road, VCs battling to wire $5 million dollars to a pre-revenue startup, and investors writing checks based on ideas on the back of a napkin.
The founders who reach out to me are frustrated. They have a product, they have a business plan, they have traction. Why can’t they find an investor who will take a bet on them?
I know the feeling, and it’s awful.
When I went out to raise a seed round for my company Glow, I heard “no” 60 times.
I finally got to a “yes”. I found several blue chip investors who believed in my vision and am deeply grateful for those investors who believed in me.
In the process, I learned that most of the stories on Tech Twitter are bullshit.
Raising VC money is about having a good idea, a strong team, and the potential to build a huge business.
It’s also a game.
Everyone feels lost in the beginning. It’s tough for second time founders, too. And it’s tough for a lot of people who go on to build wildly successful businesses. (Bessemer Venture Partners famously keeps an ‘anti-portfolio’ of companies they turned down and went on to be huge winners).
Most people think that the first and most important step in fundraising is building a pitch deck. It’s not.
Fundraising is a 6 month process, and building a deck happens about three months in.
If you’re a first time founder who’s planning to raise venture capital in the near future, I wrote this guide for you. It’s a six month roadmap with practical, tactical advice for getting money in the bank.
It’s not the only way to play the game successfully, but it’s the one that worked for me.
(Massive shoutout to my advisors Ben Gilbert and TA McCann, who were the original believers in my company Glow and helped build this fundraising strategy.)
Overview: The 6 month road to money in the bank
If creating a pitch deck isn’t the first step in fundraising, what is?
It’s building relationships. You should start getting to know potential investors well before you’re ready to start asking them for money. This first phase is called “passive fundraising.” Once you’ve established connections and investors have seen your progress over time, you can move into active fundraising.
Let’s say your goal is to have money in the bank by January 15, 2021. You should begin passive fundraising at least 6 months beforehand. With a little bit of buffer room, that means you should start July 1, 2020.
Here’s a 6 month fundraising timeline, with the above schedule in mind:
Passive Fundraising (July 1 — September 30, 2021): Get introductions and establish early connections with investors, so you get on their radars and they get on yours. Don’t circulate a pitch deck or ask for money. Use this time to build a rapport, share what you’re working on, and figure out which investors might be the best fit for your raise. Fundraising should take 5% of the CEO’s time in this period (around 1–2 meetings per week).
Ongoing Updates (July 1 onwards): Once you meet an investor or a potential advisor, add them to your updates list and send out regular notes with your latest progress, learnings, and where you need help. Email updates are a lightweight way for investors to witness your hustle and get excited about writing you a check when the time comes. Send these emails every 4–6 weeks during passive fundraising, and once every 1–2 weeks during active fundraising. A sample update email is at the end of this article.
Active Fundraising (October 1 — January 15, 2021): Circulate your pitch deck, schedule up to 40 first pitches, get term sheets, negotiate, go through due diligence, and get that money in the bank. Fundraising should take 80% of the CEO’s time in this period. Don’t worry, we’ll discuss how to get 40 first pitches lined up throughout this guide.
The First Three Months: Passive Fundraising
If you run a company and want venture investment, you should always be fundraising. Most of the time, you’ll be passively fundraising.
Passive fundraising starts at least three months before you go into active fundraising, and ideally, even earlier. It begins as soon as you have an idea or have a team committed to building something. Fundraising is a secondary concern in this stage. Instead, focus on building your product, your business model, and demonstrating traction.
When you are passively fundraising, it should take 5% of your time. Build your target list, get introductions, and hold 1–2 “get to know you” meetings per week.
Build your target list: Before you start having conversations, create a Google sheet to track all your target investors and notes on your conversations with them. It should include 60–80 investors, with the idea that you’ll be able to get meetings with roughly half of them. List every investor in your network who might be willing to have a friendly coffee meeting. Then, add in other firms you think might be a good fit for your company, even if you don’t know anyone there. Track the following:
- Investor type (Angel or VC)
- Primary contact: include their LinkedIn Profile and contact email
- Priority (L1, L2, L3, or F1, F2, F3): “L” if they lead, and “F” if they follow.
- Follows typically add capital to “fill out” a round, once the lead sets the price and the terms. Angel investors, for example, often will commit to invest a smaller check after a lead has confirmed their interest.
- Average check size
- Firm focus area
- Who do you know who can make an intro?
NFX has a fabulous investor database to give you a head start building your target list.
Get introductions: This can be the toughest part of the whole game. It’s also the most important. Your goal at the beginning of active fundraising will be to set up 40 meetings a week. How do you do that? Lots of hustle, creativity, and shameless networking. Here’s where you might start:
- Warm introductions: This is the number one way it’s done. Scour LinkedIn, find mutual connections with firms you’re interested in, and ask for introductions. If they agree, send that mutual connection a clean forwardable email that explains you, your business, and why you’re asking for the meeting. A sample forwardable email is at the bottom of this article.
- Talk to non-investors: If you don’t know many investors, share your idea with anyone relevant and willing. Meet other founders, colleagues in your industry, and potential customers. Listen to their feedback, and ask if they know investors they’re willing to connect you with.
- Cold outreach: A lot of VCs say they respond to cold emails. In practice, it’s hard to break through that bubble, but it’s possible. Here’s one article on the craft of cold emailing VCs.
- Look smart on Twitter, then DM away: Spend 7 days writing interesting tweets about your industry to build credibility in the space. Then DM target investors on Twitter to see if they’re willing to chat. You could also write smart blog posts or reports, and then share it with industry leaders and investors who might find it interesting.
Schedule 1–2 “Get to know you” meeting per week: Your goal in these meetings isn’t to get money, it’s to generate interest and to gauge which investors might be a good fit down the line. A rough agenda for “get to know you meetings” might be:
- Here’s what I’m working on: Introduce yourself, what you’ve figured out, and what you’re still testing. You don’t need a pitch deck at this stage, though you might want some artifact to help structure your conversation (for instance, a Google doc outlining your idea and progress-to-date).
- Gather early feedback: These meetings are an opportunity to learn about the market and other companies in the space. Take advantage of investors’ expertise. You might ask: Based on your experience with x company, how do you feel about y part of our strategy?
- Make it clear you’re not looking for money yet: Tell them you’re planning to raise in a few months. Right now, you’re focusing on hitting a few key metrics and learning from people who know the space well.
- Ask them to help set your target metrics: If you were to come back in a few months, what would need to be true for them to invest?
- Get more introductions: Networking is a huge part of a VC’s job description. The investors you meet likely know other investors who may be helpful. Wrap up every meeting by asking for 2–3 other people who they recommend you speak to about your business. Remember, your target is to schedule up to 40 first pitches during active fundraising, so it’s important to use every opportunity to build your target list.
- Figure out whether they’re a good fit: There are a lot of seed firms out there, but many don’t lead rounds or only invest small amounts. Follow-on firms that write relatively small checks can be valuable contributors, but you need to be sure that there are plenty of potential leads on your target list. Here are a few questions you can ask to learn about the firm or investor:
What types of investments does your firm focus on? Do you have a particular industry niche or stage you specialize in?
Are any of your current investments potential conflicts?
Do you lead?
What’s your target check size?
Prepare for Active Fundraising: About a month before active fundraising starts, get yourself organized to walk into official pitch meetings. Here’s what you need to do:
- Prepare your pitch deck: The internet is full of good material about preparing a pitch deck, so I won’t say much here. Here’s one helpful resource from Sequoia.
- Line up meetings: This can be the most daunting part of the process. Once you’ve developed a target list of investors and funds, the next step is to schedule a long lineup of “first pitch” meetings during your first two weeks of active fundraising.
- Start assembling your ‘data room:’ Due diligence starts after you sign a term sheet. At this point, your lead investor will give you a checklist for your data room. Data rooms are typically a Dropbox or Google Drive with legal and financial documents that confirm your business is in good standing from a legal and financial perspective. It’s a good idea to at least start getting these documents organized before you go into active fundraising. Read more about data rooms here.
The Second Three Months: Active Fundraising
It’s time to get that cash.
This guide allocates 3 months for active fundraising, but you should shoot to get a signed term sheet as quickly as possible. A good goal is to sign a term sheet within 8 weeks, and then reserve a month of due diligence. The quicker you can get a term sheet, the better.
Active fundraising is a game of generating momentum. Make yourself the hot startup on the block. It should feel like your fundraise is inevitable and your future success is unquestionable. It’s not a matter of if you get a round done. It’s a matter of who’s lucky enough to get in on it.
How do you create momentum?
It’s more art than science, but here are a few tips:
- Stack meetings: Your goal is to set up 40 first pitches within the first two weeks of active fundraising. Get on everyone’s radar quickly so that you are the hot company and magical founder that every fund is romancing.
- Find industry advocates to promote on your behalf: Building credibility can be difficult particularly when your startup is basically a larva. One way to build credibility is through others in the industry vouching for you or promoting you by sharing your pitch. For example, I spoke with one VC who has a PhD in computer science. He told me that he always takes meetings with people referred to him by friends from his PhD program, because he knows and trusts his ex-classmates’ expertise.
- Time your fundraise with a major launch or other publicity push: Investors love seeing traction, and timing your fundraise with a major traction building event is a good way to generate excitement. For example, you line up your fundraise with launching in a new city or releasing a major report on the state of your industry.
The bottom line: do everything you can to create the appearance of ridiculous momentum, and actual momentum will follow.
If it takes much longer than 8 weeks to get a term sheet, investors might start to question why your round is taking so long and get cold feet (whether or not that’s justified). Because of this, when you’re active fundraising, you should be spending almost all of your time fundraising. Take a lot of shots on goal to maximize your chances of finding an investor who’s a good fit.
Below is a suggested schedule for active fundraising. Reserve Fridays to regroup on your notes, send ongoing updates, and catch your breath.
Weeks 1–2: Introductory meetings
Meet investors, show off your pitch deck, and make your ask. Your goal should be to have 3–5 meetings per day, from Monday through Thursday. By the end of weeks 1–2, you’ll have had 24–40 initial meetings.
Many of these meetings will end with a “no”, and that’s okay. Your goal coming out of this 2 week period is to have 5–10 potential leads who you’ll meet with in weeks 4–5.
These first couple of weeks are exhausting, but you’ll learn a lot and start to see patterns in investors’ feedback. Take note of weaknesses, and address them during your break next week.
Week 3: Break & Regroup
Take some time to catch your breath after 2 weeks of non-stop pitching. Your goals this week are to schedule your follow up meetings for weeks 4 and 5 and address the questions that came up during your first two weeks on the road.
Weeks 4–5: Follow ups and more introductory meetings
Ideally, you’re coming into weeks 4–5 with 5–10 potential lead investors who are excited about what you’re building.
During these follow-ups, you’ll likely talk to other members from a firm about your business and demonstrate to your first contact that you’ve done work in the off-time to respond to their concerns. Hopefully, you’ll have a couple of term sheets at the end of weeks 4 and 5 and can spend the remainder of your time in negotiations and due diligence.
That’s the ideal scenario, but if that doesn’t happen for you, that’s okay and normal. Your pitch is stronger today than it was 3 weeks ago. Use weeks 4 and 5 to schedule more introductory meetings, and start the cycle with these new prospects from the top.
Weeks 6–8: Final partner meetings, term sheet, and due diligence
You’ll likely have some spillover follow up and partner meetings from weeks 1–5 in these final weeks.
If you’re still trying to get a some firms “over the line” at this point, you have a few options:
- Leverage your first term sheet to get more: You may have a term sheet from a firm that you’re not especially excited about. Leverage this term sheet with other firms in order to drive a sense of urgency with other firms. Email or text other investors to let them know that you have a term sheet and need to make a decision within the next 72 hours. You’re still very excited about working with them but can’t avoid a bird in the hand. Is there any way they can accelerate their decision process?
- Run after a “quick win:” If you’re still trying to get your first term sheet, do everything to signal to other investors that you are moving fast. Try to zero in on a quick win you can accomplish in 1–2 weeks to impress investors with how effective you are and create a strong sense of momentum.
- Open up a rolling SAFE and collect capital from “follows:” By now, you’ve probably met several investors who have told you to come back to them when you have a “lead.” Most of these people will end up saying no, but some of them will invest if given the right vehicle. Open up a “rolling SAFE note” and invite them to invest whatever amount. While this likely won’t total the full amount you were hoping to raise, it will buy you some runway. If you go this route, set a clear closing date, so that investors don’t drag their feet.
- Stop fundraising, build for a few more months, and try again: Sometimes, the best answer is to press “pause” on fundraising and go back to building. As you make more progress, you can decide whether or not you want to try fundraising again. If you do, you’ll come back refreshed, with new relationships, and a strong pitch.
Congrats! You’ve made it through your first raise.
Whether you came out of it with 5 term sheets or decided to go back to the drawing board, you deserve a giant fist bump and a hug. Putting yourself out there with so much frequency in such a short period of time is exhausting, exhilarating, and heartbreaking. You’ve come a long way. Be proud.
Sample Email Templates
Warm Introduction Request Email
Subject: Interest in meeting with my friend, [Name], who’s building [3–5 word tagline]?
[Mutual Connection Name]-
Hope you’re doing well. I wanted to ask a favor.
I’ve been spending the last few months building [Company Name]. We’re not quite fundraising yet, but expect to be in the coming months and are hoping to get some feedback from investors in the space ahead of our round to better understand their view on the market and what they’re looking for in target investments. I noticed you know [name] from [Venture Capital Firm] on LinkedIn. Any chance you know them well enough to make an introduction? If so, I’m including a bit on the company below. Feel free to forward it to them.
About [Company Name]:
[Company Name] is building [tagline]. In the past few months, they’ve [what you’ve done to date]. The market for [x] is growing incredibly quickly, and there’s a huge massive need for [y solution]. [Company Name] is looking to solve that gap. The founders are, [Name 1], whose background is x, and [Name 2], whose background is y.
Sample Ongoing Update Email:
Below is a template you can use for ongoing updates to send to investors throughout your fundraising process. Remember, it doesn’t have to be personalized or long. Try to keep it short, sweet, and stress-less for you. Identify 3–4 wins from the last time you emailed and 1–2 places where you need help.
Subject: [Company Name] Update — June 2021
When we last emailed, we were getting ready to kick off recruitment for our first pilot program. Since then, we recruited our first batch of students, enrolled them in classes, and already have two job offers.
- Our value prop of [x] clearly resonates with students: We used one zero-cost acquisition channel, with the goal of recruiting 18 students in one week. We surpassed that goal by 33%, and, due to demand, had to shut down recruitment 3 days earlier than expected.
- First revenue in the bank: Each of these 18 students put down a $500 down payment. They’ll pay an additional $500 at the end of their course, putting us on track to book $18,000 of revenue within our first 2 months of operation.
- New team member: [Insert Name] has recently come on board as our Head of Engineering. [Name] has an impressive career, having run product at [y company]. She dove in head first and is spending 10 hours/week building the MVP of our product, and planning to transition to full time at the beginning of Q3.
How you can help:
- Know someone looking to hire our students?: We’re arming our students with the ability to be productive on the job from day 1, even in our MVP. If you know anyone who handles recruiting at [x type of employer] and are willing to foster an introduction, please let us know.
Next month, we’ll be focusing on [insert concrete goal here]. We’ll let you know how that goes. In the meantime, have a great month.
The Team at [Company Name]