Since I started mentoring at Techstars back in 2007, I’ve sat and talked with hundreds of founders trying to raise seed rounds and I’m often left scratching my head at the lack of strategic thought that goes into figuring out who to pitch. Most founders defer to attacking a list of known investors with little or no thought given as to what motivates those investors, what excites them and what sectors they understand. They wind up competing with every other startup in their community trying to raise capital at the same time. I learned a long time ago that trying to raise capital from people who A) understand the industry you’re trying to disrupt, B) benefit at some level from your success or C) at least have some emotional connection to you is far easier than pitching investor after investor that you first have to educate about your market and somehow must create some trust and common ground in a compressed time period.
I started learning these lessons when I became a stockbroker in the early 90s. After a month or two of training at company headquarters on Wall Street, us rookies were expected to hit the phones and start “cold calling” 10 to 12 hours a day, every day, to get meetings with strangers and convince them to let us manage their money. It didn’t take me long to figure out that I needed something to differentiate myself or this was going to be a short-lived career (which it actually was as I moved into venture investing in 1995 but I digress). I was living in Boston and decided to buy the heavy bound books from my university and my fraternity consisting of the names, addresses and phone numbers of every alumni, sorted by state. I sat down with a highlighter and highlighted every single name of an alumni within a hundred mile radius of Boston. I developed my own script leaning heavily on that one sliver of a connection and lo and behold, my appointments grew by orders of magnitude. Then, when I sat down face-to-face with them, I spent as much time as I needed to build a connection revolving around our school or our fraternity. It was only after I felt that connection did I allow myself to start talking about stocks, bonds, and wealth management. You would be floored at how many successful people began giving this kid a chance to begin managing a portion or all of their wealth because I created an emotional connection with them.
Let’s get back to fundraising. First, who should you pitch? When I started raising capital in 2000 for our first fund ($25 million) at Highway 12 Ventures, I began with the usual institutional suspects. It only took me a few meetings to figure out that we were not what they were looking for and I quickly shifted gears based upon the lessons I learned above. I had just moved to Idaho and as you might imagine, there weren’t many alumni from my east coast roots living there. So much for that strategy. I switched gears and thought, “who would benefit from Highway 12 Ventures’ success?” I started meeting with people from local institutions and business owners who would benefit from having a more vibrant startup community, and painted a picture of how beneficial our success would be for them. Once again, a dramatic increase in the quality and the success of the meetings.
These lessons are easily applied to raising money for your startup. Selling software to make doctor’s lives easier or create greater efficiencies in hospitals? Pitch doctors, not people who made their money in real estate. Is it easy to get meetings with doctors? Probably not. But I’d sure as shit figure it out if I was in that position. Got the next great solution for enterprise HR? I assure you, there’s hundreds if not thousands of senior HR execs who could write a check for $50k. Easy to find them? Nope. But I promise you that with some effort, you can. It’s never been easier to have a conversation with somebody that you’d like to. Tools like LinkedIn, Conspire and hi def video didn’t exist when I was raising money earlier in my career. With a little bit of creative thought and a good deal of effort, any founder can talk to many potential investors who understand the problem you’re trying to solve with your startup and/or would benefit from its success. You’ll be amazed at the difference in the tenor of your meetings. Founders put such Herculean efforts into building remarkable and unique products yet so many of them attack fundraising with little or no strategy. If your startup is genuinely solving an important problem, I promise you that there are many people out there willing to invest in that problem being solved. Start thinking creatively about how to find those folks and get in front of them.
Lastly (and in my opinion and most importantly), There are many so many perceived reasons why people invest in startups, but it really comes down to one thing. Emotions. Even folks like Brad Feld and Fred Wilson only invest when they find a quality in a founder that touches them deeply. Something personally meaningful. In order for your story to resonate with someone, you have to touch their heart before their head. If there’s one thing to remember when sitting down with a potential investor for the first time it’s these words from Maya Angelou – “I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” After 20+ years of raising capital and helping people raise money for their startups, I still believe this is the single most important ingredient to successful fundraising. In fact, it’s so integral to that it deserves its own post. Stay tuned…