Fundraising - Breslow, Ryan  ## Metadata - Author: **Breslow, Ryan** - Full Title: Fundraising - Category: #books - Tags: #business #fundraising #investing ## Highlights - But as it often is, learning things the hard way turned out to be a great gift. I was forced to develop a first-principles understanding of what worked, what didn’t, and why. (Location 26) - Timing. My advice mostly applies to early-stage (pre-seed and seed) fundraising. As you get further along, different techniques are required. While the spirit and strategy are similar, the tactics shift significantly. (Location 36) - However, fundraising correctly and building meaningful relationships with investors saves you a lot of time in the long run. (Location 41) - Making it your own. The most important facet of fundraising is unflinching authenticity. Don’t ever blindly follow advice (including mine!). There are TONS of ways to fundraise. Make sure any advice you receive resonates with you before you put it into action. Take tidbits and make it your own. (Location 43) - Skill, not luck. Some founders get lucky with fundraising. They meet the right person at the right time. Getting advice from “lucky” founders can be misleading. (Location 47) - Money is plentiful these days. YOU are the scarce resource (Location 62) - I quickly learned that self-confidence is key to fundraising. As my confidence grew, the checks started to pile up. You may feel like you’re “overshooting” or becoming arrogant during the process. That’s okay, up to a point. A good investor should know that most great young founders have egos. You have to in order to do this crazy thing! A good investor will put their own ego aside to back you and bet on you maturing over time. (Location 63) - Avoid these high-ego investors at all costs; (Location 67) - I like to keep these qualities in mind, and strive to embody them: Visionary Creative, bold, unique vision Thinker Critical thinker, open-minded, willing to change your mind Warrior You will run through walls to win If you’re able to convey all three attributes, you’re going to succeed with investors. You’re also going to attract talent. (Location 86) - Fundraising is purely a matter of momentum (Location 93) - Lay the soil (build a network of champions) Plant the seeds (start casually meeting investors) SEND IT (you’re fundraising!) (Location 97) - Step 1: Lay the soil (build a network of champions) (Location 103) - A strong introduction is everything in a fundraise: the likelihood of an investor taking you seriously has a lot to do with the way you are introduced. (Location 104) - Everyone you meet in this process is a potential champion. They will also be the source of other champions and introductions. (Location 117) - Step 2. Plant the seeds (start casually meeting investors) (Location 120) - Meeting investors while you’re not raising has the following benefits: It signals you care about relationship building. It signals that an upcoming round will be competitive; they also know the game you’re playing! You will get to know investors and determine whether they will be good fits for you. In a rushed process, it’s often impossible to truly get to know a You CAN’T get NO’S! You WILL get YESes. Remember, an investor’s job is to find and back founders. Even if you say you’re not raising, if you make an amazing impression, they will show strong indications that they want to invest. When you have investors consistently forward-leaning after relationship-building meetings, then you’re ready to move into step 3: the actual raise! (Location 127) - Avoid being introduced to an investor by another investor who isn’t already invested in your company. The reason is obvious: the fact that they have not invested sends a negative signal. (Location 143) - Hey _Node_, hope all is well! I noticed you [are connected to _Investor_ on LinkedIn / raised money from _Investor_] and heard from a few folks they’re pretty smart. They have relevant experience to what we’re building and I’d love to get to know them. Would you mind making an introduction? Here is a quick email draft you can copy and paste. Feel free to modify as you see fit! Thank you so much. (Location 153) - The First Meeting (the Intro) The first impression you make on an investor is everything. You better impress the heck out of them. This is best accomplished by being your uncompromising, confident, authentic self. (Location 185) - So, remember: dialogue, not decks! Note: If an investor asks for a deck before the meeting, don’t outright dismiss them. Instead, I like to send bullets. For example: Hey _Investor_, I don't have materials I'm sharing right now, but here are some [aim for 3-6] bullets to get you started: X product that is tackling the $XB _____ industry head on Technology that is uniquely able to do Y All-star team out of A, B, and C [Any other bullet points of key traction, metrics, or insights] Looking forward to our meeting! All (Location 191) - What do you like to invest in? What do you look for in companies? What do you look for in founders? (Location 215) - What’s your fund size? Fund focus? When did you close your current fund? What size is your average investment? (Location 217) - How are you thinking about deploying capital? Where are you in your fund cycle? (Location 219) - Where do you find yourself providing the most value to your portfolio? How do you best like to help founders? (Location 221) - If they ask you a question about your business and you don’t have the answer today, don’t be afraid to say that you will decide down the road. (Location 226) - “Where are you in your fundraising process?” ■   What they’re really asking: How fast do I need to move here as an investor? And how much interest is there around this deal? At this stage, remember, you’re not fundraising. You’re just getting to know them. But you can hint that you’re thinking about fundraising in the not-too-distant future. (Location 231) - Duration: Keep the meeting to 30 minutes, no more. You’re on a tight schedule, too. You’re a busy founder. (Location 235) - End goal: The goal of the first meeting is to establish a longer second meeting. (Location 236) - Email immediately following the meeting: Literally the first thing I do after a meeting, usually within a minute of it ending, is send a SUPER short 1-2 sentence email follow-up: Hey _Investor_, it was great to chat just now! Looking forward to getting to know you better. [If you haven’t secured a second meeting, you can also add a sentence “How’s next Monday 1p or Tuesday 3:30p for a deep dive?”] (Location 243) - The Second Meeting (the Deep Dive) This is a 30-60 minute meeting in which you come prepared with more questions about the investor, and vice versa. (Location 251) - For example, ask about specific investments they’ve made and why they made them. Investors love talking about companies they’ve backed. (Location 255) - There are a couple potential outcomes at the end of this meeting: 1. They say it was great chatting but don’t make any motions to invest. In this case, you put them on your “reach back out when raising” list. 2. By the end of the meeting, they explicitly say they want to invest. (Location 257) - SEND IT! (you’re actually fundraising) By this point, you’ve had dozens of informal conversations with investors. You’re getting really good at pitching. Your swagger is on the rise. (Location 282) - Our product is exceptionally hard to build, but we believe we’ll have a production-ready version in X months ●        We’re currently doing massive experimentation around how to onboard users to get to a CAC (cost of customer acquisition) of less than Y dollars. ● We’re onboarding users to a waitlist and consider 1,000 waitlisted users to be our critical point. ●        “We haven’t yet achieved these milestones and are heads down working on them. We’ll consider fundraising when they’ve been hit!” (Location 294) - Many founders succeed by publicly starting with a smaller goal than their eventual target. (Location 319) - Once you have $500k committed, you can say you’re raising $1M and half is already committed. When you get to $1M committed, tell the next investor you’re raising $1.5M and have $1M committed! This creates the perception that your round is always nearly full. (Location 321) - Many founders think they have to pick one price for the entire round, but that’s not true. Investors know that those who invest early get better terms. Reward those who believed in you earliest, and then raise the cap as you generate momentum (Location 330) - In general, I advise Bay Area founders to start at an $8M cap, and non-Bay Area founders to start at a $6M cap, but you can adjust upward or downward for your specific circumstances and confidence levels. (Location 334) - References are key to 1) determining the character of your investor, 2) demonstrating to your investor that you are confident in what you are doing and intentional about who you partner with, and 3) meeting other founders! After many reference calls, I’ll grab coffee or hop on a Zoom with the founders to get to know each other better. It’s a great way to compound your network. Sometimes it also leads to them wanting to invest, too! (Location 360) - Hi _Reference_, Great to meet via email. We're in discussions with _Investor_ about an investment opportunity at _MyCo_, and she said you would be a good person to talk to as a reference. Do you have time for a quick (~10 min) call any time over the next few days? Please let me know when's most convenient for you. Alternatively, here’s my cell phone number if you want to call whenever you have some free time: _phone_. Thanks! (Location 365) - Have you gone through tough times with them? How were they during those times? ● Did they ever do anything that upset you? ● How have they helped you? ● Do you feel comfortable approaching them with challenges? (Location 372) - Great investors will give you a clear “no” and honest reasons why they’re not investing. Unfortunately, few investors operate with this level of integrity and respect for founders’ time. (Location 390) - Investor says the business is amazing and they think you’re a great founder: 10% chance of investing ● Investor says they would like to invest in this round: 50% chance of investing ●        Investor says they would like to write a check in this round, asks for terms, says the terms are fair, and says they can wire soon: 80% chance of investing (Location 405) - Here are some signs of bad investors: ● Large ego ● Treating you with anything other than the utmost respect ●   Unsophisticated questions (they really just aren’t getting it, or perhaps they’re even excited but for the wrong reasons) ●    Extra investment steps (for example, holding you up by saying, “I want you to meet with my friend who knows about this”) ● Missed deadlines (or general slowness) ● Unclear investment criteria ● Bad energy (judging investors based off your energetic connection with them is incredibly important) (Location 418) - You should also make sure that the investor you’re working with has decision-making authority in their firm. (Location 437) - When you’re raising on SAFEs and Convertible Notes (discussed later), investors have less control over your company, so you can be a bit more lax on thoroughly vetting them. (Location 440) - I recommend giving Board Observer seats instead of Board Seats. (Location 442) - Giving up a Preferred Board Seat is like getting married to that investor: and even worse, you cannot get a divorce! You’re stuck with them until you go public. (Location 443) - NEVER give up a board seat in a seed round. (Location 447) - With fundraising, one cofounder should take a leading role. (Location 459) - ● Firm ● Target investor ● Last touchpoint ● Next step ● Interest level ● Notes on prior conversations (where did they light up, what concerns did they have, etc.) (Location 471) - “Dear Backers, [2-3 sentences on what you just accomplished, extremely excited] We’ve also got a very exciting opportunity. Based on our milestones, we are gearing up for a serious product launch and will raise another $1M at a special-priced note to accelerate a few components. If you’ve wanted to get more deeply invested, now is the time. I imagine this being accounted for very quickly, so please ping me ASAP!” (Location 486) - If you’re in the fortunate position of having too many interested investors, good work! However, this can be a tricky situation. You want to keep all relationships intact to the best of your ability. (Location 491) - “We unfortunately had to move forward with investors with whom we have longstanding relationships, or started talking to earlier. However, you're someone that I think can add tremendous value to our company. I plan to keep you in the loop on progress and well ahead of future raises.” (Location 493) - Common Pitfalls Raising from Series A/B firms for a seed Bringing a Series A/B firm in for a seed round is risky business. (Location 496) - Revealing too early that you’re fundraising (Location 507) - Not focusing enough on the raise (Location 510) - “What other investors are you talking to?” (Location 512) - “What are you using the capital for?” (Location 516) - For a seed round, I recommend a SAFE (simple agreement for future equity) or Convertible Note. (Location 523) - A fixed price round locks you into one price and one set of terms. (Location 525) - The pitch is your most effective fundraising tool. (Location 537) - The best way to have an amazing pitch is… to know your stuff. (Location 539) - The most important pitch isn’t a polished one, it’s a casual one. (Location 543) - Lock yourself in a room and don’t come out until you’re bulletproof. (Location 547) - Practice your pitch and converse with anyone who'll pick up the phone! Friends, family even. Shoot for 10-20 real practice sessions (Location 548) - Here’s the general framework for successful pitches: 1. Here’s how the world works today. 2. Here’s how the world should work in the future, but here’s what’s broken/missing. 3. Here’s why no one has been able to solve this problem so far (potentially reference folks who have tried and failed). This is a massive opportunity. Whoever solves this problem is going to have to do X, Y, and Z, but will be rewarded heavily. 4. Here’s the secret to how we’re going to fix this. A secret can be a unique insight, approach, technology, invention, or some shift or change in the world that has opened up an opportunity with you being the first mover. 5. Here’s why we’re going to execute the best (best team ever, traction thus far if applicable, your unique experience as a founder, etc.). (Location 550) - Here’s a good pitch: ●    (Here’s how the world works today) Today, checkout is one of the biggest problems on the internet. E-commerce companies have a painful time managing their checkout technology stack on their own, and the experience is awful for shoppers who have to fill out forms every time they checkout. ●  (Here’s how the world should work in the future, but here’s what’s broken/missing) Ideally, checkout should be fully managed for merchants and one-click for shoppers. ●      (Here’s why no one has been able to solve this problem so far) Major tech giants are spending billions building checkout alternatives like ApplePay, GooglePay, and AmazonPay. The problem is that they are below-the-fold and an alternative to the core checkout flow. Even with their billions of dollars and billions of existing users, they still cannot capture more than a low single-digit share of checkout as shoppers click the default checkout button. ●    (Here’s our secret) We’re doing the hard thing and have built the first platform that takes over the core checkout experience, meaning we’re not an option below-the-fold. We power thousands of combinations of potential checkout flows. When a customer checks out at one Bolt merchant and opts into an account, we recognize them at the next Bolt merchant, and their experience is one-click. Our merchants are a flywheel (Location 562) - Relationships trump metrics. You want to find, work with, and get support from investors who are there for the right reasons and who value what you’re trying to build. 2. Momentum is everything. The relationship building is the groundwork. But, you still have to create a compelling event or a “moment.” And when the process starts, you have to drive urgency. (Location 619) - Emotional support: A great fundraise is still an experience in rejection (seriously, most meetings result in a “no”). Make sure you have a weekly check-in with someone (not your cofounder) who can help rationalize and normalize this crazy process. (Location 642) - Meditating: There is nothing in this world that I believe in more than meditation. I started meditating twelve months ago, and since then have nearly 10X’d our business. It’s never too late to start! (Location 648)