Advice for Founders who want to stay the CEO

Hey CEO & Founder, congratulations on closing your Series A.  You now have a company to build and run not to mention a shit ton of capital to return to investors (who are not as patient as you think).

Don’t worry about never being a CEO or manager before, it’s EASY!  Anyone can do it – that’s why so many founders stay in the role for their whole careers (I’m kidding, not kidding)

warrenThere’s all types of great CEOs and every one has differing operating and management styles hard built over time that help them execute and drive a company towards success.  Warren Buffet.  John T Chambers.  Jack Welch. Larry Page.  Howard Schultz. David Olk.

Founders with successful companies that have raised legit capital, however, are normally thrust into the role after limited experiences ruling the roost.  As a result, they either:

  1. adapt, learn quickly, and execute; or
  2. check their egos at the door and move into a role more suitable to best add value and help the company; or
  3. under perform and get fired / transitioned involuntarily

If #2 just isn’t happening (because you have daddy issues and want to label routers “CEO’s WIFI”) and you want to avoid #3, here’s a very high level primer on wtf is expected of you as the CEO of a fast growing company at the very minimum.  There are four key components:

1. Develop a short term and long term strategy

winding roadGood CEOs develop and make decisions to set a long term and short term strategy that helps the company achieve it’s long term vision.  Someone has to have the long term vision, but good CEOs are great at putting plans in place that navigate a competitive landscape, changing industry, innovative product, and distribution and customer acquisition strategy so the company can execute.  The short term strategy is tweaked when it needs to be based on the motion of the ocean while the long term strategy is the north star.

2. Hire experts, make them commit to plans, hold them accountable, and put out the fires

This is primarily what CEOs do day to day.  It’s how they keep the trains running on time and how they grow the business.

Step 1:  Hire and recruit amazing people.  Functional area experts that can scale each area of the business. Good CEOs are the best recruiters you know.  If your team won’t let you come to the dinner when they are trying to recruit someone, then you need to work on this area FAST.

Step 2:  Get these people to commit to goals aligned with a plan that’s calibrated with the above short term strategy.  No one dances with the Head of Sales better than the CEO.  One tries to sandbag the other while they both try to move immovable objects with their minds. It’s fascinating to watch.  tango

Step 3: Constantly meet with these people to make sure Step 2 is happening. You’ve heard the term 1 on 1, that’s what this is.

Good CEOs put out fires along the way and set a cadence for weekly and quarterly meetings where decisions are made (which always have structure, goals, minute taker, and no rabbit holes).  Their team trusts them and they trust their team – there’s a real arrangement of transparency, accountability, and honesty (versus bull shit and political smoke blowing).

I hate hanging out with CEOs of great companies – they constantly get me to commit to shit and I don’t even realize it’s happened until it’s too late.  Then I’m always trying to impress them and execute.  It’s so annoying.

3.  Never run out of money

Great CEOs never run out of money.  They quickly cut costs if there’s a misstep.  They know it’s always easier to hire someone than fire them. They are also extremely capable at raising equity because they are well networked and well liked in the investor community. They know how to sell the vision and support the strategy with numbers.  They are amazing at taking an inordinate amount of information and dumbing it down to tell a very exciting story that elicits a “hand to pocket reflex”.  They realize that as the company raises more money the investors become more sophisticated – so their process ALSO becomes more sophisticated and numbers focused.  They know how to tell the “right” story with the numbers when a raise is “all about the numbers”.  CFOs raise debt – GOOD CEOs raise equity – and if they can’t, then they inspire great bankers or others to help them while managing them closely. If someone else at the company raised all of the money, then they do everything possible to make sure this person is protected, as happy as possible, and never ever leaves – because if this happens they are screwed.

4.  Manage the board 

boardGood CEOs manage up.  The larger the company gets, the more time they spend on just this area.  It looks something like this.

board graphThey over communicate to the board so that they know what’s going on and so that the board believes they are helping and being heard.  They are also able to balance the board getting in the way while helping them make the best decisions and get to the right conclusions with accurate information that’s based on factual evidence (versus back channeling). They don’t let board members hook onto limited pieces of information gleaned from one off conversations, articles, or experiences to form inaccurate conclusions. Good CEOs protect their team if there’s ever friction between an exec and a board member – and they work hard to remove that friction and achieve common ground.  Good CEOs socialize with each board member individually so they understand when there might not be consensus on critical matters.  Good CEOs run effective board meetings that are organized and well prepared for – they use these meetings as a catalyst for achieving a key goal.  Boards are never surprised by anything when there’s a good CEO – good or bad.

To sum it up, if you are going to be the CEO, your job is to hire, inspire, retain, never run out of money, and manage the board while above all else HIT YOUR NUMBERS (yes, CEOs operate against expectations called “budgets”.  Fascinating things these numbers in boxes).

It’s pretty straight forward and anyone can do it.

How to be a terrible founder

It’s only fair to follow up the last post (about how to be a good investor) with a post about how to be a good founder.

I don’t know what it’s like to be a bad founder (every investor that has ever backed me just threw up in their coffee), but here’s some things to take into account if you don’t want be transitioned from CEO into a new position where you are put into a box thinking it’s your idea and the board and management team just blows smoke up your ass all day while trying their hardest to keep the lid closed as tightly as possible.

We’ve all seen this time and time again so hopefully this helps people change their crazy ways….

Good founders

Great entrepreneurs know how to inspire, hire, retain, and lead while making sure the company never runs out of money.  They know how to get a company capitalized and a product into market.  Good founders are balanced, mature, modest, and capable of developing a smooth operating cadence because they do not chase shiny objects and can prioritize what is important.  They are focused and operate against a short term and long term strategy that is aligned with a vision.  Sometimes the vision is theirs. They pull themselves out of the business slowly by hiring functional area experts, until they no longer have to be there day to day if they do not want to be.  It is their choice.  They manage their board, who cultivates them and wants to invest in their next thing.  People like them and they have a large network and a ton of friends.  They are a great partners, give credit to others who help them succeed, and they give back and help their community and others who are trying to start businesses.  They study a shit ton of Steve Blank and don’t have to be the CEO of the company they created if they do not have the ability to perform the job well.

Bad Founders:

  • Have enormous egos:  Every entrepreneur should read this post.  Let me sum it up for you – check your ego at the door.  You’re not that big a deal.  Get rid of your inflated self worth because you’ve had some early success.  If you refuse to attend conferences, take interviews with certain people, read or need your own press, or don’t giveyoure-a-douchebag other people credit for your successes, you will be removed and put into that little Founder & Chief Whatever Officer box in the long run (maybe you will have cool little projects that seem important but really are just ways to keep you busy until a plan is hatched to move you onto the next thing).  If you don’t stay in this box, you will be removed.  People will make fun of you behind your back about what an arrogant douche you are (even the people that are nice to your face and want things from you).
  • Can’t raise early capital and don’t ask for help:  It’s okay if raising capital isn’t your thing, but it takes bad entrepreneurs years to realize it because they think they know everything.  In the process, they blow huge amounts of money, miss huge windows of opportunity, lose a lot of time, and wind up giving much more of the equity value away to people early on who in the long run do not provide much of anything.  They justify this by saying “we’ve been in business for a long time” when the reality is that the business didn’t really exist until someone showed up and raised capital for them.  When raises do happen, they are generally so detrimental to the process given their ego, that they are completely removed from it or given a specific sound track.  If you don’t realize early that you need help and other partners who can raise money and commercialize your big sexy world changing idea, then you aren’t really the founder of anything – you’re just some weak visionary with a mediocre idea that you couldn’t execute on who needed to give away most of the economics.  So learn how to raise capital, or get someone in there early and often to help out – because you know your limitations and can accept your development points.
  • Don’t inspire: Bad founders don’t inspire people. I’m not saying great founders are motivational speakers – some of the most amazing founders I know are extremely timid or introverted.  They inspire intellectually, or with a vision, or with a new way of doing something that excites people.  Good people join organizations because of an inspirational founder.  They want to stay and work there because the entrepreneur inspires and leads them.   When the founder leaves, the culture deteriorates and people start going as well.  Bad founders – the team and board just truly wants them gone after the Series B for the most part so they can all execute without distraction.
  • Are terrible partners:  Bad founders are incapable of any type of partnerships – personal, professional, or financial. They have few true friends primarily because they are unbalanced egoists that cannot suffer the gives and takes of normal relationships – it is the world against them and they are always right.
  • Are incapable of pulling themselves out of things they shouldn’t be involved in:  This is a common one.  Founders who fail or get fired/put in a box cannot pull themselves out of the day to day of the business and need to be involved in every little thing (even if they are forced to hire functional area experts by wise and patient boards).  They parachute themselves into things that other parts of the organization try hard to keep them out of because “they know better” and are “smarter than everyone else”. They do this in a distasteful negative fashion while making everyone else around them feel like dirt.  They create churn and friction for the team.  They don’t trust others to get things done and they are incapable of inspiring people to do so.  They say things like “I’m the only one who knows how to get things done so I’m just going to do it myself”.
  • Cannot stay focused:  Every time a bad founder takes a dump, they come back with another 20 ideas for product features and functionality that must be worked on immediately. They constantly chime in with audibles from the top down and drive the tech and product teams crazy.  They are incapable of setting goals for the sales force or marketing organization because shortly after setting goals, the strategy has changed or the goal posts are moved.
  • Don’t realize they aren’t running the business:  Bad founders are such arrogant egoists that they don’t realize that other people are running the business, raising the capital, hiring the team, managing the board, and setting the strategy. They are just so caught up with being the founder that they fail to look around to realize the board has taken away any of their real roles.
  • Don’t care about developing a strategy:  Bad entrepreneurs say “we don’t need to set a strategy, let’s just do this huge partnership” or let’s “hire these outside tech consultants to build this app because we are too busy and our tech team is too slow”.
  • Cannot manage or use their board:  Founders that fail do not know how to communicate with their board.  They are incapable of managing up, socializing ideas, communicating effectively, or maintaining a positive balanced cadence.  They always hate their investors and are often combative with board members and constantly worried about losing power – sometimes they turn the company’s general counsel into their own personal board structuring attorney.   Their team members often talk to the board directly without their permission (normally because they want the founder gone).  They do not know how to create a powerful board package and they are incapable of delivering it four to five days before a board meeting.
  • Cannot communicate:  Bad founders are incapable of communicating with other people in a positive and effective manner. They belong in a garage with a soldering iron versus running a company of any size. Their tone is often condescending and abrasive, incendiary, or short.  They are extremely emotional and volatile about every little thing – so much so that it stresses out the rest of the team.
  • Get distracted easily if something isn’t fun:  Shitty founders chase shiny objects and don’t like to get bogged down in things that aren’t fun, even though the business hasn’t really done that much yet.  They think their role is to go out to dinner, play with the product, fly to events, meet with CEOs of large organizations who are very important just like they think they are.  They don’t need to do things like work on strategy, prepare for board meetings, set executive meeting agendas, develop quarterly budgets, or review monthly results.  They’ve [had someone else] raise the capital. They did it.  Let’s party and read our press.
  • Do not understand dilution:  Founders who fail are super caught up on valuation and dilution.  Man, I hate sounding like a VC, but bad founders certainly get in over their skis on valuation or have a complete and total misunderstanding of what it takes to build a large business with calibrated valuations and raises.  They take valuation over crappy structure every time and get overly focused with all the big stories they read about in Techcrunch.
  • Do not understand equity compensation and aren’t transparent about it:  Bad entrepreneurs don’t really understand what equity is for, how to use it, are overly secretive to employees about the meaningfulness of their stake, and often get caught up with amateurish ideals like “I believe everyone needs to be vesting over 6 years because of blah blah blah and that’s the culture we like to have here at hookedonsomethingsillyireadonce.com”.  As a result, the team doesn’t understand what equity means to them and as a result the underlying motivational dynamic is lost and everyone suffers – especially these owners.  CFOs have to fight with bad founders to top up key team members after every raise.
  • Think accounting, reporting, spreadsheets and budgets are just for financial people:  Founders who fail think that key financial indicators, balance sheets, P&Ls, forecasts, and projections are just things the accounting team and CFO put together that the investors need. They glance at them every month, but look at the cash balance every day. They are incapable of making decisions using analytics and maintain their own set of #s that only they look at in order to understand what is going on.  However, they always have an opinion regarding what the company should be looking at (because they know better) and take a hatchet to any progress internally around developing a scalable system for reporting financial information.  Company’s with bad founders always have horrible internal financial reporting – sometimes they do not know how many customers they have or how a customer is even defined.
  • Use the word “i”:  Bad founders write emails to other team members with only 5 sentences but have an uncanny ability to use the word “I” in it no less than 28 times.
  • Waste money:  Even though a bad founder has no idea how to raise capital on their own, they think it’s okay to use this precious resource on sponsoring silly events that add no real value to the company because the event it is super fun and close to a beach they like to surf.  They fly to “fun” conferences to hear themselves speak and talk about their recent series A (note, everyone in the office is happy to pay this price to get rid of them).  These founders spend money on their shiny objects but truly think it’s important company stuff.

How to be a terrible investor

investorA couple of great companies I work with closed meaningful capital rounds this month.  Both ran pretty good processes for excellent businesses and had your ordinary course successful experiences.

Like any process focused on venture capital, there were investors they really wanted to invest who passed. Similarly, there were also VCs that were interested, but they didn’t think were a good fit (for whatever the reason).

Then there were the investors they HATED.  I mean, hated with a capital H.  Investors that elicited such a visceral reaction that both of these entrepreneurs actually look forward to doing nothing more than telling other investors “never meet with this person they suck in every way, I’d never talk to them again.”

This always happens.  After every process.  There’s always that group or person.

Hearing the alcohol induced post mortems, and experiencing it myself at times, it became clear to me that some investors just don’t realize what makes them interesting to founders.  I mean, some just don’t care, but the ones who do, just may not know they are doing these things.

It’s like that person who’s driving in the left lane without passing  (or when there’s no one to pass).  They’re probably going to kill themselves or someone else, but they just don’t know it because know one’s ever taught them how to drive properly (if this is you, please stop reading this gibberish I create and read this instead which could save your life).

Anyway, $100m of VC funding later and seeing this movie many times in the audience now, it’s fascinating how clear the common denominators are when meeting with extraordinarily successful investors.

Why they get all the best deal flow year over year.  Why founders all say “you have to meet with THAT person”.

Contrary to popular investor belief, it has a lot less to do with what this person invests in versus how they invest: a self fulfilling prophecy so to speak.

So here’s a quick driver’s ed for investors and entrepreneurs (i.e., left lane’s for passing, right lane’s for entering and exiting, and middle lane’s for driving).

Bad investors:

  • Don’t get it and tell you what you should be doing:  Bad investors don’t pay attention to your message and as a result have no idea what you are doing.  They follow this up by explaining to you how you should be building this vision they’ve paid no attention to.  They expect you to listen to them even though they’ve never built a business themselves, have limited VC experience, but have an MBA from Wharton (I mean no offense. I couldn’t get into Wharton.  Don’t kill the messenger).
  • Waste your time: Bad investors fiend interest in your company even though they likely have no interest in investing.  They like to meet for a cup of coffee just to “get to know you” so they can pass when you are actually formally raising.  Or, they’ll meet with you 15 times, spend time with your entire management team, provide detailed request lists, or even drag you in front of the full partnership for a discussion, only to then drop off the face of the earth for a few days before passing.  They do this with every company they meet with and feel entitled to your time and attention.  They are late for meetings or always “running behind” and constantly cancel and reschedule at the last minute.
  • Don’t let you get through your deck, interrupt you, have condescending style:  Bad investors won’t let you present your deck.  They think it’s some sort of “style” to be provocative and perhaps condescending to see how you react.  Reality is that entrepreneurs think this person is just a dick who won’t let them finish a sentence nor present the business to them in the most effective manner so you come out with a clear understanding of what they are doing.  Bad investors constantly check their cell phones – especially when you are answering a canned question they asked demonstrating they haven’t been listening.
  • Always need comps “so it’s like the Uber of nail salons but with a Yelp twist on Amazon”:   Bad investors cannot possibly understand what you are telling them unless they are able to compare it to some other existing model that is proven that they already understand.
  • Really truly care about how you determined the conversion rate on tab 3, row 18, column 6, in May of 2019 in the financial projections and want to argue about it:  You want to know how I got that #?  I’ll tell you how I got the #. I frigging made it up so I can back into revenues 3 years from now that I know you are going to discount by 40% but will still support the deal math everyone will require in order to take new outside capital.  You know I did this.  So let’s just focus on the 10m customers that could potentially be using our product in the next five years given this massive industry catalyst we’ve been talking about, cool?
  • Are very unlikable generally. Ego. Arrogance. Know it alls. Treat founders badly:  Bad investors tend to think very highly of themselves and can be very unlikeable professionally. It’s funny because sometimes the worst investor in this respect can be the most delightful person who you want to drink and hang out with in a different environment or situation. I don’t know what it is (some say self confidence issues, some say it’s power corrupting) but something happens to bad investors when they are given capital to deploy or make a ton of money. They think it makes them special and better than others.  Bad investors don’t realize that no matter what fund they work at or how much capital they have or how much money they’ve made or what big unicorn they’ve invested in that, in the end, acting like an a-hole just makes them an a-hole.   So when people talk about experiences with them, all entrepreneurs are going to say is “yeah, I met that person. He/she’s an a-hole. Meet with them only if there’s no one else”.   On the flip side, it’s amazing how some of the most successful VCs who have helped create some of the largest companies also happen to be some of the coolest, balanced, available, curious, and modest people you’d ever meet.  Truly.
  • Are unavailable:  C’mon man – no, I don’t want to come in for an hour and tell you about my business on May 18th because right now it is March 12th.  Certainly appreciate your taking the time, but you’re just a dick.
  • Say they are providing a term sheet and do not:  I once had an investor drag a company I’m on the board of (raising a $3m Series A) through multiple meetings, some of which included airplanes, three full partnership meetings and numerous detailed request lists over the course of 8 weeks. Associates calling the functional area leaders daily asking for all sorts of information and distracting from the business in every way. Every week for the last 3, they told the founder “we will be providing a term sheet this week”. Finally, after nearly two months they “are providing the TS in the morning, for real this time, let’s celebrate and talk about it over dinner with Andrew because he’s in NYC”. Then they passed without any real feedback and we learned later is was simply because they thought the deal would be “too expensive” or some other ridiculous excuse.  Bad investor.
  • Let very green team members vet deals and have opinions:  Contrary to what a lot of people say, I see nothing wrong with getting pushed down from the partner to a principal or an associate.  There’s nothing better than getting more support internally from people who put you in front of their boss, believe in what you are doing, have a voice, and help shepherd you through a process. Plus, junior peeps always move onto great things whether it’s partnership or really interesting roles at other places – it’s because they are the best and the brightest and that’s how they got the job to begin with. So meet them and make friends.  Bad investors, however, let very green associates fresh out of Harvard or banking do more than just “filter” out businesses that don’t fit the thesis or some other key criteria.  They let them have actual opinions about your business and tell you what those opinions are while empowering them to make decisions regarding whether the fund invests.  Sorry Bobby, I don’t care about what you think of ReversibleDiapers.com, we started the business when you were in high school.
  • Gossip, lie, back-channel constantly, and act like political animals:  Bad investors gossip about founders, their companies, and companies they meet with like pre-teen girls in their middle school cafeteria.  Every time you speak with them they start sentences with “I heard…” and you feel like you need to take a shower after every meeting.  They use words like “back-channeling” often.  They take forever to close because they neglected to tell you that they haven’t closed their fund yet (but this deal will really be a great catalyst to put their LPs over the edge). They tell the founders one thing and other board members another while trying to manage perception and build alliances to impact change – versus being forthright and transparent.  They never get voted off the island and they win a million dollars.  They are generally full of it and try to bull shit the biggest bullshitters on earth, Entrepreneurs.
  • Ignore your timing:  I love telling a bad investor who ignored my constant reminders about timing because “we want to get back to work” that we are about to sign a term sheet and watching them get all flabbergasted and ask for more time.  Man does the deal become much more expensive for them after that because they realize all the traction we mentioned was quite real.

Good investors

  • Normally “get it”:   It’s very unlikely that your business is hard to understand after one 30 minute meeting (except for you, that person developing a geolocation machine learning neuroscience market network platform….no one understands wtf you are doing). No matter what stage it is in, I can promise you that your business is not too complex to understand after a decent pitch deck and 30 to 60 minutes. Good investors pay enough attention to what you are saying as you attempt to spoon feed them your vision so that they “get” what you are doing.  They ask good questions you never thought of and after you meet with them you are thinking “damn, that person is really smart. Really got what we are doing quickly and really gave me some great ideas”
  • Provide feedback quickly:  A couple of days (or one Monday meeting max) after you meet with a good investor, they provide you quality feedback regarding why they are passing or what they need to continue digging in.  If you met with the partner of the fund, the pass comes from them (even if an associate drafted the email).  [Note, for this reason, I normally like to have initial meetings with larger funds on a Thursday afternoon because things tend to slow down on a Friday and most firms have a Monday meeting where the message will still be fresh].  Either way, good investors respect you and what you are trying to accomplish because it’s hard – so they don’t let you stew.
  • Ask great questions when they dig in:  When a good investor digs into your company, they are focusing on the right things and continue to ask quality questions.  The more they dig in, the smarter they become, until you eventually realize they know as much about the business, if not more, than some of your team members.  Soon they start to provide great insights showing they can actually be helpful (versus just money).
  • Provide guidance on their timing and process:  If they are interested in digging in, you know exactly what a good investor needs in order to give you a term sheet – because they tell you.  They are transparent about their timing, what else they have going on, how their process works, and what the next steps are. If you have a peloton moving and are driving towards a specific date, good investors try to meet your timing and tell you if they cannot.  If they cannot, it’s not because they are trying to bluff you into slowing things down for them, it’s because they are being honest and just have other things going on.
  • Ignore gossip and avoid constant back channeling:  Good investors don’t gossip and form conclusions to make real decisions based on what their other investor friends say about people or companies. They dig in, form their own conclusion on the team and business, and take everything they hear from the market with a grain of salt.  After they invest, you never hear a good investor start a conversation with “I heard…”.  Good investors are social and collect information, but they know how to distill it
  • Want to get it done if they make a decision to invest:  Good investors make it as easy as possible to get a deal done once they decide they want to invest.  The negotiations are not knuckle bleeding and you don’t wind up talking about inconsequential things that aren’t company friendly (these are also known in the legal tech community as “that’s very New York”).  They do enough work in a fast yet non-distracting way so that by the time a term sheet is signed, close is just a matter of confirmatory diligence, background checking, and lawyers pissing all over each other.
  • Don’t lead you on:  Good investors always let entrepreneurs know exactly where they stand and work on developing a meaningful partnership, even if it’s cultivating you for your next business, right from the very start.
  • Come to your office: They want to see what you have built, what the culture is like, what you are all about and walk the halls. They want to be a part of things.
  • Give a shit about your process:  When you tell a good investor your timing, they make a decision regarding whether it makes sense for them to dig in given everything else they have going on and how realistic it is that they will be able to do their work and get to the finish line.  If they think they will, they do all the work they possibly can in order to meet your timing.  If it’s clear the stars are just not aligned, they will tell you that the timing just doesn’t work for them.
  • Tell the truth:  You never have to try to figure out what a good investor is “really trying to say” or “what are they really thinking” or “what are they not telling you that they are telling others”. It’s because they are normally telling you the truth because in the end it benefits you, the process, and the company.
  • Are likable:  You want to hang out with good investors.
  • Their portfolios like them:  When you talk to founders of their other companies (that they haven’t introduced to you), there isn’t a pattern of signaling or negative feedback.  You don’t hear stories making them seem slippery, untrustworthy, or machiavellian.
  • You like them more after you meet them – even if they pass:  After you meet a good investor, whether it’s for one meeting or 20, if they pass you can’t wait to tell them about the next thing you are doing.

There’s many more common themes I’ve seen over time, but hopefully the above is pretty all encompassing and helpful. Don’t get me wrong, by no means am I saying “good investors don’t care about valuation and just give out easy peasy term sheets”.  Sure, that helps generate a founder friendly reputation, but I certainly wouldn’t want to be an LP in an investor without discipline to mitigate a risk profile that’s clear.

All I’m saying is that there’s a common theme between investors who are successful and see all the good deals and those that won’t over an extended period of time. Be wary of the latter if you are raising and try to make adjustments if any of these characteristics describe your approach.

“Wow, raising that round of capital was FUN”, said no entrepreneur ever

Raising money is normally not fun. It’s a time consuming distraction from building your business.

It doesn’t have to the bane of your existence though!

There’s certainly some tried and true best practices for every process that can make your life easier while most times ensuring success. Here’s a few things that could be helpful to remember irrespective of how much you are raising:

Your product and big idea are not the most meaningful thing for success Regardless of your stage and the amount you are raising, most investors, at a minimum, want to see the following three things before they even consider investing: (1) a proven and curated team; (2) a large total addressable market; and (3) an interesting product and vision that’s aligned with their thesis. There’s a lot of dissent normally regarding which one of these are most important, although in my experience, the larger the market the better (you can have the best product in the world and a team of superstars, but if the market is not big enough, everyone will be banging their heads against the wall to build a large business). Some guy Marc Andreesen wrote a [much better] post about this once here.

  • A proven and curated team:  Don’t try to raise money for a software business without someone that can actually create the software.  Get advisors involved that get people excited and add some sense of sophistication, networking, curation, and help with execution.  Also, try to find a person who has an exit.  Nothing is better than having someone on the team that has made money for people before.  Investors like people who know how to make money – and these team members will have a wealth of business building experience that is irreplaceable.
  • Large TAM:  If you don’t want to hear “this is a lifestyle business” then present a business that attacks a large addressable market.  If this addressable market is hard or expensive to acquire, then be sure to present unit economics and a go to market that can support scale and penetration. Also, don’t show people a TAM that ends in “Trillion” or “hundreds of billions” – you lose credibility (whether you strongly believe it or not).  In the end, your market should be big enough to get people excited, but not one that is unbelievable – in the end, your eventual investor is going to get very smart on the TAM and come to their own conclusion. So at least break it down for them in an exciting way that’s credible and take a stand before they form their own conclusions.
  • an interesting product and vision that’s aligned with their thesis:  Yes, product is important – as is your vision.  Investors normally like certain things over others (some even have a documented thesis) so do your research prior to speaking with them and show them how what you are doing is aligned with what they invest in.

Even if you show up at dinner with these three table stakes, a successful raise will still require a fantastic process which develops an underlying fear pyramidof missing out (good ole FOMO). Such a process needs to come complete with the perception of traction within the investor community, adoption and validation in some way shape or form (perhaps through other businesses), and curation through the correct introductions combined with an exciting pitch and storyline.

Assuming you have the table stakes down pat and your general fundraising game squared away, here’s a few other things you should always keep in mind:

  • You are not panhandling: Change your general mentality from “begging for money” to “letting people invest” and “choosing a partner”. For instance, if an investor asks you “how much are you trying to raise?” the answer is that you aren’t trying to do anything. “We are going to raise about $5m and it looks like we are going to choose our next financial partner in about three weeks. We’d be absolutely delighted if you were excited about ReversibleDiapers.com because of your experience in eCommerce poopy, etc, etc, etc.”  Shift the mentality (for yourself and for the investors) that you have a ton of traction and this is getting done.
  • Investors will move as quickly as you make them: The common denominator with investors is that (1) nobody likes to miss out on a deal and (2) they will movpelotone as quickly as you make them. Your job is to create a peloton where you move the pack along by providing them a good sense for timing. Those that are least interested will fall away to the back of the pack while the most interested investors will break away and get to a term sheet.  Your job is to keep that peloton moving and get someone to race out in front to the term sheet in accordance with the time frame you’ve provided (i.e., they should care about your timing because you have so much traction).  If an investor wants to spend 30 days hiring a third party to do a market research study (that will undoubtedly lead to their passing I promise you) then you may want to remind them that “you are going to be making a decision on who to go with on Oct 13th” (by the way, never take money from that investor no matter what stage you are at). I always like to have a reason for the timing we set. In the past, it’s been the due date for my first child being born. I’ve also used my wedding.  True, we wound up signing a term sheet in the parking lot of the rehearsal dinner.  And I was indeed pitching a VC partnership from the recovery room of Isaiah’s delivery.  The point is, if you don’t have a peloton it’s because you have a broken message, missing table stakes, or have set your sites too high with respect to the amount being raised.
  • Timing will always be out of your control: The investment decisions at even some of the largest VCs are run by small groups and sometimes they get caught up on other things that make them unavailable (IPOs, sales, and dispositions of their portfolios). Don’t fret it or take it personally – if the timing isn’t right, it’s just not right. These things happen and you cannot control it.  Move on to the next person on the list.
  • Investors are in the “no” business: The average VC will see no less 50 potential opportunities a month but will only be investing in 6 to 10 companies a year (or fewer). As a result, they say “no” a lot and need to stick to a specific thesis in order to filter their decisions. So you need understand what an investor is looking for and spoon feed it to them so they aren’t hooking onto slivers of information in order to get to “no”.  If you feel like an investor is “an idiot” or “doesn’t get it” or “didn’t let you get through your deck” that’s YOUR fault, not theirs. Your job is to make sure they get it – and I can promise you these people are extremely smart and have seen everything and your business is not as unique as you think it is. So, 99% of them WILL get it, should you do a better job explaining it, taking verbal cues, and pivoting the message so there’s a clear exciting story line. Sure sure, it’s their loss if they say no and they will miss out on the next unicorn as a result, but they do not care and they do not know it because they have 10 to 30 other meetings this week just like the one they just had with you.
  • Get your ducks in a row and run an organized process: It shows the business itself will be well managed. No matter what stage your business is in: (1) every process should have a start date and an end date, how else can you move the peloton (hint: you can always gracefully move end dates); (2) have an organized data room ready before you go out to raise; (3) maintain a list of people you want to speak with and update it for where they stand, the feedback, and who’s the best person to reach out and intro; and (4) have an amazing pitch deck and story line. Your advisors and board can certainly help with these last two – but you need to own your message it and it needs to be amazing and exciting. If you’re not getting traction and if you aren’t successful, it’s YOUR fault – not your board or you advisors’.woody
  • Don’t have coffee: Never have an “informal cup of coffee” when you are out raising.   Figure out how to elbow the meeting into their conference room so you can provide a well constructed pitch that you have practiced.  When you raise capital you should become “pull a string” and you want to start that message in front of your deck with their complete attention and no distraction in a normal professional environment.
  • Don’t meet with investors if you aren’t raising capital:  Okay, this one is going to get me in trouble and create some dissent, but if you aren’t raising capital, don’t waste your time talking to investors.  Some of my friends in venture LOVE having coffee and would disagree with this message because for them “it’s a great way to get to know the company and build a relationship”.  I’ve read blog after blog about VCs waxing poetic about how for them to invest and do a deal, it’s important for them to have a really good previous relationship with the founding team, etc etc etc.  This is all bs, and here’s why: (1) good investors get things quickly, dive into your process if it’s well run and the timing is right, and can come to a decision quickly. They are all super smart and have seen the movie so many times that they know if they are interested more or less after the first meeting anyway; (2) your two most precious resources when building a business are time and money, don’t waste the former if you don’t need the latter; and (3) most of the time, they are going to pass once you do run a full process – until that happens, you are just research.
  • Don’t offend sensibilities: You are always “only speaking to a select group of people” and you always “understand dilution and are not giving valuation guidance” because the “market will tell you valuation and everyone seems to be coming out at the same place”. You can argue for valuation once you get a term sheet (hopefully more than one) and some traction – which is the point of a process. Finally, if you get pushed down from a partner introduction to pitch a principal or associate, don’t get discouraged. Just give the best pitch ever and get more sponsors internally – here’s why: Having a more junior person put themselves on the line by putting you in front of their boss for a follow up meeting is a powerful thing generally; (2) principals are the hungriest and many times are leading deals (and sometimes even the future of the fund); and (3) larger funds are political in nature and once a partner wants to issue a term sheet, they become your sponsor internally in an effort to shepherd you throughout their own organization.  The more support the better.
  • Don’t get introduced by someone who should be investing but isn’t: The worst introduction is from another investor they know who isn’t investing but should be (it’s not good enough for me, but maybe you will like it?!). I find the best people to get introductions from are: (1) entrepreneurs they have invested in the past that have made them money.  Even if they do not trust these people to curate deals, they at least try to continue to cultivate them so will take a meeting just to maintain a positive relationship; (2) founders that they met with in the past but didn’t fund and then went and made other people money; and (3) investors they normally invest with and have made money with before.  I don’t like getting introductions from my existing investors to a target – they are too biased and it’s a weak intro whether they realize it or not.  Unless you really have no other way to get to a group, the only time you should let your board do an intro to a potential investor is if your insider has made a ton of money with this person before or is one of the top investors in the world that everyone knows and wants to work with and kiss up to.  Otherwise, find another way to get the intro and then let them all back-channel independently (they do it anyway).
  • Raise the right amount of money for where you are: If you have a SaaS business with a product for enterprises and only recently established product market fit and aren’t yet generating real revenues, don’t go to market looking to raise a $10m series A. It’s not going to happen (unless you’ve made a lot of people a lot of money before or your parents are LPs in the fund).
  • Always be delightful and positive: This should go without saying, but never get defensive or respond negatively to stupid questions. Sometimes investors ask them as a test just to see how you will respond – remember, they are hunting for “no” and checking boxes.  Also, remember you are going to be back-channeled throughout this process.  The community (no matter where you are) is very intimate and  investors love nothing more than to talk about their portfolios and companies they have met with (sometimes they are worse than teenagers in a high school cafeteria).  So don’t get a reputation for being anything but delightful and a person people should be giving money to.

Finally, please do not translate any of the above to mean you should be cwant cant havecondescending and abrasive with investors!  This is certainly not the case – quite the opposite. You can certainly move a process along so that it works well for all concerned while still coming across friendly.  Think of it like dating in a way:  it’s easier to fall in love with the person that everyone else wants, who seems very available at times, but not that completely available once you start showing some affection (note, I’m happily married with 1.5 children – actually today is my 3rd year anniversary.  Honey if you are reading this, I’m only kidding).

All in all, fund raising is hard for any business, but it can also be a positive experience where you meet and speak with some of the most incredibly interesting and bright people in your space while also building a network for the future. So take it as a learning experience, accept all of the great feedback you will receive, and use it as a catalyst to refine your strategy and general approach. Most of all, be patient, deal with the constant rejection, and don’t give up!