20. When and When not to Use an Investors Name

25. Term Sheet Problems Part 2 - Boardroom Blues

A lot of investor meetings end with something like “I will think about it and get back to you”. You should expect to follow-up — multiple times — to convert this to a “yes”.

convince the investor to spend more time researching your company. The majority of investors will not reach out right after your meeting, so you must take the next step

Example Email: Hi Nicky, Pleasure meeting you today. I appreciated your questions around engagement and went through our data to get an answer on daily active users — we currently have 5,233 up from 789 six months ago. I’ve also attached our monthly cohort analysis, and our deck from the meeting. I’d love to schedule another chat to review your questions. Would Oct 4 at 10am work for you?

Recency bias is powerful and many investors will get more interested in investing over time, as you make continued progress.

Mention of the round is filling up (use the reservations system).

New investors in the round, who have signed and wired funds.

Product and Sales launches wins (traction, launches & new customers).

Example Email: Hi Ajay, Quick update here — we now have $700k spoken for out of the $1M target for this round with Sterling Road and Pear VC committing this week. We also just launched the MVP of our most requested feature: the iPhone app. I would love to continue our conversation before the round closes, would 2pm Oct 7 work for you?

Most investors don’t like saying no, even if they will not invest., after 2 weeks without a reply, you should push for a decision even if it will be a “no”.

Example Email: Hi Jess, Thanks again for meeting with me on Sept 13. We’re now moving into the final stages of the round, so I’d love to know if you’d like to be involved? If I haven’t heard from you by Friday at 5pm, I’ll assume we should move forward without you. As a reminder, here’s some quick company highlights: $100k ARR growing 15%/month. We are Oxford graduates with a decade of experience in this sector. Pear VC is leading the $1M round.

actors that influence seed fundraising, your behavior during the process makes a big difference.

a founder I recently coached was struggling to raise after ~40 phone meetings without a yes; once they began asking for in-person meetings, the round was closed in a couple of weeks.

comb through LinkedIn, Angellist and Crunchbase, looking for potential warm introductions to investors

make sure the introducer only has to click ‘forward’ to do their part.

No matter how much demand for your round, it never helps to be rude. Even if an investor doesn’t respond negatively at the time, they will almost certainly talk about their bad experience with others, reducing the opportunities available to you.

Instead, avoid being defensive and playing too much “hard to get”.

If you don’t ask the investor “Are you interested in investing?”, you are wasting the meeting.

If you’re very early in the process you can ask “Where would we need to be for you to be interested?” but whatever happens: you must ask.

Don’t discuss other investors you’re talking to, even if a different investor asks. Given most investors will pass, you’re likely giving the investor a negative reference.

if both investors are interested, you risk them colluding on terms without your involvement.

Keep a document of common and difficult questions you’re getting from investors. Prepare strong answers in advance, add appropriate slides to your deck’s appendix and create a small ‘data room’ of materials online.

2016, I saw a founder change their pitch focus from a technology advantage to bookings revenue; they went from struggling to raise $250k from Angels to closing $3M from a top VC.

Respond to investor emails within 1 business day and provide data or new materials to an investor in a timely manner.

Responding to investor questions may push them to a yes. Plus, investors will only have these interactions to judge how you work together.

Send regular follow-ups, every ~3 days, to undecided investors. Update them on round progress, new investors and product or sales wins.

This will drive ‘fear of missing out’ as the round’s availability dwindles. Ultimately, you have to accept that ‘maybe’ is worse than ‘no’ and push for a decision.

A yes isn’t real until you’ve confirmed it in writing. Confirm the investment and high level terms over email immediately and then get straight into the document signing and funding process.

Once the money is in your bank, and not before, scour your new investor’s network as detailed in point 2.

For most founders, fundraising is a marathon not a sprint. You need a healthy, sustainable routine to perform everyday for the ~90 days it usually takes to close a seed round.

Nobody pitches at their best when they’re exhausted and almost nobody can survive on 3 hours of sleep a night.

One of the hardest parts of raising a seed round is finding the lead investor — a VC fund that will take at least ⅓ of your round

The problem gets even tougher as some investors want to wait for a lead before committing themselves. Here’s how to close the lead investor for your seed round:

Most VCs like to the know the founders of the company they’re investing in. This makes sense given it’s a potential 10 year commitment if the company does well. It’s very rare for a VC to invest in a startup they met within 2 weeks, even if those stories are frequently discussed in the press.

Meet with 3 seed stage VCs at least 1 quarter before you’re planning to raise. Ask these VCs for feedback on the milestones your startup would need to hit for them to be interested. This starts your relationship with the VC before you need their money and you can use their feedback to help set your company’s goals.

If you have to meet a VC for the first time while you’re raising, you should budget at least 4 weeks for the process. During that month you’ll need to spend a lot of time with them to ensure you like working together.

If your round is filling up, there’s a chance the potential lead VC may miss out. Raise enough and you won’t need a lead at all. VCs love a company that doesn’t need money and are less interested in those who are desperate.

In general, raise $100k-$250k, from smaller sources before trying to close your lead VC. You can encourage smaller investors to join the round early by highlighting the limited space available, e.g. you can say “We expect a lead investor will take the rest of the round”. Be sure to talk to all kinds of investors, crowdfunding and venture debt interest can drive VCs to commit.

If a smaller investor seems interested but won’t close, you can offer a slightly lower price for the first few yeses.

VC attention is limited, if they have to wait for an answer to their questions, they may find another deal that is moving faster. Often VCs lose interest because of partial responses, e.g. you sent the deck and projections but not your customer churn data. In addition, VCs love investing in founders who know their own business well, this is your chance to demonstrate that, while testing if you like working with the investor.

Have common diligence items ready in advance such as: projections, hiring plans, contracts and demos. Once a VC is interested, ask what they specifically need to make their decision. Provide the responses within 24 hours and make any data’s conclusions explicit — don’t make them to hunt around for answers. Quick turnarounds on requests should be you and your team’s top priority.

If you genuinely don’t have enough time to provide timely responses, delegate the process to another team member. However, being outside the diligence process can be dangerous; in-person meetings can go badly if you don’t have a strong grasp of the numbers.

Here are 3 of the most common mistakes and how to avoid them:

Fundraising without customers is asking an investor to believe in two untested hypotheses: 1) you’re solving a real problem and 2) you can build something people use. However, an investor will rightly question ‘why is nobody willing to use it?’. Here’s how you handle the common cases:

No customers closed — Continue customer development until someone is engaged with your product. If you have cash flow issues, offer consulting work to attract a customer and pay your bills. Ideally, this would be upfront development fees for custom work but you may need to settle for more general contract work.

Almost closed a customer — Discuss their pricing expectations and ask them to sign a “Letter of Intent” (LOI). The LOI should include details on what is being deployed and its rough cost. A few LOIs may convince an early stage investor.

No paying customers — Make sure your live customers are overjoyed with your product and support. Try to get positive references from them ASAP. If they’re on a free trial or pilot, make sure the agreement has a clear timeline for payment.

If you don’t clearly explain why your company is special, you’re hoping investors will figure it out themselves. You must peak an investor’s interest early, as most meet hundreds of companies a year, to only invest in a few. Here’s what most founders highlight:

15%+ growth, month over month, is the goal; ideally sustained over the last 3 to 6 months. If you’re not growing that fast don’t try to present a rosier picture with lower numbers. Instead discuss your current distribution channels, how they will grow and the new ones you’re testing to hit your goals.

Good schools aren’t enough to be your differentiator. Emphasize this if you’re a serial entrepreneur with previous exits or if you have international recognition for your expertise.

Don’t present your app as a better experience without evidence. A demo and testimonials from key use cases is the minimum needed. If you have 50+ customers you can demonstrate customer satisfaction with a Net Promoter Score or engagement metrics like Daily Active Users.

Don’t talk about this unless you have unique technology, for example: Skype’s voice technology allowed them to provide completely free international calls. Otherwise, when you’re winning on price, investors get concerned about competition suppressing your margins.

Regardless of a company’s metrics, investors still get excited about a good story. Bored and distracted, an investor is unlikely to ask questions and will quickly discount your company. Here are the common scenarios:

During demo day build up, I often recommend you practice 10 times a day. Film yourself doing the pitch end to end (your phone is enough); most people hate watching themselves so much they improve rapidly.

Do not pitch casually. Stand up and deliver the concise version of the story, reinforcing your conclusions with data. Don’t put too much detail in the presentation, much better to get an investor excited and asking questions. Make sure you’re well prepared for common questions as weakness here will be a stark, negative contrast with your rehearsed performance.

A lot of fundraising rounds fall apart during closing. Most of these collapses can be avoided by correctly handling investor communication after they verbally commit to invest. Here are the steps to make sure every yes becomes a check.

First and foremost, you must get the YES in writing. Waste no time in emailing the investor to confirm the investment’s basic terms:

Hi Dan,
Great chatting today. As discussed, please reply “yes” to confirm you’ll be investing $50k in Hooli at a $5M cap?

Until an investor is willing to do this, you can’t assume it’s a real commitment. Any investor that actually wants to invest should reply immediately, so don’t hesitate to follow up every 1–2 business days if you don’t get a response.

With written confirmation in hand, promptly send over the investor documents for the round. Legal review can take anything from a few days to weeks. However, as I’ve explained before, using standard documentation can significantly reduce the time and expense needed to get agreement. This time, follow up every 3 days, however, if the process takes more than a week, get an in-person meeting to maintain the sense of urgency.

Once legal review is complete, you should send over the final documents for e-signature right away, with your signatures already included. If the investor doesn’t sign immediately, you should follow up every day to find out why they’re delayed. With all documents signed, you can send the wire transfer information. Once again, you should follow up each day until you get confirmation the wire has been executed.

When the money has hit your bank account, and absolutely not before, you can ask the new investor for introductions. Go through their online networks and send them your list of potential introductions. This is one of the best channels for finding potential investors as there can be no better endorsement than “I just invested myself”.

It is often tempting to take these kind of introductions from investors who are still deciding, not yet closed or may have even said ‘no’. This is extremely dangerous, as investors move as a herd and one could negatively influence the opinion of another, killing your chance of getting a ‘yes’.

The venture capital (“VC”) meeting process can be opaque and leave you wondering when you’ll get a decision on if they’ll invest in your company or not. Here’s an overview of the standard process for seed funds (in Silicon Valley) and what you should expect at each stage.

This first meeting is an introduction between the VC and yourself. Their goal is to find out if your company is worth exploring further for investment.

These meetings are usually casual and sometimes scheduled outside of an office setting, such as a coffee shop or members club (e.g. Philz Coffee). Because investors like to talk, it’s up to you to focus their attention on your pitch; and always use your deck if you can. If the VC is interested, they will often follow up within one business day, but remember, no matter how positive they sound at this stage, a commitment is not imminent.

At the seed stage, VCs are looking for a sensational team first. You must demonstrate how your team will beat the odds and dominate a massive market. If you’re looking for a $1M+ investment, most VCs will expect a minimum of $5K/month in revenue to start. Next, the expectation will be exciting growth of 10%+ per month on that revenue, or equivalents such as customers or daily active users.

Now the VC is socializing your company. Their goal for the meeting is to build consensus with a few of their colleagues.

Meetings are usually done at your office or the VC’s, and at least one other investor from the VC firm will join. Expect this meeting to be a much closer examination of your company’s strengths and weaknesses, as the attendees have typically reviewed your deck and discussed the opportunity amongst themselves in advance. If your product is publicly available, they will have tried it and you should expect questions on the experience.

The VC is hoping you will get their colleagues just as excited as they are, connecting your recent growth to a long term vision. Strong answers to the core questions raised by the VC are imperative, e.g. market opportunity, customer acquisition, competitive advantage. They will also want to see that you are willing to answer probing questions, and debate thoughtfully if needed; resist any temptation to become defensive.

This is the VC’s decision time. Their goal is to have their colleagues agree to offer you investment terms.

This will be the most formal meeting of the process and will include all available members of the investment team, which could be a group of up to 10 people. Expect a wide array of questions, often reviewing answers you’ve given previously. Remember that the group will have access to your materials and, for some, this will be their first time meeting you. You may also be asked about the round’s participants and where this VC fits in, i.e. how much capital could they invest? If things go well, the VC will ordinarily let you know the same day.

The VC will need a high level of excitement from the investment team, with a majority in favor of investing to proceed at this point. Remember, your VC contact already wants to invest, but is not likely to dissent from their colleagues. Be sure to give clear and detailed responses to the firm’s core questions (usually repeated multiple times by this stage) and any newly raised issues, so a final decision can be made without further delay.

This is the verification stage, often called “diligence”. The VC wants to verify the company they’re investing in, is the same one you pitched.

Be prepared to provide financial and legal documentation for your company. Many VCs will also want to validate your customer contracts and/or other major agreements. Some VCs (including myself) ask for a background check to verify founder credentials. If the round is priced (not a note or a SAFE), your lawyers will work with the VC’s lawyers on documentation where standard questions will arise on how to handle existing investors, employees, or the future equity option pool.

The VC is expecting no surprises — ideally everything they understood from your pitch is exactly what they find during diligence. A rapidly growing company may have some room for variance but significant differences can kill the investment and be extremely negative for the company reputationally. The VC will want to see pragmatism and poise from you, to negotiate terms and get the investment closed ASAP.