Three "laws" of raising funding debunked

Our experience with three common "rules" for raising money

We've been doing the entrepreneur game for 15 years now. My how time flies. During that time, we've raised a number of rounds,for us and for companies we help advise, and been through a few processes.

There are a lot of ways to raise money- many of which are glamorized. However, at its core, raising money is finding a partner you'll be working with for a long time. 5 + years, not months, in most all cases if things go very well. Which makes it a two way street.

Sure, you'll read that your job is to "sell investors" much like selling a product. And that's true, but not at all costs. This relationship is far different. Just spend some time reading the horror stories to counterbalance the unicorn love-fests. And remember: They're called unicorns due to how very rare they are.

Over the years, we've been blessed to spend time with great investors, many of which have no social media or conference presence at all. In that time, we've gotten to hear how they look at prospective investments and what they think of the online gurus and pitch “experts.”

Here are the three most common rules online given to founders we think are better ignored when raising funding:

"Stop what you're doing until you perfect your pitch deck" (Seed/Early Stage)

Pitch deck “experts” are everywhere. There are classes, mentors, and programs you can join, pay for, or apply for to help you nail your pitch deck. And why wouldn't there be when we have prominent VC's tweeting things like "I'll give a deck 3 minutes on my phone so make it count!"

A great deck is very helpful. Going through your story hundreds of times is a necessity to make it compelling. Time, however, is your most precious asset and too many founders spend weeks perfecting the deck when it just isn't necessary for the right partner. 

Great investors are looking for great companies and will spend the time finding them. Remember, they're competing too. And like any other business, there are exceptional, great, good, average and bad players competing. Remember, you’re looking at 5+ years with these investors, do everything you can to cut out the bad, average and good players.

The outlook for a great investor when checking out a company can be pretty simple - especially at the early stage. A bad idea isn't worth fixing. Neither are incapable founders. But a deck? A story? That can be fixed quickly by terrific investors who have experienced experts ready to help a young engineer learn how to tell a story.

A silly but easy to apply example: Former multiple time WWE champion Brock Lesnar isn't good on the microphone. A must for professional wrestlers amongst the many talents needed. But he can sure do everything else well.

So what did the WWE do? They handed the mic to Paul Heyman - a proven showman to be Brock's "manager" and "advocate." What followed was a hall of fame career which was a boon for business for all involved. The WWE plugged his hole as the rest of his talents were so exceptional.

Great investors will plug your holes. Especially the easy ones like a bad pitch deck. Trust me…our early decks were rough. We were 20-something kids with no experience out there raising money with no mentors and little guidance back in 2009.

And as for the VC’s talking about passing on a phone: I'm pretty sure no good LPs are impressed by an investor who looks at great ideas in passing on their phones for three minutes. That's the opposite of the job. It's not just arrogant, it's reckless. And it isn't a partner you're going to want in your foxhole with you.

"Real CEOs don't hire a banker" (B and Later Stage)

We hired a banker to run a process when we got to the B round. We were exploring some inbound strategic interest we'd received along with the prospect of raising growth capital.

We were openly mocked. Especially given that our business was founded by tech savvy sales people who doubled as our top revenue drivers. Why on earth would we need a bank? We even had funds tell us they wouldn't work with bankers.

It couldn't have gone better for us. Our hope was to explore both outcomes in parallel while continuing to run and work in the business. At that point, I was still the top salesperson at the company as we were right around $6m ARR. Taking the time needed to do the administrative part of a fundraise would have killed us. How do we know? We had raised an A round ourselves and experienced the slowdown in sales in 2013.

Our hope was to get an offer on the business and a few suitors for a B round. We got 11 offers and term sheets. Many from funds we wouldn't have found ourselves - Including the fund we eventually did the deal with.

Hire a good banker so you can get back to running your business for the four to six month process. If you need one, JP Ditty of KPMG and Stephen Miller of Leonis have done terrific work for us and are great people.

"Don't blow off associate meetings" (All Stages)

Don't meet with associates in person. When you do talk to them, keep the initial call to 15 minutes. Again, your time is your most precious commodity.

That doesn't mean be rude, blow them off, or disrespect their time. Associates are a major reason many deals get funded and many of them will rise to prominence during your company's lifecycle. Send them everything they need to evaluate your business. Just don't travel anywhere to meet with only them for longer than 20 minutes without a decision maker in the room.

It's not fair to the good associates who mean well and respect the process - of which there are many. Unfortunately, too many are industry tourists looking for busywork who will waste inordinate amounts of your time before taking the deal to their higher-ups. (Can you tell that's happened to us? Multiple times? =)

Be insistent a decision maker is attending or don't go. It's that simple. Unfortunately for us, too many funds pulled the bait-and-switch where we'd show up on Sand Hill only to have the Principal or MD "have something come up." That's a pass, on both sides, and better to save your time.

Conclusion

Be deliberate when you go to raise money for your business. You're the one who will be there for years focusing the vast majority of your time on this one company and all the risk that goes along with it. Your eventual partner will have diversification. They get to spread their risk. You don't.

There is so much pressure in the raise process. We made every mistake there is, including a few which are nearly unbelievable which we will share here later on (has anyone sent a term sheet from one fund to another who was bidding by accident? No? We did.) You feel like you just want to get the money and validation so you can get to building. After all, how bad a partner can they be?

We've had an angel investor walk away 10 months into our business owing us $250k during the biggest financial crisis in 80 years. We've also had fantastic investors who have been supportive through a pandemic driven live event shutdown and two aborted takeover bids.

Take the time to find the good ones. Trust me. I've got the scars.