Early-Stage Startup Fundraising Masterclass by 500 Startups Partner

[00:00:00][Music] so um all right we're GNA jump into it so uh here I'm gonna give just a very brief background on myself and and the firm just so you have some context um so my name is arjent Da Aurora I'm from San Francisco and work in the SF office of 500 startups I've started a couple of companies and have done a lot of investing and Advising personally and then more Rec with 500 startups as well so on a personal level uh invested or advis in companies like Angel list change.org Lyft cloudability and a handful of others and then I've seen um either directly or indirectly know tens of millions of dollars of capital raised so uh like all things I think there is both an art and a science to the uh you know to fundraising and so excited to uh to chat with uh with you all about that today so the goal of this presentation is to help you think through how to quickly raise money at the early stage uh for for your startup from the best right so how can you find the best investors for you that are values and vision aligned um and raise that money quickly and we're going to walk through kind of the process and the psychology and the mentality of fundraising um here in this presentation today so that's what we're going to do um and in a little shout out to DJ khad these are the major keys and we're going to walk through them so here we go um here's what's important really really important to spend the time uh to get prepared and then run a type process a lot of times people are fundraising haphazardly they're kind of oh I'm going to raise this month and then I'm not raising next month and you know this particularly happens when you have some traction and you have some revenue and you don't need the money right away what happens often is that people don't run a tight process and when you don't run a tight process it can create all kinds of distractions in the business so one of the most important things is thinking about preparation putting all the things together initially and then running this really tight process and so when you do that you want to focus 100% on the fundraising process I know a lot of Founders um will end up and like I was saying before will spend kind of 50% of their time on fundraising 50% dealing with fires this is a great opportunity to practice delegation so thinking about um delegating out the core parts of your business that you don't need to be focused on day-to-day um and then really really honing in on fundraising and I know for Founders you know you're you're always working 200% right so 100% of your time on fundraising um and of course you know you'll need to spend some time still making sure the business is running but really you want to be hyper dedicated to the process of fundraising um the next thing is create momentum so create momentum by going deep in your network first where you have relationships where you have depth of relationships and then go broad then go out to the larger Network go to the second deegree Network and get the rest of the folks there so you can often find you know a lot of traction early by going to folks that you know well or your local Regional ecosystem your local investors uh people that are friends family um you know former bosses things like that where you can start and then go broad because momentum begets momentum in fundraising and it's really important to uh to keep focusing on that so the next thing is creating fomo right so how many of you know what fomo is may just to get a quick sense of it so it's the fear of missing out and so there's a concept of social proof um it's all about creating fomo particularly as you're getting and building that momentum the last half of your fundraising is typically much much easier than the first half the first 20% is typically the hardest uh then as things Roll Along it becomes much easier and the biggest piece you're trying to Leverage is the fear of missing out you know you're going to be the next huge company in the region you're going to be the next huge company globally oh I saw this opportunity I missed it that's a bummer I don't want to be that person so investors are driven by this psychology um frankly all the time so leverage it and use it to your advantage so create the fomo um and we'll talk about tactical ways of how to do it shortly um and then lastly most importantly close around quickly and get back to work right fundraising is not something you should be doing always it should be something that you're doing in focused uh kind of you know specific areas of time and then the idea is to take the capital and start deploying it so I see you you know a lot of folks will kind of drag the process on and this kind of keeps going back to the first point um but close it quickly round it up make it efficient um everything from the little pieces um and then get back to work and so back to building the company and you know a lot of um really liked what a lot of what Mark shared earlier just around thinking deeply about values and and uh alignment around that so you know this is I think an important piece to keep in mind as you think about the whole the whole process um so let's start talking about the first piece so that was kind of an outline you know what we're going to talk through how the fundraising process works in my mind best and then let's talk a little bit about specifics so first thing get prepared all right so I know you know this will vary and this is kind of a a heads up that this is a US Centric or Silicon Valley Centric approach in some ways but the overarching principles are applicable anywhere in the world so there's a convertible note um that you want to get together and particular at the early stage you want to set the terms you want to be the one who says this is what we're raising at as long as it's not too astronomical with if it's within the right band it's typically better if you as the founder set the terms um then it's about creating a you know paragraph really synthesizing what your company stands for and getting that tight in a paragraph that's easily forwardable and sharable the next piece is creating the deck so let's walk through each of these pieces uh in more detail so the crystal clear one to two paragraph blurb on your company this is something that that investors can get and read ideally on their mobile device it's something that you know the majority of um investors are reading things quickly running in between meetings and so you want to have something that's specific synthesized and really tight and this takes iteration it takes time to get this right um you can't just you know type up the first paragraph that comes to mind and and start throwing it out to investors go to your mentors go to your other early investors other folks and really get this paragraph clean um and what it what you want to capture in this is you know the size of the market the the team the product um you know and and the market that you're playing in generally so you want to capture all of those things and get it into this type paragraph and then any traction that you have already you know get people excited about taking the meeting it doesn't have to be super you know comprehensive but it has to peque people's interest and so that's what's important about the paragraph um the next piece is a beautiful you know 10 to 12 page deck this is kind of an endless perennial debate at least in Sil Valley is do you include the deck with the introduction email I'm partial to it I think that it's valuable again as long as you're focused on creating uh interest through the deck peque people's interest and the main things you want to cover team product Market traction there's a whole host of others there's lots of uh content you can find online on how to create the right deck but um you want to capture at least these main pieces and you don't have to give away the farm you have talked to a lot of Founders who are very particular about well I don't know is it Trade Secrets I don't know if I want to share this it might get forwarded around so in that case I would recommend using a solution like Doc send or something else where you can control um you know who sees the deck and then if someone you don't want to see the deck sees it you can kind of shut off their access so or you can pull the link um so you know for those who may be concerned about proprietary information use docsend use another uh kind of way to to share the information but but do get it out there U the next thing and this is kind of what I was talking about earlier was around setting the term I know in you know in the region there's different versions of you know convertible note kiss and this was back to an earlier uh presentation from this morning around you know being a Delaware C Corp certainly helps there's tools like stripe Atlas so you can create that entity relatively quickly uh which is important as well but again that's not that's not necessarily true for everybody but if it is then I highly recommend you know any of these kind of convertible noes say for the kiss documents to make it really really easy and make it so it's something that investors have seen and so you're not spending a lot of time negotiating terms everyone knows what it is they're taking high risk it's early and they can get it done so that's um you know that's important so i' I'd think about how to craft that note and set the terms there's a much longer discussion around you know how to set the terms depending on the region you're in depending on the valuation depending on your traction but let's you know we can save that discussion for later but for now the idea is set your terms have that discussion put it into a document that's easy use a solution like hell sign docu sign something that has a template so that you can just crank it out quickly right this is all about making this process as efficient as possible and time gating it so that you can get it done fast and by using a solution like DocuSign or Hell sign you're able to yeah the minute someone says yes I'm in awesome now you can just you know crank out the template put in their information and get it out and and close the deal so have your wiring instructions and other things ready as well I know again in some places this is more complicated than other than other but uh try and uh The Meta lesson from all of this is remove as much friction as possible from the getting things signed and uh getting the money wired all right so we talked about a lot of the materials that you'll need and uh the content that you'll need to have ready before you kick off an actual fundraising process now let's start talking about researching your targets researching the investors that you want to reach out to you know who are the right investors for you and what do they look like where do they you know where do they hang out what do they live do your research understand those investors what have they invested in are they active are they not all of those things all right so it's about creating your target list right and it's about effectively you're putting together a CRM system I mean really this is a CRM for the specific purposes of fundraising and you want to get the right um you know column headers together basically so you want you know name are they an angel or a VC again we're talking about early stage fundraising here we're not talking about a series a or series B we're talking about kind of preed and Seed rounds uh for companies that are either have gotten started have a little bit of traction or have meaningful traction and are now you know moving towards the a um the fund if there's a fund um are they active or not particularly with the angels uh you can end up wasting a lot of Cycles by going after Angels who may have invested you know they may have done one or two deals uh two years ago and they're showing up on all the you know all the lists uh because maybe they had one successful uh you know exit but you want to make sure that you're really focusing on folks who are active right now then look at relevant Investments uh I've made you know thousands of requests for introductions emails and send those across and what I often find is you know there's competition there's companies that are clearly competitive um there's companies that are relevant and not relevant uh there's investors who are only focused on adtech and if your marketplace's business or an e-commerce business they're just not going to invest so don't you know waste your resources nor the resources of your network in getting access to those folks and then the last piece this is really important find the best refer from within your network right uh you're here at conferences like this you're meeting great people you're active in your ecosystem you're out networking you're connecting so you probably know people that can refer you to the investors that you want to meet in uh in your region or globally um so find the best referrer who's going to give you that strongest reference and who has the best relationship with that end angel or investor as well so make sure you you're logging that down and this information is a little little harder to find um it's not always as obvious but there's ways to get at it you can look at you know LinkedIn or Facebook or Twitter and figure out if there's Mutual connections and what those depth uh of those connections are so do a little research there find the best refer so now this um you know can look like a hundred can look like 200 in some cases it can look like a few hundred just depending on you know who's the right fit for you what you're going after who are the Angels in your ecosystem so do the work uh put this together it will say you so much time down the road all right so now you've got your materials together you've got your target list together and you know who you're reaching out to so next step is to focus on your first deegree connections right and this is a crazy crazy graph this is a social graph of somebody so let's say you know you're somewhere here in the middle um right over there and maybe up top is your region um you know maybe somebody who's up in this area is where all your investor friends hang out right so people tend to Clump together and what you want to do is you want to go after your first-degree connections that have access to lots of other investor types right so you're looking at who they're connected to and the value of this is that you're creating social proof so if you're looking at you have to prioritize all of your you know social connections let's say you know a few hundred folks or a few thousand folks you have to be focused on who are the people I'm reaching out to and more importantly have some depth of understanding of who they know and the influence that they have in helping you to create fomo and helping you to push your deal along okay so now you're focused on your first degree connections you're going out to the people you've worked with who are Angel investers who've actively made Investments and so you've done that first uh kind of trunch of Outreach and so you're going out you're reaching out with the blurb you're reaching out with the deck you say hey remember me I used to work for you two jobs ago or you know I'm your cousin's best friend or whatever it is you know you can find a lot of those relationships and then start reaching out with same thing the blurb the deck say he I'd love to grab half an hour an hour to sit down and chat through what we're working on and these are friendly relationships so you may even be asking for advice or Andor money but you want to kick off you know the process all right so that's your first degree connections now you're going to go to your second degree connections again I mentioned this presentation is a bit Silicon Valley Centric um but you know these are the these are the tools and solutions you can use to you know figure out who those folks are and this is what you're using in that research period as well so angelist crunch Bas LinkedIn uh Facebook is probably relevant Twitter is relevant uh and any other kind of local social networks but understand you know what the right second deegree connections are and then start reaching out to them so the best way to do uh to reach out to your second deegree connections is this it's the request for introduction email I know this is really hard to read and I apologize I'll walk through what each of these arrows are um but the essence of it is it's your asking your connection who knows let's say notable investor for request for introduction and the reason of this as I mentioned earlier is it's all about making it easy and making the process as seamless as possible now the refer is going to go out of their way to help introduce you to a lot of different people that are in their Network that they have a trusted relationship with so make it easy for them and they if they're a super node if they're somebody who gets a lot of these requests they're probably um inundated with email they're probably super busy they're probably you know always just getting pinged on all kinds of different channels so make their life as easy as possible all right so let's walk through this uh request for introduction in particular and what are the key parts of it okay so hey arjent we'd love to present to visionaire Ventures all right so they're very clear about you know what they're uh who they're reaching out to um this is what we're working on and what I really like about this is they're saying given visionaires focus on Visionary ideas and one of their investors uh advisory role in SoftBank so they're giving some context on why this makes sense this shows that they've done the work it shows that they've done the research and they know why this fund or why this person this can be applicable for Angel Investors as well is is of Interest right and why they're a fit uh for you know uh the the the startup that they're working on then it's a quick summary so it's something that's relatively short but it gets it the opportunity right there's we've got all these organizations independent news networks they're talking about a lot of the different things that U make this a big opportunity and make this exciting and then the last part is the the deck right so it's a link to the deck and as I mentioned before they're using doc send here so they can actually track whether or not someone's opened the deck whether they' reviewed it um what pages they're spending a lot of time on one of the things that docen did a really interesting study and they said that people on average uh investors will spend roughly two minutes and 33 seconds I think it was on your deck so you have two minutes and 33 seconds to capture an Investor's attention and get them excited about taking a meeting and I think even nowadays that might even be on the longer side it may actually even be shorter than that so the doc end link uh helps you track the time people are spending on it the other thing that's valuable about it is it'll help you understand where uh people are focusing their attention so if your deck you know you've got your Market you got your team your traction your product if an investor spending all their time focused in on the product side you know either they're very interested in that or you know maybe they have questions around that so you can learn a lot from the data exhaust of how people are looking at your uh your deck so highly recommend tools like that there's there's others as well it's not just doc send um but that's one way to do it so these are the ways you'd craft that note and then what you do is you send out 10 you know 15 five depending on who your introducers are of these notes and send them out individually one by one and now what you can do is all of a sudden they'll start shooting these out and as they're getting replies say yeah this looks really interesting interesting I'd love to take a meeting now they can introduce you in directly you know they're interested and it's going to move your process along much much faster rather than sitting there waiting to say oh is this going to happen or not I don't know should I keep following up uh they're typically going to have that you know level of trust and if they say no it's okay also right if they say no then it's fine um then you know you can move on and you can move on to the next thing all right so that's the request for introduction email so you've sent out your you put your materials together you've done your research you've reached out to your first degree Network hopefully a couple of those folks have closed now and now you're reaching out to your second degree Network through this request for introduction methodology right and now hopefully you're in front of lots and lots of people and they typically say it takes you know 100 plus meetings to close uh your you know early stage uh rounds of financing so now it's time to pitch all right so now you got to get in front of you know all of these investors hopefully your first-degree meetings are relatively easy you're not having to um you know there're people that you know there's already that trust that's been built so it's not too stressful um but you know you're still asking for money you're still asking them to commit to your uh startup and to your vision and so you know that's still that's still challenging but uh where the real action comes is is the folks that you're meeting you know that are the second degree or the third degree you know that uh and you're meeting for the first time these Angel Investors so that's may you know maybe you'll get the pleasure of you know pitching Dave McClure one day but this is you know what the pitch meeting is and so in the pit pitch meeting you want to lead that meeting as the founder as the entrepreneur you want to be the one who's in charge of that meeting who's taking lead in that meeting and what that means is you're setting the agenda you're either saying hey in this meeting I'm going to walk you through my deck um that'll take you know three to five minutes please stop me for questions if you have them um and then we're going to have a discussion uh on you know anything you want and we'd love to you know chat further so you want to step into that room with confidence you want to step into that room and lead the meeting that's really really critical um you know often times what happens is Founders will just kind of lean back and assume that someone's read it they'll kind of say oh what questions do you have for me um and they'll kind of let the investor lead the conversation you want to make sure you're you're pitching um so that's that's really important and the next thing is just ask you know make sure that you're very very clear about next steps at the end of the meeting so let's say you have a good discussion you have a conversation uh the other thing that's important is that you make sure you ask the investor what are they looking for what are they interested in um you know does this fit their thesis is how do they help their Founders how do they help their startups what have they done in the past right you want to be asking them as many questions as they're asking you and and mark mentioned this earlier in his presentation was you know you want to have that alignment on both values and the vision uh with the investors you have and sometimes you have to you know you have to turn down investors as well um so make sure that you're asking them questions as well and the best investors will really appreciate that and respect that so make sure that you're having a dialogue and it's a conversation because it really is a partnership and you know God willing everything goes well you know you're with these investors for seven years you're with them for a long time and so you want to make sure that you're uh asking them as many questions as as they're asking you all right so now you've gone through the pitch that's all good now you're starting to get commitments right you're starting to get people in um and you're starting to get your first trunch of uh investors that have committed they've signed the paperwork on Hell sign or docus sign they've maybe even wired the money if it's a convertible note um and now you want to start creating fomo you want to reach back out to all the folks in the beginning who may or may not have responded or they said hey let me see when things are you know moving forward I don't know if I want to invest it's not a hard no but it's not a not a yes either so now's where you can reach back out to them and say oh here's here's an update on the business and by the way here are the six people that are that are in and by the way you know one of them really well um so you know and go ask them why they invested and why they're excited about it so make sure that as your uh fundraising as you're moving along you're building this list you're building this fomo and what it does is it gets people excited oh my God maybe this is the next big opportunity look at all these people investing look at all these great folks involved and so you can leverage that uh to get things going it's often uh one of the analogies that I've heard use it's like inviting people to a party oh he's coming oh she's coming oh this is going to be great this is gonna be a fun party right so create that fomo um and get you know get folks in the door all right and then the last piece is really and I want to make make sure we leave at least 5 minutes to to questions um close it up fast and get back to work right this goes back to getting the pieces together so that you can do that if you're using a convertible note and you have clear wiring instructions um the closing of this should either be a rolling close or it should be something that you can snap together um and get done pretty quickly all right so I know you know we've talked about a lot of different things but just to kind of sum it all up um you want to make sure that you start um by understanding that it's going to be a process and you have to be fully committed to it you need to put your materials together do the work practice your pitch get the paragraph tight get all the pieces together get the convertible note get the terms um get everything set up so that you're ready to move as quickly as possible do your research find the right uh first-degree connections the right second degree connections um and look at the folks that are active in the space look at the folks that have done Investments that are relevant to your uh space and then craft that request for introduction email get that tight get it clean now start the process pitch create fomo as things start work coming together and close it up fast and get back to work so that's how you run a really tight and efficient process and if you do that well if you do the preparation part of it well you can get this done um again depends on the region depends on the ecosystem but in as little as as kind of two months so um again if you do your preparation work up front can run through this process really quick quickly it typically takes uh you know 100 meetings is this is again not a hard and fast rle but about 100 meetings to get you know these early rounds of financing together uh depending on where you are all right so uh again arjin Aurora um you can find me on Twitter Here and Now would love to answer questions we've got about looks like about five minutes left please can you uh tell us how effective is cold emailing yeah great question uh cold emailing is relatively ineffective it can work um I'll tell a funny story my my brother has a company as well um he cold emailed Johnny I um from Apple and he responded um that rarely happens right that rely rarely happens and I you know I have to shake him sometimes be like that's not normal you have to understand this isn't normal that people respond to you like that but it does work and I think when it does work it's about really really doing your research spending the time to Deep understand that person nowadays with social media you know people leave a kind of a data exhaust everywhere so you can understand particularly people like Johnny I they've been written about but but you know even run-of-the-mill Angel Investors have a lot of information so do the work show that you're thoughtful show why you think it's a fit um and ideally get a warm introduction but if you can't then then go the cold the cold route so I have one more uh question related to this um how how often should one follow up because you know when you start the email um emailing conversation sometimes it dies down and then you follow up and then it dies down again so how often should we ping the investors yeah um so if they're if they're not responding you know you probably want to follow up maybe once or twice and ideally with with value added information so don't just follow up and say hey just following up can I get 15 minutes say hey I'm following up and um this has happened in my business or this investor is also invested and I see you know so add add continue that level of personalization and that value creation that's really important now if you've had Email exchange with them and it's not you know it's not completely cold and then they've gone cold you can often send an email and I like this language a lot which is he would request the um you know the professional courtesy of your reply we're closing you we're closing the fundraising process or the process is moving along um and it's totally fine if it's not a fit but I just want to know so that I can you know close the file and I can make sure that I can move on on and as simple yes or no is fine I've even seen some you know people take this and they they get funny with it as well say one or you know please just all I need is one letter from you a um I'm still interested B no C I've been eaten by an alligator right you can make it funny too and so if you want then if that's your style and that's your values you can you can do something clever like that sorry just one last question is there any time limitation to the followup and everything um or you can shoot an email whenever like an ear later when you have updates yeah yeah I like I mean I like the pace of if you're in actively in the middle of a fundraising process then I think the pace of every 7 to 10 days is good um I think if you're in the I just want to build a warm relationship with an investor then once a month is is appropriate um but if the you know if the fundraising is closing together then is coming together then you want to be you know you can be relatively active about it but you if you're following up every day it's not just not not going to be valuable yeah thanks cool yes yeah glob yeah so if you're if your product is global and you're truly going after a global market then you know I think the again I'm partial I'm from the silen valley ecosystem I think you know it makes sense to to come out there so um you know do what you can to be either part of an accelerator program or incubator or just physically get up and and move there I think if that's not possible um then you have to just start building Traction in your region and eventually if it is truly Global and you start to see users from all over you know you'll hopefully catch the attention of someone that can help you know bring you over to uh to silen Valley and again this is a very partial view but um that's where I think if you're building a truly Global Tech company I'm a strong believer in being in silen Valley MH without the benefit of a doubt yeah uh what about the side about the investor being Savvy enough to recognize and see something see a startup see the product or the service that they're offering and be able to evaluate analyze and see the potential of that startup and go well you know what with just a few things that you've told us we know this is going to be successful what about that side yeah that's uh that happens as well so I think as in as you know the best investors can see a company see a product and say this is awesome this is going to be a hit I want to get involved and so they're actively or proactively reaching out um and I think the if you're running a process that you know tightly you're looking to basically create that environment for investors to say I see it I get it this makes sense and the best investors will move very quickly they're not going to spend maybe they'll you know they'll need to talk to their Partnership if it's a fund the best angel investor will typically invest you know within 24 hours to 48 Hours afterwards they'll do a little bit of diligence they'll send some emails to some friends and they'll say all right I'm ready to go so I think um maybe it's a function of the right investor set maybe it's a function of the ecosystem or seeing enough volume of deals um but the best investors are both proactive and they make decisions particularly at the early stage relatively quickly um so you know you want to look in part of your research phase you want to look for folks like that all right right I'm I'm out of time but I'm happy to answer questions I'll be out and about and I'm here till uh till through Monday so happy to answer any questions later around fundraising or anything else um but uh thank you everyone for your attention and uh thanks start of piston bow for having me so really appreciate it thank you [Music]