Pareto Guide: Pointers On Engaging With Investors While Raising Capital

by Hari Raghavan in August 14th, 2020
four men looking to the paper on table

First, avoid the Cinderblock. This is what happens when an investor is torn between indecision and FOMO. They don’t want to say no just yet, but they’re not convinced either. While it’s an annoying situation, the best investors are sometimes cinderblocks… indecision affects all of us. If you are counting on them to decide, then ask them for a direct answer, or set a timeline. The same principles in Mark Suster’s excellent Why you should never have a data room also apply here. (It’s particularly painful when someone who should be a Coffee Check behaves like a Cinderblock, because the payoff is almost never worth it.)

Second, make sure that you are telling a story that you actually believe. Investors can sniff out hesitation without fail, but they also respect conviction. Don’t dance around obvious issues if they bring it up, and don’t overstate aspects of your company that haven’t been derisked yet.

Third, everyone loves momentum. Try to structure your round so that when you’re starting the process, you’re expecting to accomplish something really powerful in the next few weeks: a key hire, shipping a product, signing new customers, etc. This shows that you’re making rapid progress, and literally all that matters in a startup is growth.

Fourth, prioritize investors who “get” what you’re building, even if they pass, or are skeptical. You’ll hopefully develop a spidey-sense for this after a few conversations. They’re the ones asking you about the same things you yourself worry about; brainstorming with you about ways you could make your venture big (and ways it could fall apart); and they’re often helpful even if they decide to pass. Treasure these people: re-engage periodically (not too often, but once a quarter is totally reasonable), and ask them for advice. Investors are always free with advice, and if they understand your company, they’ll be a great sounding board, and might even invest down the road. What they won’t be is offended.

  • For those who kind of get it, but are FOMO-driven, keep them in the loop; if there’s a lead, it might nudge them to act, and those checks that close out a round can give you a precious extra few months of runway.
  • For those who simply don’t get it, be polite but don’t waste your time. If they didn’t get it in the first 5-10 minutes, they won’t get it with a bunch of pretty decks, additional calls, etc., and their time is valuable too.
  • For those who are discourteous (late to meetings, go silent on you without an extraordinarily good reason, etc.) stop trying and stop engaging. Be courteous yourself, but life is too short to keep talking to jerks.

Finally, everyone knows that it’s a numbers game but it’s not always clear how skewed. There are a handful of raises where a founder gets a check from her first few meetings, but the vast majority of (successful) fundraises go dozens of meetings — and sometimes 50+ — before a single yes. But take solace in the fact that usually, when it rains, it pours… once you get that first lead check committed, everything else often falls into place. Because, as the saying goes, “Everyone wants to be the first to be second.”

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