In an emergency fundraising period this fall, I led an effort that resulted in three seed-state term sheets.
In two weeks.
Having completed several rounds of funding in the past few years—with my own company, at a turnaround, as 1st employee from pre-seed through Series A, and as a hired CEO—I have learned a thing or two about fundraising (for tech products, at least).
Let’s focus on the fundraising process for a tech product.
The problem this article helps solve: communicating to potential investors about growth is tricky, and a minefield of bad advice. By considering each audience and stage individually, you will dramatically increase your chances of success, and gain clarity on exactly when you’re ready for funding.
Communicating about growth is as important as different for each of your existing investors, your own team, to customers, to your family, and even to yourself. Consider a growth coach if you need help navigating the differences—it’s likely only a few hours of work to ground your whole entrepreneurial future.
Bad Advice: The #1 Problem with Growth Coaching
It’s such a problem because the advice isn’t actually “bad.” It’s great advice for a different company, different market, different stage, different structure, different funding level, and different strengths.
It’s so easy to confuse “what made this role-model company successful” with “what made this company successful when it was at an equivalent stage to my own?”
You can’t skip the process. An amazing article about how Spotify structures its scaled software teams won’t help you build the initial 2-person software team at your startup. You need to go back to 2006-08, when Spotify was a baby, to figure out how they were structured then (and perhaps what they learned didn’t work) to find that advice.
But that’s boring and MSNBC and CEO’s tend to avoid writing about it, because it was hard, full of mistakes, and moved so quickly it’s hard to even notice what went right or wrong.
Intensifier #1: No skin in the game
What makes the problem worse is the competing advice from people with no skin in the game.
I’ve been told so many times by successful entrepreneurs or VCs for whom my deal isn’t in their target profile things like “oh yeah you can raise two million easy and be good for two years!” I’ve learned to ignore it. It’s like resume advice: everyone states their opinion strongly, but the opinions of those who make the decisions are the only ones that matter.
Intensifier #2: The “Pitch” is over-glamorized
There’s a sequence to the fundraising funnel, just like business development and enterprise sales. You’ll need to get conversations, pitch, keep them updated, close a term sheet, get follow on investors to join the round, maintain momentum through due diligence, and still grow your business while it’s all happening.
Intensifier #3: Yes-ing
Friends and family are often scared to tell you it’s a bad idea, or don’t have enough vision to tell you it’s a good one. Their “feedback” is just straight up deceiving. If you go to a co-working space and tell 20 people in a room about your idea, 18 of them are going to say “that sounds great!” just to avoid having to be the one to tell you that it doesn’t.
A friend of mine calls that “yes-fucking,” because he wants every entrepreneur who does it to realize they’re actually screwing other entrepreneurs by falsely being positive. But this comes back to you, if you’re asking the wrong question: “is this a good idea?”
“Let your yes be a simple yes and your no a simple no,” said Rabbi Yeshua. In startups, yes isn’t a word; yes is cash. Everything else simply means no.
Intensifier #4: Entrepreneurs ask the wrong question
All the ideas sound just okay until they’re actually executed, which takes months to years of pounding away and refining and focusing. All kinds of pieces have to come together: building an audience, channels, partners, messages, funnels, team, and the product.
Investor conversations don’t have to be binary.
Instead of a “yes/no” after one conversation, plan on figuring out their honest assessment of where you are by figuring out what it would take for them to invest cash in your business. Usually that means that instead of customers saying positive things, they’ve actually paid cash for the product.
Ask “What stage do you think we’re at? What’s next? Where do we go from here?”
Intensifier #5: VCs are especially incented to BS you
It’s the same reason that VCs want to see real traction and revenue before investing: lots of potential customers will say they want something, but ideas meet the hard truth of reality when they’re asked to pay for that same something.
VCs have every incentive in the world to tell you your startup is a good idea, or hip-shoot enough advice to keep you going. Why? Because, by definition, a startup should essentially sound like a bad idea. If it wasn’t, it would be done already or already invested. And the VC wants a huge pipeline of potential good ideas that currently sound like bad ideas.
I’ve found that VCs are usually delighted to be asked to help you uncover the value over time, as you return again and again to the same office with updated financials, product info, team updates, target-market refinements, and so on. If you patiently work with them to set milestones for your business, then achieve them, you’ll have used this process to your advantage.
If you satisfy yourself with a “hallelujah! This VC is interested,” you may have just told your Mom you’re getting married after the first date. You’re going to get jilted when you ask for a term sheet. It’s a process.
It Takes Grit!
So let’s sort through the BS and approach our tech product growth communication. Succeeding is about the quality of your character and patience.
After some foundations, we will explore the intentions and practices that, guided by neuroscience, maximize results.
You Already Know How to Bring Potential Clients with Communication
For the investor community, we are going to treat them as customers instead of rich, all powerful tech gods. We will see them as people.
You already know that that’s how to really succeed with customers whether in sales, marketing, or customer success contexts.
Let’s harness that same power here: the more them-focused we are, the more we will succeed. Don’t think that they’re an alien just because they’re rich (or, actually, spend rich people’s money). You are fully capable of understanding an investor’s motivation and seeing through their eyes, despite having never been one.
And how do we succeed at negotiation communication? Neuroscience
Attempting to negotiate without understanding how humans behave and make decisions is like spending your entire marketing budget on buying a billboard: it’s the hope method.
See Through the Eyes (and brains) of Investors
There are basically two types of investors, in my opinion. The kind who are spending other people’s money, and the kind who aren’t. Some of those who are take ownership, and some spending their cash do it for swagger—but even here the exceptions merely behave like the other rule.
Their goals and intentions are wildly different. It’s about defensibility versus value.
The key is this: it’s never quite as simple as “this investor funds promising ventures.” Just like an enterprise software sale is never quite as simple as “this company buys the best software.”
At least for me, my imagination of wealth and what one does with it kind of assumed that those who had made it sort of knew what to do with it. That’s false.
The other great surprise to me was that “venture capitalists,” by and large, are not mega wealthy people enjoying their time picking companies where they park their cash and help open doors. Turns out, a VC is usually an MBA type who is qualifying how to spend a giant fund of money that the rich people agreed to buy into on some thesis or model.
So those spending other people’s money are often held accountable (by payment) for using the model, not for backing great companies. Theoretically, the model is likely to lead to success over time—but the pattern of one that is your company may make or break the model.
I’m not against such a strategy. You’ve got to have a strategy to invest well. I’m just saying that as a founder I discovered investment works nothing like I expected.
Learn the Motivations of the Investor
Just like a sale, you will build a connection and communicate more effectively when you know what makes the investors tick. It turns out they’re usually quite open about this.
“What’s your investment thesis?” Is a common way for me to start one of these conversations. And it’s a free question: investors appreciate getting to talk about it, especially if they are more accountable to driving the model than backing great companies.
In other words, you must find and subsequently accept the guardrails of what an investor might back. From here you’re likely to find the exact milestones required for that investor to make a deal. And now you have a target.
Have these conversations early and often so that you build your own roadmap to investment based on real investors, not theoretical ones. They will cheer you on the whole way. Right now I lead a company with $12k MRR, but have two VCs I’ve been dating for nearly a year who don’t invest until you hit $120k MRR.
But guess what! By not tempting them outside their model, and continuing to keep them updated on our progress in their target markets, I’ve had door after door opened for me by them in the hopes that one day I’ll meet their model.
You’re Always Negotiating in Growth Communication
It’s a forecast. You’re convincing people to bet on future returns. There are no guarantees.
So you’re speculating and they’re speculating.
That’s a negotiation—meaning lots of give and take as you share perspectives to each find value you find satisfying. And your give and take builds a picture together that wasn’t possible alone.
Intentions: Breathe the Neuroscience of Generous Communication
Butt sniffing. There is a good kind.
I don’t mean the comparisons and swagger of execs feeling each other’s power out, or trying to show the better moment on Instagram.
I mean we, in our own animal brains that we share with dogs, are able to evaluate things without words. We can just know that someone wants something from us, is lying with their eyes, has a fake smile, or is passive aggressively not saying what they really want so they can be a martyr. We might second guess ourselves or misread a cue, but we definitely do it.
The Arbinger Institute (Leadership and Self-Deception, Anatomy of Peace) has shown how we naturally resist when someone’s communication packet includes brain junk of ego: better than, worse than, I deserve. In other words, the exact words really aren’t the exact words, depending on the intention of the one delivering them. And we all are skilled at reading into that.
When a telemarketer or multi level marketer really views you as a wallet with a face, you feel it and naturally resist. When they really want what’s best for you, you feel that too. It’s a combination of words, pauses, tone, speed, handoff, and the order of ideas, as well as listening, that provide our brains the instinctive clues we need to decide whether to evaluate what they’re really saying or not.
Our animal brains know whether you’re using your selfish animal brain or others-focused adult brain at any given moment. We might go along with you anyways, but will get there ourselves without trusting you.
Trust is amazing grease. To get it, you must be worthy of it. It’s hard to fake, and you shouldn’t learn to (because then you’re stuck working with people who are easily fooled).
Therefore, we must learn to manage our own intentions and work from the right ones in any given high stakes communication.
Intention 1: De-Objectify The Investors
They aren’t wallets with faces. They are human beings. If you can change your intention from “I want something from you,” to “you are an interesting person and so am I, let’s see if there’s something here,” you will find a new ability to unlock value.
Intention 2: Build A Relationship
Having people in your corner is absolutely huge for an entrepreneur. I’ve found over and over again that you’re just one surprising connection away from a YouTube star, Landon Donovan, or a founder who sold a company for $150M.
Investors have these relationships. And they usually want you to get introduced to them through having one, and will guard their Rolodexes for only those they believe will bring value to their network.
Your startup is just your ante to the table. Don’t walk away now that you have arrived!
Intention 3: Exchange Neediness For Belief
Any investor worth their salt is just as anxious to find a great investment as you are to find the money. They’re constantly pitched bad ideas and terrifying investment opportunities. They really are looking for you.
But everyone wants something from them so they have to build up a natural resistance and skepticism. That’s why it feels like they’re more powerful than you,
You are not less powerful than the investor merely because they are flush with cash and you are not.
Believe in yourself. Your customers and team do.
If you believe that YOU have a valuable opportunity for THEM, then you will have at least parity. Before every investor meeting (and high stakes presentation, and musical performance) I have the same ritual: I ask myself what I have to offer and if they want it. The answer is always yes, but I must tap into it again.
And then I’m free to add value instead of perform. I don’t need to “get through” a pitch, because I’m their partner in creating value that they want to create. A tough question isn’t an attack but someone attempting to find the beauty I brought to share and haven’t yet, but am confident will be discovered if given enough time.
So I want to be the kind of person who walks into a room with value. And that’s infinitely credible to investors.