Be Careful Not to Lose Twice

There are times to fight.

No great startup has been built without getting one’s knuckles bloody at times. This is especially true because incumbents now know how much is at stake when they let a startup get a huge head start in a market.

So if you’re in a battle, if you’re right, if you feel confident you can win and importantly if the prize for winning is worth the fight — then go for it. But you should feel confident that all of these conditions are met before fighting and you should try hard to make your fight as unemotional as possible.

There are times to give in and compromise — even when you feel you’re right.

Perhaps the costs of “winning” the battle aren’t worth the consequences. This happens sometimes in lawsuits where as unpleasant as it sometimes is you have to chalk up some situations as “not worth fighting.” I have seen this in cases where a fight would take the CEO’s time & attention away from important business dealings or where the cost of not settling is huge (as in, inability to raise more capital until the dispute is resolved).

It might be that you assess the situation and realize you can’t win if you were to carry on the fight. This sucks because even when you feel “wronged” — there are times where you still aren’t going to win if you engage in battle. I’ve had this at times in dealing with big companies like Facebook and Apple where we realized that going against the machine was going to be counter-productive. It’s a Hobbesian world and the sooner you realize this the better equipped you are to know how you fit into it.

The key in life and business is to know the difference of when to fight and when not to and not to confuse situations due to emotions or self-righteousness.

I like to tell people …

“If somebody has wronged you AND you let it eat you up then YOU LOSE TWICE.”

If you decide that your current situation isn’t worth fighting then I recommend you come to emotional peace with that and move on. When you decide give in, do so graciously. Take the high road. Act and feel zen.

Back when I ran my first company I fought a lot. It seemed the world was always on fire and there was some skirmish to be had. I fought with landlords (when the real estate market crashed), venture debt providers (who wouldn’t take a hair cut when everybody else had to), the board (over compensation), our competitors (over everything) and any service provider who didn’t live up to our perceived contract (recruiters, accountants, sales lead companies, web hosting companies).

The longer I was

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What Media Execs Missed about YouTube Stars

For Father’s Day I was watching the most heartfelt movies I’ve seen in a long time, “Won’t You Be My Neighbor.” It is a movie that will both lift you up with the possibilities of how much of an individual person can have a positive impact on masses of people as well as challenge you about what you’re doing to make the world a slightly better place. It is a movie that will have you laughing raucously and sniffling uncontrollably in joy and sorrow.

I simply can’t imagine any of you NOT watching this wonderful, self-affirming documentary movie about Fred Rogers and if you are able to I recommend you watch while it’s in a theater because the group reactions are cathartic. We clapped as Mr. Rogers testified before congress and used a personal narrative that won over the heart of the most hardened congressman and we laughed out loud at the on-set pranks by hippies to this “square” host and we sat in wonder as we watched footing of Mr. Rogers with Coco the gorilla.

The YouTube embed and this link have a short trailer.

If you don’t know “Mister Rogers Neighborhood” as a show I can tell you that it defined my generation’s childhood as nearly every Gen-Xer grew up on it. Some of my earliest memories of childhood are as a four-year-old sitting in front of the TV with Mr. Rogers talking directly to me. He showed empathy, he assumed I was smart, he talked to me about reading and then we would descend into “the world of make believe” where kings, queens and the scary Lady Elaine. I would race over to my parents or older brother, Ron, when Mr. Rogers put words up and I would shout, “What does that say? What does that SAY!?!”

What I didn’t realize were the broader social issues that Mr. Rogers was helping the nation deal with. In an era when there were national conflicts because segregationists were removing African Americans from swimming pools, Mr. Rogers invited his neighborhood police officer to cool off his feet with him.

Mr. Rogers dealt with assassination (as in Robert Kennedy’s) all the way through Space Shuttle disaster and even 9/11. He talked about anger, divorce, war and the like. Mr. Rogers’ philosophy that if children were hearing it in the home he had to give them the context of what was happening to the scared or angry grownups around them. He didn’t pretend children weren’t aware that adults were unhappy.

Fred Rogers was an ordained minister, an expert on childhood development and a lifelong Republican who fought for funding for public television to reach American children and help them develop alternative narratives to the

Continue reading "What Media Execs Missed about YouTube Stars"

What Media Execs Missed about YouTube Stars

For Father’s Day I was watching the most heartfelt movies I’ve seen in a long time, “Won’t You Be My Neighbor.” It is a movie that will both lift you up with the possibilities of how much of an individual person can have a positive impact on masses of people as well as challenge you about what you’re doing to make the world a slightly better place. It is a movie that will have you laughing raucously and sniffling uncontrollably in joy and sorrow.

I simply can’t imagine any of you NOT watching this wonderful, self-affirming documentary movie about Fred Rogers and if you are able to I recommend you watch while it’s in a theater because the group reactions are cathartic. We clapped as Mr. Rogers testified before congress and used a personal narrative that won over the heart of the most hardened congressman and we laughed out loud at the on-set pranks by hippies to this “square” host and we sat in wonder as we watched footing of Mr. Rogers with Coco the gorilla.

The YouTube embed and this link have a short trailer.

If you don’t know “Mister Rogers Neighborhood” as a show I can tell you that it defined my generation’s childhood as nearly every Gen-Xer grew up on it. Some of my earliest memories of childhood are as a four-year-old sitting in front of the TV with Mr. Rogers talking directly to me. He showed empathy, he assumed I was smart, he talked to me about reading and then we would descend into “the world of make believe” where kings, queens and the scary Lady Elaine. I would race over to my parents or older brother, Ron, when Mr. Rogers put words up and I would shout, “What does that say? What does that SAY!?!”

What I didn’t realize were the broader social issues that Mr. Rogers was helping the nation deal with. In an era when there were national conflicts because segregationists were removing African Americans from swimming pools, Mr. Rogers invited his neighborhood police officer to cool off his feet with him.

Mr. Rogers dealt with assassination (as in Robert Kennedy’s) all the way through Space Shuttle disaster and even 9/11. He talked about anger, divorce, war and the like. Mr. Rogers’ philosophy that if children were hearing it in the home he had to give them the context of what was happening to the scared or angry grownups around them. He didn’t pretend children weren’t aware that adults were unhappy.

Fred Rogers was an ordained minister, an expert on childhood development and a lifelong Republican who fought for funding for public television to reach American children and help them develop alternative narratives to the

Continue reading "What Media Execs Missed about YouTube Stars"

What Should You Send a VC Before Your Meeting?

One of the hardest things to know when you’re new to fund raising is what you’re supposed to send to an investor, when and will they keep your information confidential. As a VC and former entrepreneur let me offer you some advice.

(This is part of a series on how to improve your fund raising game. The first post & the full outline if you click the link.)

The short answer is that you should have multiple versions of your “pitch deck” (a short, visual presentation in Keynote, PPT or similar and shared as a PDF) and each occasion has a specific goal.

Before the Meeting

There is a lot of controversy / angst over whether to send a deck in advance or not. Those who don’t favor sending it would cite two issues:

  1. You lose the ability to control the narrative / inspire verbally because an investor has already read your deck and made decisions without you having the chance to deliver an impassioned plea; and
  2. Your confidential information will get leaked because the VC has your deck and hasn’t shown any commitments to you.

While I understand both arguments, I still believe passionately in sending materials in advance. The key is WHAT you send.

Remember that the goal of an email to a VC or an introduction from a trusted mutual connection is simply to get you the meeting.

The mistake entrepreneurs make is either writing a lengthy email (everybody has too much email so it will get skimmed / not digested) or not having a deck which means the VC can’t quickly determine his or her fit as a potential investor.

So what you need to send is called a “teaser deck,” which you should always have prepared whether you’re fund-raising or not. It should give the reader a way to super quickly and visually scan your materials and understand:

  • who you are
  • what you do
  • why the who & what are truly unique
  • why the market opportunity will be really big
  • what unique, defensible IP have you built / will you build that if you’re right about the market allows you to be a leader in the category

It should be visual. Compelling. Visually stunning (in this day and age this is becoming a sine qua non). You can make it 8–12 pages and the Title Page can say “YourCo Teaser Deck” or “YourCo Company Backgrounder”) so that it’s clear this isn’t your full pitch deck if you want.

You want to send just enough to get the meeting (and of course a great deck sells better than a long email) and not so long that you don’t leave a chance to wow the person in your actual meeting.

But what about the privacy / confidentiality concern? Poppycock. A great

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How to Talk About Valuation When a VC Asks

One of the hardest things about the fund-raising process for entrepreneurs is that you’re trying to raise money from people who have “asymmetric information.” VC firms see thousands of deals and have a refined sense of how the market is valuing deals because they get price signals across all of these deals. As an entrepreneur it can feel as intimidating as going to buy a car where the dealer knows the price of every make & model of a car and you’re guessing at how much to pay.

I thought I’d write a post about how to talk about valuation at a startup and give you some sense of what might be on the mind of the person considering funding you. Of course, unlike cars there is no direct comparison across each startup so these are just some general guidelines to try and even the information field.

What was the post money on your last round (and how much capital have you raised)?

It’s not uncommon for a VC to ask you how much capital you’ve raised and what the post-money valuation was on your last round. I know that some founders feel uncomfortable with this as though they might somehow be sharing something so confidential that it ultimately hurts you. These are straightforward questions, the answers will have no bearing on your ultimate success and if you want to know the truth most VCs have access to databases like Pitchbook that have all of this information anyways.

So why does a VC ask you?

In the first place they’re looking for “fit” with their firm. If you’re talking with a typical Seed/A/B round firm they often have ownership targets in the company in which they invest. Since they have limited capital and limited time availability they often try to make concentrated investments across companies in which they have the highest conviction. If a firm typically invests $5 million in its first check and its target is to own 20% or more that means that most if its deals are in the $15–20 million pre-money range. If you’re raising at $40 million pre then you might be out of their strike zone.

Many VCs will have a distribution curve where they’ll do a small number of early-stage deals (say $1.5–3 million invested at a $6–10m pre-money), a larger number of “down the fairway” deals ($4–5 million at a $15–25 million pre) and a few later-stage deals (say $8–10 million at a $30–40 million pre).Of course there are smaller funds that are more price sensitive and want to invest earlier and later stage funds with more capital to deploy and write larger checks a higher prices so understanding what is that VC’s

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How Much Should You Raise in Your VC Round? And What is a VC Looking at in Your Model?

There’s a quick litmus-test conversation any early-stage VC will have with the founder and it’s one that you should be as prepared for as your elevator pitch. It goes something like this …

VC: “How much money are you raising?”
Founder: “$8–10 million”
VC: “What’s your current burn rate?”
Founder: “$250k / month.”
VC: “So at a constant rate of burn rate you’d be raising enough for 2.5–3 years. Why are you raising so much?”
Founder: “Um. Let me check my plan.”

Usually that’s the point in the meeting where a VC realizes that this meeting isn’t going to go very well.

There are many things a VC is looking for in reviewing your business plan but beyond things the like the quality of revenue, margins, OPEX and CAPEX there’s a really simple rule I call, “Cash In, Cash Out, Milestones Achieved.”

Simply put, a VC wants to evaluate how much cash you’re raising and whether this amount is realistic. He or she wants to know how long the money you will raise will last and whether this is long enough to warrant taking a risk on funding you. Finally, the VC wants to know what your progress will look like at the end of this period to know how easy it will be for you to raise your next round.

If you don’t have a firm grasp of these concepts and how a VC thinks your meeting is dead.

Cash In

Cash in. It’s the amount of money you’re raising. A VC is looking for reasonableness. Are you raising an appropriate amount of capital relative to your progress, relative to your team size and relative to your needs?

Of course the VC is looking to have specificity in how you plan to spend the money you’re going to raise and plans that show a pie chart that says, “25% on marketing, 30% on technology and R&D, 20% on infrastructure, 25% on G&A” do not get funded. Yes, I see plans this pedestrian.

VCs want you to raise the “appropriate” amount of capital, which I would define as what is reasonable given your progress to date, your resources and your needs for an 18–24 month period. VCs tend not to want to fund founders who raise too much money in a given round also because they know that sometimes having too many resources will lead to founders burning through cash too quickly. Conversely many VCs believe that constraining cash can often lead to increases in creative solutions at a startup.

One entrepreneur refrain I sometimes hear is “We want to raise some extra money for M&A activities.” This is a red flag for VCs. A VC wants to know that you have a

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How to Improve Your Odds of Getting to Yes with a VC — “Land and Expand”

If you’ve read any of my ongoing series on fund raising from venture capitalist (episode 1 — controlling your psychology) you no doubt have heard me say that raising capital is a sales & marketing process. You company is the product and you’re selling an equity ownership in your company but much more broadly you’re selling trust & confidence that you’re going to build something enormously valuable and that you’re going to be enjoyable to work hand-in-hand with over the coming decade of each other’s lives.

In order to understand how to “get to yes” with a VC you first need to understand how VC partnerships make decisions and then you can understand how to increase your odds of closing a deal.

VC Partnerships

Start by understanding how many partners are at the firm you are approaching. It’s pretty easy since nearly every VC lists its partners on the website. Some firms are trickier since they artificially call everybody “partner” but they’re not all “investment partners.” It’s super easy to suss all this out. Find a portfolio company or two that they’ve invested in. Find one that’s on the earlier-stage size or one that raised a long time ago and never scaled and get to know the founder & CEO. They can likely give you the entire playbook of the partnership if you build a meaningful relationship with them and they trust you. The key to your “consigliere” is that they can’t be crazy busy because they’re scaling at meteoric rates. You can’t try to meet the executive team at Bird to understand the Upfront Ventures partnership dynamics because they’re too damn busy dealing with explosive growth.

What do you want to know?

  • How many partners are there?
  • Which partners are active and which are less active?
  • Who in the firm has “pull” to get deals done when they want to?
  • Which partners work well with which other partners?
  • Who are the most optimistic partners and who are the most generally skeptical partners?
  • How does the partnership typically make its final investment decisions?

Decision Dynamics

Each firm makes decisions in different ways so understanding the firm’s decision framework matters. Some firms are “consensus driven” and look for unanimity in the decision or near unanimity. Some partnerships are “conviction driven” meaning they’re looking for a super committed partner who will slam his or her proverbial fist on the table to push through a deal. Those partnerships want to know that the “sponsor” of the deal is willing to have his or her head on the chopping block advocating for this deal. In larger partnership you often have “shadow partners” who serve as the role of an advocate (or detractor) to the main sponsoring partner.

In any

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Why Confidence is So Important in Fund Raising

I was recently with an entrepreneur and talking with him about his fund raising process. He was in a later-stage financing round and was talking with many investors. Some started asking him for very specific analyses to be completed on his data and wanted his company to crunch the numbers. I told him he shouldn’t bother and that it was likely a junior person at the firm whose job is was to find holes in the data / narrative.

I told him,

“I know we don’t yet have a term sheet so you feel you need to listen to everybody’s request. But imagine you were expecting two term sheets imminently. How would you act then? If you don’t act like that now then everybody will smell it — even if they don’t acknowledge it to themselves.”

And my specific response that I recommended was to say, “I can send you our standard data pack but honestly I have too many other firms asking for customized data and we simply can’t send each person custom reports. If you’re further along in the process and you have one piece of information you need for a final decision then I’d be very happy to talk with you about it then.”

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Another entrepreneur was recently in my office. She had emailed with a partner at a big VC fund and he had passed the request to a junior associate. That in itself can be fine in some cases but that associate then asked for a phone call instead of an in-person meeting? I recommended that the founder politely cancel the call because we had other great firms actually taking meetings.

“If you’re willing to take a call then you’re signaling that you have no confidence in your process given you already have other in-person meetings. Tell her that you’ll gladly bring the deal back to that firm in the next fund raising round but that you need to prioritize your time for firms where partners have already had in-person meetings.”

This isn’t rude — it’s just respecting your personal time and your fund-raising process as much as you’d respect the VCs time. So she called the associate, cancelled the meeting and the young associate came to visit her office that very day.

Why? How was I sure that would happen?

I told the founder, “No associate in his or her right mind would want to tell a partner that Sequoia funded this deal and the reason we didn’t see it is because I set up a call instead of an in-person meeting.” I knew she’s come see you.

Of course you have to be careful with this. You have to be sure that you’re actually qualified to raise VC, that you CAN get other meetings and you have to be very polite when you state your reasons why their request doesn’t work.

But confidence is CRITICAL in fund raising. Investors are human and humans want what they can’t have and what they perceive other people want. It’s human nature — just read Cialdini and others on this topic. We don’t think we work that way, we do. If you don’t act in demand, people will subconsciously know you’re not in demand.

The same thing happens to VCs. We have consultants who do research for super big funds who invest in VCs and they have checklists they want you to fill out in order for them to do their work. I find it infuriating because it asks such basic questions that they could find out themselves but they want you to do the work. I think it’s a smokescreen. I know bigger firms sometimes hire people just to fill out the data but I mostly refused. I told them, “We’re already over-subscribed in our round. If you want to invest we might make room but we don’t have time to fill out forms for every consultant. If you want to come visit us you’re welcome to.” Of course if they did some initial work and were leaning in to make an investment then we’d spend time helping them. But they had to show they were committed. I was self-confident enough to turn them away if they didn’t do work.

There is a delicate balance between confident and arrogant and of course the former is what you want. You have to realize that every VC has had hot deals come through their offices that they had to chase hard to try and get into because they “knew” everybody else was chasing. VCs will literally drop everything else they’re doing when they’re in that situation. It’s the gold standard you’d love to strive for, but very few deals ever get that “hot.” But if you can bottle up just a little bit of that feeling, if you can channel just an ounce of your best FOMO juice and if you’re willing to accept taking just a few more self-confident risks in your process — it will go a long way.

Want to read more?

This is part of a series I’ve been writing on fund raising. If you’ve enjoyed or learned please email to a friend or share through social. And you can follow me on Twitter or on Snap and receive my newsletter direct to you email box here:

So far I’ve covered:

  1. Why you hear “no” very quickly a fund raising process?
  2. How to plan a fund raise before you even start
  3. The importance of in-person meetings and re-engagement in your process
  4. How to manage your psychology during a difficult raise
  5. How many VCs should you meet? And how do you prioritize your time?
  6. Why it’s better to send a deck rather than a link to investors
  7. Why you shouldn’t send investors all your data too early in the process
  8. Why taking some risks in fund raising and being willing to hear “no” can actually help you get to “yes”

Why Confidence is So Important in Fund Raising was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.

Why Hearing “No” in a Fund-Raising Process is Actually Healthy

Every entrepreneur wants to hear “yes” during the fund-raising process but I would argue that being too risk averse and not pushing hard enough and be willing to hear a “no” is what holds back many people from “yes.”

I believe people generally hate making decisions and especially so when they involve commitments and risks. This is true of any buying process where a customer has to make a large investment decision on your software or when an investor must decide whether to give you $5 million. In the case of the investment they are often also not only committing personal risk of looking bad at their partnership if things don’t go well but also countless hours of board meetings, financial reviews, legal documents across what is often 7–10 years or more.

So it should be no surprise that “yes” doesn’t come easily. But “no” also doesn’t come as easily as most people would like so entrepreneurs get stuck and frustrated by this endless string of “maybes” or non-responses. When somebody has to tell you no, the potential investor must:

  • Feel discomfort of letting you down. Investors are human, after all
  • Come up with a valid reason because they know in communicating with founders if there’s no reason to say “no” you can generate bad will
  • Risk missing out on an inflection point: Investors of course are also concerned about saying “no” too early in the process when they can “hang around the rim” and see what happens?
  • Possibly offend and entrepreneur leading to reputation risk amongst other entrepreneurs. Investors fear that saying “no” to you now will offend you and have them tell other entrepreneurs and/or make it harder that they’ll come back to you in the next round

For these reasons and more fund-raising often leads to a frustrating sense of never really knowing where you stand with most of your prospects and founders often have no plan for how to push prospects along — often out of fear that being too pushy could lead to an earlier “no.” Maybe this is reverse “hanging around the rim” where if you keep you VC process going long enough you’ll eventually get to “yes?”

Of course stringing out the process doesn’t lead to good outcomes. I spend a lot of time coaching entrepreneurs through their fund-raising processes by doing “pipeline reviews” of all of the firms with whom they are speaking. These are similar to the pipeline reviews I used to do with sales reps when I was a CEO. What I’m looking for in the conversation is:

Why you should never have a data room — the most counter-intuitive fund-raising advice you’ll ever…

Why you should never have a data room — the most counter-intuitive fund-raising advice you’ll ever get

I’m about to offer you some fund-raising advice that flies directly in the face of what most conventional wisdom will tell you. If you stick through to the end I’m guessing I can persuade most of you. Let me start out with my premise:

“Data rooms are where fund-raising processes go to die.”

I have to back up and give you more context.

When you raise money from investors you produce information that you are told they want and care about:

  • A fund-raising deck that articulates your company strategy, plans, team, market, competitors and so forth.
  • A detailed financial model that shows your anticipated revenue, costs and profits (Income Statement) as well as your balance sheet and cashflow statements.
  • Your historical trading information including financials and a “customer file” which shows the history of your transactions so that investors can run “cohort” analyses
  • Customer reference, personal references, key team members, compensation, cap table, stock option plan, etc.
  • Or if you’re a VC raising from LPs you have to list all of your deals, your investment value, your carrying value, your multiples, your IRRs, TVPIs, DPIs, etc along with net cashflows plus your previous LPAs.

These collective sets of documents form the basis of what somebody looking at investing would call “financial due diligence.”

Getting the first meeting with a VC isn’t easy because each partner at a VC firm gets so many requests for meetings that he/she couldn’t possibly take them all so they tend to prioritize people that were introduced from high-quality sources. Some people find this elitist — I don’t. If you’ve got the skills to be a strong entrepreneur then it shouldn’t be too difficult to find people who know a partner at a VC firm and if you can build relationship with them you can get introduced. I also like to say that while getting a first meeting isn’t easy, it also isn’t that hard.

Getting follow-on meetings is very hard because if the VC wasn’t totally persuaded in the first pitch meeting they aren’t likely to want to commit more time. So what does a VC do when he or she isn’t ready to say “no” or perhaps might like to talk with you in a year but not now? Often they ask for access to your “data room” so they can do analysis on whether this would be a good investment for them or not.

Most entrepreneurs (and VCs raising from LPs) think this means progress. It doesn’t. The data room is where your process goes to die. What happens is 18–20 firms access the data room and download all of your documents. You feel proud because data rooms

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I Know Everybody Told You to Send Your Fund-Raising Decks as a Link.

I Know Everybody Told You to Send Your Fund-Raising Decks as a Link. Here’s Why You Should Just Send the Deck

I know you have your document sending tool to send your fund-raising deck to VCs and track who read your deck, which pages they read and how much time they spend on each page. I know that you can use an email system with this to track my open rate, whether I forwarded the email, the IP address where I read it, whether I was on a mobile device or a wired computer and you can tell who else read the document. I know all of this because every VC knows this because we’ve all either funded companies that have marketing technology or we’ve seen a pitch with a company that does this.

So while it might seem obvious that you should send it via a link, I’d like to make the counter-argument that it is not an obvious choice. I’ll explain why in this post. First, it’s not the end of the world if you do send links and I feel confident many people will disagree with me but let me at least make the case.

[If you haven’t read the other VC fund-raising posts I’ve done as part of this series you can find the whole outline and this first in the series here.]

Your pitch deck should really be your best marketing tool

Your pitch deck shouldn’t contain your deepest, darkest secrets and plans. That would be something you’d only reveal when you’re well into the VC process and have established mutual trust and they’ve proven engagement with you. Whenever you write your deck and send it out I think you should actually think to yourself, “my competitors are probably going to read this one day and this will be forwarded widely” and if your response isn’t “so what!” or “that would be awesome” then I think you’re doing something wrong anyways.

In a perfect world your deck shows you in such a positive light that the person in the VC firm who receives it forwards it to the rest of his or her team. Your deck should be so good that a VC asks you for permission to show it to his or her portfolio companies. Your deck should be so compelling that the partner at the VC firm you’re talking to reads it multiple times because they keep going back to the thought, “I should really spend more time with this company” and they can’t get it out of their head.

VCs are acutely aware that with a link they’re being tracked so those benefits to you may actually limit consumption.

You’re adding unnecessary “purchase friction”

If your

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How Many Investors Should You Talk to in a VC Fund Raise? And How Do You Prioritize?

This is part of a series of advice for founders who need to raise money from venture capitalists. The first in the series is “Lemons Ripen Early,” which also has a link to other posts.

The most important advice I could give you before you set out in fund raising mode is to understand that fund-raising a sales & marketing process and needs to be managed. Somehow many first-time founders equate “sales” with something that is beneath them. I always tell founders …

“An investors job is to deploy capital and make a return. If you truly believe that you, your company and your products are exceptional and your company will be valuable then you’re actually doing them a FAVOR by helping them invest in your startup. If you don’t believe in your bones that you’re amazing then it’s no wonder you don’t want to sell them on making the investment.”

Like any sale you first need to plan your “prospects” and qualify whether or not they’d be a good fit for your product — an investment in your company. You need to figure out how much time to spend with each prospect and you need to rigorously manage your time and the calendar. This is where most founders err. Most founders prepare a deck, ask a few friends and investors whom to meet, get a few introductions and just wing it. As a result founders often meet the wrong investors, waste time on those who ask for more information.

The typical VC process is as follows:

They say there are three rules in property: Location, location, location. In sales there are also three rules: Qualify, qualify, qualify. Your entire process should be about “testing” whether your prospect has

  • Interest
  • Authority to make a decision
  • Budget
  • Is willing to continue spending actual time with you and analyzing you. You can short-hand this as “engagement.”

If an investor isn’t engaging then they’re not suddenly going to get a term sheet. The surest sign a fund-raising process has stalled is when you aren’t getting follow-up meetings or hearing from the VC or hearing from friends that they got a phone call or email asking about you.

If engagement wanes you either need to move that VC to a lower priority or you need to find ways to improve on any of these dimensions (obviously points 2 & 3 might mean you’re meeting the wrong person in the firm). Moving a VC from an A to a B doesn’t mean they aren’t still your top pick, it just means your chances are less likely and your extremely limited resources should be allocated elsewhere.

In my post “Measure twice, cut once” I’ve outlined how to plan

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Understanding the Herd Mentality of VCs and How not to Let it Psyche You Out

Whether you’re fund raising from angels, seed investors and VCs — as an industry we succumb to “herd mentality.” There are a few exceptions and originally thinkers but it’s maddening how much group think and need for social proof there are. Nobody commits, nobody wants to set a price, nobody wants to stick their neck out then BOOM! Reid Hoffman is in? I’m in for $500k. Wait, make that $1 million. And please reserve another $1 million for me — I just need to call my LPs to see if they want to do it with us.

I hate it. It’s like the entire industry wants to outsource its brain to the smartest person they know and then follow that person. And for a founder it’s maddening because you feel like until you find that anchor you’re spinning plates.

I mention this because it’s critical that you not let the fund raising process psyche you out.

This is part of a series on fund raising and in the first post (also has the full outline and links to other posts), which I titled “Lemons Ripen Early” I warned …

“You might hear 9–10 “no’s” in the early stretches of your fund-raising process. It is CRITICAL that you not let this get inside your head. Just remind yourself of lemons. Sure, you need to learn what the common theme of the no’s are and be willing to make adjustments to your pitch. But if there is nothing wrong with you then please don’t let early rejections alter your course.”

Many entrepreneurs let the early rejections get to them and it’s normal because when you hear “no” you think “what’s wrong with me!?” I remind founders that the no’s come early because it’s super easy to qualify out a deal that you know is unlikely due to stage, focus, geography, competitive deal you’ve done or even just the fact that you’re too busy right now. These are the “lemons that ripen early.” The “sure, let’s continue the process” by definition are not yeses so the no’s rack up and the yeses stay stuck at zero.

While I tell founders not to let the lemons get to them I also have to remind people that

“It only takes one yes to have a successful fund-raising round!”

Founders read the tech press every day filled with stories about these $20 million fund-raisings by this firm and that firm and it sounds like everybody else is doing it except for you. Fund raising seems so easy for everybody else and you’re doing something wrong. What you don’t know is that MANY of these financings have been a months’ long series of no’s, compromises, hard terms, heartaches, arguments, self doubt, followed

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Remind Me Why I Love You? (Why “In Person” is Everything)

You had an amazing meeting with an investor. Your product demo crushed. The dialog was great. They told you how much they loved your space. The meeting was only supposed to last 45 minutes but you ran 90. The assistant tried to end the meeting twice but was shoooshed away.

You race back to the office to tell everybody how well it went and you wait for the follow-up call to have a partners’ meeting or talk about term sheets or at least dip into due diligence. One week. Two weeks. Oh, fork. What do I do now?

This is a very common scenario when entrepreneurs pitch VCs and frankly is a very common scenario when VCs try to raise money from LPs. It’s predictable, there is no reason to get mad about it and with a well-designed play book you can overcome this much of the time.

I call it, “Remind me why I love you again?”

When you pitched me I really did love you. I was amazed at your innovation, approach, cleverness, enthusiasm, leadership traits, background, education, team — everything.

You left the meeting dreaming about money and finally having resources to do all of the things you wanted to do. I left the meeting and had to attend a 3-hour board meeting where two founders have been fighting and each want the other one fired.

After my board meeting I had to do an interview with a CFO candidate that one of my portfolio companies asked me to speak with. I then had to review a nefarious IP lawsuit filed against another company and help the CEO figure out whether we should just pay it or join forces with the other companies named and fight it.

At night I had a group dinner where I met 6 new entrepreneurs and hung out with some old friends from law firms, banks and other VC funds. I raced home to put my kids to bed, say hello to my wife and then spend a grueling administrative hour doing email. I had a nice “thank you” note from you and remembered that I had something exciting to look forward to working on.

But it’s only Tuesday. Sigh. Wednesday I have 4 companies coming in to talk about their companies. Some were interesting, some weren’t. I also had to negotiate a follow-on round at a portfolio company because new investors were trying to force a bit option-pool top-up that would dilute the founders and existing shareholders and existing investors were fighting over prorata rights.

Rinse and repeat for 10 days and I keep reminding myself that I’ve got this to do list of new deals the stack rank and there was that company I had seen and liked

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Planning Your Fund Raising — “Measure Twice, Cut Once”

There is an old management saying, “measure twice, cut once” which refers to the benefit of doing some planning. It’s the antithesis of “ready, fire, aim” which seems to be so prevalent in today’s society. The benefits you will receive from doing even some basic planning before you hit the fund raising trail are enormous.

This post has some basic advice on how to plan your raise before you hit the road. Many points will seem obvious but since I observe many fund-raising processes as a VC I can tell you that most people get even the basics wrong.

1. Create a list

It sounds obvious but the starting point for any fund-raising planning is to create a list of prospects. I know this is CRM 101 but I assure you most startups (and VCs) don’t do this or don’t do it well. Given the limited nature of how many people you’ll approach (ie not that many) I actually just do these in Google Sheets. You can use this just internally for you and the people on your team helping you in the raise or if you have existing investors or advisors you can open it up to share with them. I literally have a Google Sheet for nearly every portfolio company who is in the process of raising a round.

You will find what information you want to track but a starting recommendation that the columns would be a version of:

  • Firm
  • Investor (person)
  • Location
  • Who knows them?
  • Typical check size
  • Status
  • Notes
  • Next Steps

2. Stack rank opportunities

Once you have your spreadsheet you really want to split the rows into a stack-ranked priority list. You can keep this simple as: A, B, C and Passed. As you work deals they might move up or down in the priority list but when you start you should have no more than 8–10 priority A’s (more is unrealistic) and no more than 8–10 priority B’s. This might get slightly longer the more you’re in market but really you should never really have more than 15–20 potential investors you’re actively working on none will get the time / attention / focus they need. C’s can be your “catch all” for others with whom your speaking and if you have a really long list I sometimes do “D’s” which are long shots.

A’s should be the people who would not only make a perfect investor for you but also those that have the highest probability of your closing them. It is not your “wish list” so if you REALLY want Sequoia (for example) as an investor but you know that you’re not really likely a good fit for them then they shouldn’t be on your A list. Essentially A

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Some Advice Before You Hit the Fund Raising Trail

Fund raising.

It definitely has a “d” in it, as in it’s really not fun, raising. But it’s critical for your business, for you as a leader and people who excel at fund raising have an extreme advantage over those who do not. The best entrepreneurs in our industry focus on it year-round as opposed to just once every 18 months.

As a VC with scores of startups in our portfolio we have ringside seats to many, many fund raising processes plus I had to raise money across about 5 different rounds of capital as an entrepreneur so I’ve developed some thought on the process that I hope can be helpful to some of you before you start.

As a VC I also have to fund raise every three years and these posts 100% apply to VCs raising money, too.

Rather than overwhelm you with a super long Suster post I thought I’d break it up into a series of 12 posts but provide the outline Upfront.

1. Lemons ripen early

The hardest thing about fund raising is how dispiriting it can be. The reality is that very early in your process you’ll hear “no” and it can set you back and make you think that nobody sees your vision or values your progress to date.

The trust is that “lemons ripen early” meaning that the easiest thing for an investor to do is say “no” quickly to a deal if he or she doesn’t feel like your business is in her wheelhouse, fit her investment thesis, isn’t the right stage or frankly maybe she’s just too busy with other deal related stuff that she doesn’t have time to evaluate your deal.

So you might hear 9–10 “no’s” in the early stretches of your fund raising process. It is CRITICAL that you not let this get inside your head. Just remind yourself of lemons. Sure, you need to learn what the common theme of the no’s are and be willing to make adjustments to your pitch. But if there is nothing wrong with you then please don’t let early rejections alter your course.

A huge mistake I see is that VC tells an entrepreneur no based on a set of reason that this VC felt weren’t right with the business (market size, traction to date, too many competitors, no big exits in the category or whatever easy excuses VCs have developed to politely say no) and the entrepreneur lets this get inside his or her head.

Let me give you an example. Let’s say you have built a SaaS company where a large part of the early revenue comes from a few big customers or a large part of the revenue is services based vs. software based. It’s important

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What Can You Learn From Ring’s Astounding Success?

Many people will write the history on why Ring became an enormously successful company and why it became a real-world unicorn in a world when many startups are anointed that merely on paper. Since I had a ringside seat to the company before it really existed all the way through the end I thought I’d offer my version and what I think it means for our future.

If you don’t know, Ring offers home security products that started with a video doorbell, then video floodlights, outdoor stickup cams and now in-home security features that innovate in-home security alongside outside protection. It is an LA-based company that was recently acquired by Amazon, which you can read more about in this incredibly well-researched article.

But why did Ring succeed when the entire market kept saying that Nest was going to be the winner? Why did Ring become an enormous success when it produced a hardware product and the market keeps saying, “hardware is too difficult to scale?”

Here are my views …

1. Founder, Founder, Founder

At Upfront we talk regularly about how 70% of our investment decision in Seed and A rounds is the quality of the entrepreneur and 30% is the quality of the idea. Of course we have to believe that there is a viable market, a differentiated product offering and a chance to build something defensible but if you do those basics right you still get crushed without an amazingly talented founder.

The minute your company reaches its peak acceleration in terms of growth is when all of the sleeping giants wake up to compete with you and will spend massive amounts of money to keep you from capturing a growth market and other talented entrepreneurs will raise large amounts of venture capital as people start to see value in the market.

Jamie Siminoff is not only one of the single best true entrepreneurs in Los Angeles, he’s amongst the best we’ve worked with in the country. We first met Jamie when had had a startup called Simulscribe, which transcribed voicemail so you could read your messages rather than listen to them. It was a novel concept well before the major players did this for you. He launched a business called Unsubscribe, which helped consumers deal with the deluge of email lists that one gets signed up to and get rid of them all. Throughout all of this we saw a tinkerer, a problem solver and a completely obsessed leader who was competitive and wanted to win.

When Jamie told us he was going to build “Doorbot” (the name prior to Ring) and he explained to us that it was a video security doorbell sold at mass-market prices to bring security to homes that

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The VC Inclusion Clause #MovingForward

Upfront Ventures has a deep-seated commitment to equality in funding & building diverse teams across all ethnicities, nationalities and genders. We do this not just because it’s the right thing to do but also we believe it will help drive large and differentiated returns.

In 2017 we began inserting an “Inclusion Clause” into our term sheets because we believe that the culture one establishes at the earliest stages of one’s business will set out the course of how it will grow and develop. We believe that diverse teams produce diversity of thought and that this leads to better decisions and outcomes.

We have decided to “open source” our language in the hopes that other VCs will use this clause and/or improve upon it so that as an industry we can proactively drive the change we want to see rather than just hoping it will happen.

If your firm is willing to commit to this or any similar “inclusion rule” we hope that you will consider linking to it from your firm’s home URL as a sign of industry solidarity in the hope that others will follow suit. Ours is: upfront.com/inclusion. If you’re an entrepreneur who would like to see this clause in more startups please ask your VC to include it in future term sheets and link to it from their home page.

“We strive to invest in companies that are consciously working to create a diverse leadership team — one that’s inclusive across gender, ethnicity, age and national origins. While we would never impose hiring decisions, we aim to reduce the potential impact of unconscious bias for key C-Level and senior roles within a Company. We therefore ask that each portfolio company include an “inclusion rule” in its HR policies so that at least one woman and/or member of a population currently underrepresented within the company shall be formally interviewed for any open executive position.”

For what it’s worth we also have our “Zero Tolerance” sexual misconduct policy, which you can read here: upfront.com/zero-tolerance. Feel free to copy or edit this, too.

Why did Upfront decide to create an inclusion clause?

We inserted the Inclusion Clause because in the midst of the #MeToo and #TimesUp movements we wanted to take some action. We thought making our values and expectations clear could have a positive impact on driving the conversation and actions inside portfolio companies. We can unequivocally say this has started to work in the companies that we have funded since this clause was inserted.

The idea came from a full-day session we held last year at Upfront. The first session we had was a company training session in sexual harassment and misconduct in which we had an outside speaker talk

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“Visibility” — A Powerful Lesson on DACA and The American Dream from @LeonKrauze

León Krauze from Univisión gave an impassioned keynote presentation at The Upfront Summit on the topic of “invisibility” of immigrant workers in our society. It moved people to tears, was widely Tweeted and several people asked me to share this video.

Invisibility.

The millions of immigrant workers who silently wash dishes in restaurants, are prep cooks, pick the agriculture that feeds us, build our houses, clean our houses, watch our kids and do our gardening are vilified as criminals by those currently in power to exploit the fears of working-class white, non-Hispanic, Americans.

Invisibility.

Our system works on under-the-table payments of below-market wages for jobs that our non-Hispanic citizens don’t want to do and in a country where our unemployment rate is already so low that some economists are warning about inflation due to full employment. We know the immigrants are there. As a society we’re happy for the cheap labor and hard work yet they’re the first people vilified when a scapegoat is needed.

Invisibility.

As a Jewish person I know something about this scapegoating because it is the history of my people for 2,000+ years including the Pogroms in Eastern Europe that cause my family to escape using fake passports and wind up in South America (Colombia) in search of a better life. So the current race-baiting by this administration hits me directly on both fronts. It is not sufficient for well-meaning people in the administration to stand by and allow racism to emanate from the White House in the name of getting tax cuts or lower regulations.

We have an obligation to speak up or eventually they will come for you.

Or as León said in his speech embedded below:

“Invisibility of the powerless leads to their suffering, prosecution and sometimes outcomes far more tragic
The Holocaust [was] in part was due to the tragedy of evil left unspoken for far too long.”

I’m tired of hearing people on social media speak of “virtue signaling,” a term meant to silence well-meaning people from speaking the truth about injustices done to immigrants, African Americans, the LGBTQ community or speaking up on gender inequality. Speaking up is an obligation in a democracy and of course it’s the powerful who have the loudest voice TO speak up.

It is the duty of the visible to fight invisibility.

León spoke eloquently about the efforts to make the invisible, visible.

He told the story of the young artist, Ramiro Gomez who was born in San Bernardino, near Los Angeles. His parents worked all day so he grew up with his grandmother who taught him the value of an education. He went to college to study art and design. But 10 years ago with the financial crisis he could no longer afford to study. He started living out of his car — too ashamed to tell his grandmother he couldn’t afford college. He eventually decided to become a nanny in an affluent home in LA to afford his education. He became friendly with the gardeners, cleaners, construction workers and even a butler. They all shared the same story — they felt “invisible.”

Ramiro started creating public art depicting images of the invisible in beautiful settings as a reminder of the contributions they make to our society.

He looked at Architectural Digest, Interior Design, Vogue, etc. and realized that Latinos had been deleted from the scenes where they usually were to show the after effects of their work. He decided to recreate the scenes from these beautiful design photos and he added back the immigrant Latinos who are so responsible for the privileged lives we lead. He painted in cleaners and gardeners and nannies.

Ramiro was demanding one thing — “visibility.”

So, too, does León Krauze with his work. León is a journalist with Univision and works hard to tell the stories of the unglamorous. He wants the country to be aware that the overwhelming majority of Latinos are hard-working individuals who contribute to society and in fact have lower crime rates than their non-Latino American counterparts.

Krauze said during his speech at the Upfront Summit …

“The Washington Post rightly says that “Democracy Dies in Darkness” but darkness, silence and invisibility have proven to be fertile soil for prejudice, racism and nativism.”

He told the story about a project he did for Univision that he started 5 years ago called “La Mesa” (the table) in which he sets up a plastic table and plastic chairs in a random immigrant neighborhood and he invites young people to come and tell their stories. He wants to celebrate the struggles and successes of the invisible people of America.

He told the story of three such people at our event that he called, “Three American Women.”

Each of their parents came to the United States in search of a life. They brought children and demanded one thing — education: bi-cultural, bi-national and bi-lingual. Each of the immigrants came to the United States the give their children and families a better life and they contribute humbly to our society, making it a vibrant growth engine.

If you want to understand the critical importance of demographics and immigration read the seminal book, “The Accidental Superpower.

Cristina. From Los Angeles. Her family was from Jalisco and came to the US just to survive. Her parents grew up in poverty, working the fields.

Her parents left everything behind not to live a better life, but merely to “live a life.” They began right at the bottom. Cristina realized just how far her family had come in just one generation. She was recently graduated from Cal State, Los Angeles and works at USC.

Jessica is also from Los Angeles. She was born the daughter of a carpenter from Michiocán, Mexico.

They faced a stark choice — stay and deal with the growing threat of drug violence — or move north to build a life. Her father was deported when Jessica was a child so she had to begin working. She applied for DACA and it changed her life. She arrived in America when she was 3.

Susana also grew up in Los Angeles. She was born in Irapuato, in central Mexico. Her father grew up selling candy in the streets of nearby Leon, Guanajato and her mother worked at a factory.

They decided to emigrate in search of a better life. They arrived in the US when Susana was 6 months old. DACA allowed Susana to gain entrance into Cal State, Los Angeles. She was graduated in 2017 — the first in her family to do so. Her father, just three decades before, was selling packets of gum in the streets of Guanajuato and how had a daughter who was educated in high education and ready to build a productive, American future. She now works as a nursing assistant.

No summary of León’s speech can do it justice so please do yourself a favor and watch it. It was widely discussed at the Upfront Summit for a reason. I promise you won’t regret it.

A special shout out to my pal, Mauricio Mota, on the left below who is also an immigrant from Brazil. He is the co-founder of Wise Entertainment and co-producer of East Los High, a widely popular Hulu show that depicts many stories of young American Latinos. He suggested León to me because they were both speakers at the commencement speech at the USC Annenberg School of Journalism. You certainly didn’t disappoint!

León Krauze (right) and Mauricio Mota (co executive producer for East Los High) at the Upfront Summit

“Visibility” — A Powerful Lesson on DACA and The American Dream from @LeonKrauze was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.

How to Succeed as an eCommerce Brand in an Era of Dominant Retailers?

There has always been tension between CPG (consumer packaged goods) companies and the retailers who sell their products to consumers. If a consumer will pay a fixed price for a product or service then the battle over who gets the margin in any sale is between the person who merchandises a product and the person who manufactures it.

This is an age-old marketplace tension where leverage often determines the value captured. This is true whether it’s physical products or media products. Think about the tension between media companies and cable operators like last year when Viacom threatened to pull Nickelodeon, Comedy Central, MTV, BET, etc. from Charter’s subscribers. This has obviously occurred in battles with tech platforms like Yelp vs. Google or Zynga vs. Facebook).

As always this battle is settled by the degree to which a consumer has a strong preference for a company’s product vs the substitute products it may choose instead. Many of us learned about substitute products in undergrad economics courses. If a perfect substitute can be launched for a product you often see the retailer create a white-labeled version because it then captures all of the margin.

When a product is truly unique and demanded a retailer willingly promotes and sells it en masse in part because it does get margin on the good but also because it brings customers in the door who spend on other products. If the retailer can get the product “exclusively” (even for just a time window) then it hopes to get more customers shopping at its store or watching its video channel vs. its competitors. As a product or service you can often trade short exclusivity periods for the retailer’s willingness to spend marketing dollars promoting your product or give you better merchandising in the physical or virtual store.

So Why Does This Matter?

If you create a truly unique product that is defensible and doesn’t have easy substitutes you have the ability to win deeply loyal customers and grow large and profitable. If your product can easily be copied, as soon as you are successful it will be.

In an era where Amazon has become so dominant in the retailing and delivery of physical and digital content are there strategies that can succeed?

Here are some ideas of what I believe matters.

Brand

Brand seems like one of these nebulous concepts to most people. What is it, really? Of course branding is many things and this post doesn’t attempt a master class. But if we can agree that it includes: