Fundraising as a sales process - how long should the preparation take, by Nathan Beckord.

Alright, this is Fundraising Radio and today as a guest speaker we have Nathan backerd Co-founder and CEO at foundersuite - the software that helps founders raise money for their startups. And Lisa will talk about multiple topics.

The first part is going to be the fundraising for Foundry itself. Then, we'll discuss the major tax tactics on getting the round closed.

And then we'll talk about some statistics that Nathan observed while, working at founder suit. And by the way, there's going to be Conseco episodes, educational episode where Nathan is going to talk about founders huge itself.

How you should use it, who should use it and best strategies of using it. So, Nathan, I'll let's begin by giving us some background on yourself and on Foundry. Sure. Thanks. So much for having me first off.

So, I, I'm forty eight years and my whole career since getting up college at age, whatever twenty two has.

And nothing, but raising capital I've kinda, I call it one trick pony. If I ever get fired or fetters fails or something, I have no other skills to bring to the world.

But so, my whole Gary well, you know, it's it's specialists. Whether that's good or bad. But, you know, I have, I think learned a few things along the way, which we're gonna talk about today. But the short version goes like this.

I went to work in investment banking, a little bit out of college, and I was working in the dot com bubble, which you probably don't remember, but it was crazy times of, you know, cut tech companies, going public, really early. And then I spent a little time at J.

P,
Morgan in New York,
which was helping,
do private placements,
which is basically helping companies raise B and C and mezzanine around kind of later stage and then, and then came back out to Bay area and hung out a shingle called venture archetypes,
which was basically doing taking that same sort of work and helping companies raised money,

but a much earlier stage.

So more like the C Series a stage, we get companies in the door.

Coach them, get their pitch ready, get their financial model ready, put together a target list of investors, and then kind of coach them as we go around to Sand Hill road and talk to and then just to connect it to the president.

We had this idea somewhere along the way when Mark Andreessen came out with his software is eating the world statement and like, you know that's true. Let's let's build some software for this process. That really wasn't.

We're using spreadsheets to kind of manage a fundraising process, which is okay, but if you have. Two hundred investor targets it's hard to manage that all in the spreadsheet.

So, you know, we, we launched founders tweeted about five years ago now, and then raise our own seed round, put our, put our tactics to work and then launched our or investor in two thousand.

And sixteen, and then we've just been steadily adding products to the suite ever since then.

That's awesome. So, let's first talk about how you read my for a tool that helps people for my how do you approach that?

Well, yeah, it was, it was interesting because, you know, I actually, I should back up a, but I had actually the original vision left something out the original vision is better.

Sweet was like, a full set of tools for startups. Our vision is like, let's build all kinds of things and kind of our very first MVP was like, five different products.

It was like an idea validation tool, an investor tool like a media PR tracking tool a competitor. We had all these different tools in there and I'm taking that around.

I actually tried to raise money kind of twice for that. It wasn't really clicking and a lot of people said, oh, you know, you're selling the startups. It's such a niche space.

And so I kinda retrenched a little bit and then the third try, you know, we saw traction happening with our investor.

So, it kinda came back at it, a third try and really focused on the fundraising side of things, which still a lot of people thought was kind of a niche, you know, get a lot of rejections. Because they said us is to to niche for us.

But when you finally got it done, it took actually a little longer than expected about five months.

And, you know, happy to go into specific kind of tactics and details, but that was that was in two thousand fifteen. The Pro will not go very deep into the tactics itself and your process.

But maybe we'll come back to that later, but for now, I was curious about this thing that I hear a lot myself and it's the momentum that you need to get for the deal. It's something that I can choose. A lot of people it confused me back in the days.

Can you explain what does that mean to get the momentum while you're fundraising and what what does it mean? Yeah, it's it's a great question. I say this.

A couple times a week, at least,

to our our customers fundraising is driven is a direct correlation between your success and probability to raising capital and the momentum you're able to get for your deal and what it means is,

you know, deals either.

It's sort of binary deals, either heat up and get momentum or they get stale. Right? And sort of sort of this when you go out to fundraise, you have like, a time, a window of time and it's your job really?

As a CEO to either get momentum going for your deal, and if you don't, the deal's gonna get stale and everyone's gonna pass and you're, you're not gonna walk away with the check.

What momentum means is that you have multiple investors interested and interested can mean different things as we progress along the fundraising spectrum in the early days. It means you're getting a lot of meetings. Right?

You've I always tell founders, like, every, every investor. Your meat's gonna ask you so How's How's your round coming together? And that's their way of probing does this deal have momentum or not?

And you want to be able to answer that in the early days by saying it's coming together pretty, pretty good. You know, we've got twelve meetings set up this week. I've got fourteen pitch meetings next week. We're running a pretty efficient process.

We've got about a hundred investors in our funnel using founders. We'd of course, and. That signal to investors that okay,
other people are interested,
they're taking means with this,

this entrepreneur,

I should pay attention and then,

you know,

as you kind of progress those meetings as signals of momentum change to things,

like,

you know,

we're in due diligence with with eight investors expecting term sheets from three of them by the end of the week right?

The signals of what momentum means kinda change and evolve as you go along, you know, obviously later on it's term sheets and actual, you know, negotiations. But that's what momentum means. It means.

People are pursuing in the ultimate definition. It means investors are pursuing you right it flips around where investors are actually chasing your deal. Right right. That's true.

So another question after I explained what momentum is to the people who asked me that question the next question immediately is how do I get this momentum? So how do I get this, you know, twelve for you means per week yeah.

So, you know, another thing you'll hear me, say, frequently to entrepreneurs is, you have to think of it, like a sales process, you fundraising is a sales process, and you think of it like a funnel.

It's a funnel where it's really a numbers game in many cases. Not every case, but in many cases is a numbers game where you need a healthy.

You know, initial target list, right because if you have say, the, it seems like a funnel right? Maybe a hundred prospects top of the funnel. Maybe eighty of those lead to a pitch meeting or call.

Maybe, you know, sixty, fifty of those lead to, like, a second meeting and, you know, so, and so forth. So how do you get it? Step?

One is you build a really good target list of investors, and you spend the time researching the investors identifying and kind of creating a shortlist of people and firms that invest in your type.

So, and that are actively investing, right?

And that takes time to research that and then step two is getting those introductions to those investors all in a fairly condensed timeframe, compressing the timeframe around the fundraising helps create momentum.

It's almost like the analogy of a combustion motor, you're compressing the air and gasoline mixture and that helps create explosive energy. I don't know if that metaphor made sense, but no, yeah.

Zero sense but it's okay. Is alright so.

I'm trying to to there was a follow up question. I had.

What was that? Which I forgot.

That was right how do you identify? So I'll cut that part out by the way I'll make sure to cut that part out. So how do you actual identify if the investor is actually investing?

So,
specifically,
now,
your a lot of investors say business as usual, you know,
we're still active and blah,

blah,

blah but in fact,

most of those people do not do business as usual,

and they're heavily focused on their portfolio companies instead of infusing more capital into new investments,

how can you identify who is actually doing active investment? Who is not.

If there's no easy way to do that, I mean, you're exactly right. Almost every investor is saying they're doing new deals are looking at new deals.

Of course, they're going to say that, because if they said they're not the net puts them out of business, at least temporarily. Right that kinda shuts the course of their business. If they say they're not doing deals. So, obviously looking to actions versus words. I mean, if.

If if you're reading, you know, I always talk about there's half a dozen email services. You can scribe to strictly BC and PE, hub, and some of these newsletters that you can get for free.

If you're seeing that this investor is doing deals. That's a good sign. They're doing deals, right? Because they've announced a new deal, you know, other than that, it's kinda hard to really identify who's active. Who's not.

And so I, I don't I don't think you need to overthink it.

You might be reaching out to investors and and maybe they'll take a meeting,

like,

it doesn't really hurt to reach out to them and start talking to them and actually asked that question once you've had a chance to connect and maybe give your pitch or resume like.

Hey, you know, just wanna kinda, kinda touch base with you. Like, are you actively investing? What's the timeline for a deal? Like ours?

Actually having a couple of probing questions at the end of your initial pitch meeting, I think is the best way.

Right, right and can you repeat those two publications that you mentioned the yeah, there's a bunch there's one that I like, is called strictly VC is another called Venture wire.

Let's see. I think venture pulse actually, venture pulses. Another good one. I read that pretty regularly P.

hub is going to be a little bit more later stage stuff, private equity and Dan Primax has a a journal. I think he was.

I don't remember either editor with fortune or Forbes, but he's got one D*** premise strictly. We see. That's the one I remember. So, we'll keep it strictly VC, check it out.

But another question that I want to ask you is the research and the investors. So you have to spend some time doing homework, checking out what the investors invested in to make. Sure. There is a good fit.

You have to check maybe they have actual participate on some projects and leasing it to those things. So, what's your what's your recommendation on the average time that you should spend per investors? So it's a twenty minute that you should spend researching the investor.

If you think there's a fit, or is it, like, now where was the timeline? The, this is sort of an unscientific study, but it's just from my own experience.

The average time is roughly twenty to thirty minutes of research.

So, if you for example, ran a search in founder, sweet or current space, or pitch book or some service, and identified, you know, twenty investors, for example, that are in doing deals in your space.

You know, it takes around twenty to thirty minutes to Co, in look at click through their LinkedIn profile kind of read up on them. Click through their, their website.

If they're a venture fund, look at their portfolio companies, and just be reading about the firm. Right? And kind of understand, like, usually, the website will give some of those clues.

Like they say, we invest in Pacific Northwest, early stage, medical devices companies right? They're usually pretty specific like they're seeking and then looking at their portfolio companies as well.

And so that whole process, you know,

twenty,

to thirty minutes to kind of qualify each investor,

but if they look good,

then you add them to your target list and so you can kinda do that math if you're looking to build a list of two hundred investors right,

I mean,

that's roughly a hundred hours of research that needs to go in and people sometimes shocked by that and they're not really oh,

I thought,
I just ran through a few clicks on base and I'm ready to go raise money like that really? The more time you spend.

Researching and qualifying and identifying really highly focused list the more momentum you're gonna get when you actually start talking to these people. Right? There's another direct correlation between those two. Right right, right.

That's that's a good advice.

I mean, it's really hard to force yourself to really spend so much time on one vendor because, you know, that there is a high chance that they're gonna say no, they're probably not even see your email or not gonna respond to your email and it hurts. But you'll have to do that.

So, now I would actually add one more part to that, too. Sure. There are two advantages though. One is if you spend the time doing that research, you're going to eliminate firms or individuals that don't do your type of deal. Right?

Whether it's not your industry, your stage, whatever the reason is and removing those from your target list is good. That way. You're not spending time.

Chasing these unqualified investors, right? You can waste a ton of time doing that.

And then, the other thing is, you do that research when you actually start messaging or get an introduction, or however, you reach out to the investors you can now kind of very customized and personalized that discussion with them. Right? You can say, I've been reading your blog.

You've got some really good stuff. I see. You invested in these three companies. Those are right in our sweet spot, you know, I mean, so you can customize your outage, which really goes a long way because again, you're selling.

You're essentially doing sales and, you know, think about when you've got a cold email, that's clearly been personalized and customized versus one. That's just a generic one. It's a big difference. That's true. That's true. And that it's really worth the time.

So, in the introduction to this episode, I mentioned that we're going to talk about the different tactics that you should use to close your round Kenyan name, selling those tactics. Yeah.

So, you know, again, let's assume you've been doing what we've already talked about and you've been getting momentum going if you have.

Momentum for your deal and it's one of these sort of, you you'll know it, you'll, you'll know it when you see it, you'll feel it you know, it's there's not always like a quantitative way to say we've got momentum or not.

You sort of know it because investors are responding to your quickly. They're even, like, calling you and kinda chasing you like I mentioned, right?

When you've got momentum going, then you have a lot of the leverage and power to really try and close the deal. So, how do you do that?

One thing is, you know, is actually starting to put some dates around things like, alright, guys, we, you know, we're in diligence or ten firms expecting for term sheets. By the end of the week.

We're looking to close this round by August fourth. That's kind of a weird time. Cause a lot of go on vacation. For example, we're looking to close this around by August, fourth.

We're looking to finalize, get through all due diligence responses by July fifteen.

Th, so and so forth and, you know, and final finalize, like any term sheets and offers negotiations by whatever, July, twenty, six with the wires to come August, fourth and so, you kinda lay. And this is just a rough example.

But you lay out a timeline of what investors need to meet and if they're not kind of marching to your, your drumbeat.

Right. That's probably a good signal. They're not super interested. If investors are really fired up about what you're doing, though. Actually trying.

Move up that timeline and jump in kind of ahead of the queue. Right I mean, I've seen that happen to, like, they'll drive up on a weekend to meet with you and try and kinda scoop the deal so to speak.

But that's one tactic to closing. If you're talking to angels.

It another tactic that's maybe specific to angels is you collect conditional commitments from everyone like everyone you're talking to.

So you're talking to fifty angels you talk to everyone and you said, you know, how much what can I check with you right? What size check with you? Right? What kind of conditions would you need to see in place?

And they say, oh, I'd be in for fifty, fifty grand, and I'd like to see a lead investor whatever you collect all these conditional commitments until you're twenty to thirty percent oversubscribed.

So, if you're raising a million dollar around, you kinda collect all these soft commitments until you're at one point three million, right? And then you go back to everyone say, you know, this is this has been interesting. We're actually oversubscribed.

I'm gonna try and make room for you in this deal, but here's the timeline. Here's how it's going to work. Right? So, you again, kind of take control over the process.

That's actually really good advice so after giving this good advice, I want you to get some better advice and that's better advice gonna be about what not to do.

And so what to do, so you've seen a lot of fundraising campaigns, would you think are the major mistakes that founders to while they're fundraising?

In some ways, it's the opposite of what it just described. Right? People will spray and pray. I get these emails all the time. That's, it's a cold email clearly done using MailChimp or whatever. Guess what?

We're this this bio sensor something or other is racing around and, you know, click here to avoid. It's just like, you don't even read the first line.

I mean, if he's got a really clever subject line, maybe I'll read, like, the first paragraph, but just get instantly deleted. Right? So, spray and pray unfocused kind of email blast. Really don't work.

I'm always trying to tell our customers on February to to not do that. Because for better for worse, we do make it easy to, like, build a list of target investors. And then there's some email. Like, you can send out a pitch deck to those.

I have to try and throttle people back to don't do that, you know, trying to get an intro for that first one. I guess that's another thing, right?

Like, not taking the time to try and get an intro if you can, you know, doing the research on LinkedIn to see if you have a mutual connection.

If you don't maybe reaching out to a portfolio company, founder or two, and trying to kinda network away into an introduction that will go along the way.

So, I guess the mistake would be doing a lot of cold email, relying a lot of coding. Another mistake.

Is kind of again related to that momentum where founders, I hear this excuse all the time. Like, I'm already so busy with the business. I, I don't have time for fundraising, so.

They spend two hours a week on it, you know, and it never gets momentum. They kind of part time. It and it gets stale. Right?

If another best practices, if you can this is almost impossible.

But if if you can give some of your duties to a Co, founder, I've even seen starts, like, hire a part time C O, to, like, take over all the operational stuff that you currently have.

So that you can focus on fundraising, you know, almost full time. That goes a long way. So I guess the mistake there is like, part timing it, letting the deal drag on get stale, never get momentum.

You know, I guess one one or two more being obsessed about listen. Fundraising is like a marriage. You probably heard this. You're gonna be partnered up with these investors for many years.

If you're a difficult to person to work with, in the dating phase, which is the fundraising stuff. Like, you're gonna be a difficult person in the marriage.

Hey, so, you know, obviously you want to get good terms and negotiating a deal and stuff like that. But like, you're also interacting with people that you're gonna be involved with for, for many years.

So, kind of, I guess the mistake is coming in, you know, acting like a a tough guy or something, and that you're gonna be the shortcut.

Negotiates the best deal. No, it's really more of a partnership. So you, you know, I wouldn't take that approach. I could probably go on and on but yeah, that's we're coming up to.

The conclusion of the day's episode is gonna be the last question for for this, which is a call to action. What's that? One thing that one seems to as soon as the episode is over.

Yeah, okay so we didn't talk about this so much.

One thing that I tell founders to do a lot, it's a great funding hack and that is to basically start fundraising before your fundraising. And what that means is.

Do the research now let's say you wanna raise money in October or this fall, right?

Do the research now building that list of, say two hundred really good prospects, and then reach out to each of those in a one by one email, personalized email like.

Hey, because I see you invest in this space here in the fashion E, commerce space. I've got a startup. I'm building the space.

We're not raising money right now, we hope to be in Q, four of this year, but I'd love to add you. We do a company update once a month. It's one page. Very lightweight.

I'd love to add you to my distribution list and give you just a sneak peak of what we're working on and, you know, many investors, because they're driven by fear of missing out. Sure. No problem.

And so you start to build this distribution list of a couple hundred investors, and then you send a regular monthly update talking about your your companies progress key wins. If you have some metrics include those.

So, they can see how your metrics are kind of shape, taking shape overtime and, and also just talking about what you're going to be executing on the next month. And then the next month they see that you achieve certain goals.

And so you're your initiating, a nurturing these relationships and building the relationship basically several months in advance of seven months in advance of October or whatever when you send.

Is our deck can we set up a pitch call? So they've got this whole seven months of, of of progress that they've watched unfold before the fundraise before you switch in the fundraising mode. It's a great hack. It takes advanced planning.

It takes work. But if you do that, your fundraising can go really, really, really fast, you can condense your actual fundraising timeframe from six to eight months to two months if you do that upfront work.

But that upfront really requires a lot a lot of times. I don't think that you can to actually, like, two months. It's still going to be a long process. So great for us and we're respond to that really quick.

You go for the, the research part the time it takes to do the research you're going to have to do either way, whether you do it now or six months from now, you have to do that and the company update part. Actually that's fifteen. Twenty minutes once a month.

That's not a big deal. So it's like your kinda time shifting that that research, whether you do it now or later, but, you know, shifting. It sooner can really pay dividends for you. That is true. And that's raised by.

So start doing that, you know.

Sales funnel basically for your fundraising purpose and keep those investors updated. So we'll wrap it up here. Thanks a lot Nathan for coming up and for sharing your knowledge in this field. That was great. Episode of specific, very on point advice.

So thanks a lot for that. And by the way people, we're gonna record the second interview with Nathan right now and I'll publish it right now. Right after this episodes, it's going to be educational episodes. So we'll talk about Foundry suit and how you can use it.

So, once you're done, listen to this, my call to action is go and listen to the nice one. Great.