Ask HN: How do I deal with the stress of fundraising?
13 comments
Perhaps a good mental model comes from sales. Treat it as a sales funnel. Leads, qualified leads, meetings booked, follow up meetings (serious), term sheet. Or whatever. It's a numbers game, pure and simple. 500 leads (look up lots of VCs and see if they have invested in anything similar) leads to 80 qualified leads, leads to 50 calls, leads to 10 follow up calls, etc. If you think about it this way, every "rejection" is just a person in your funnel, and your funnel shows lots of people will fall out. Who gives a shit, just keep going.
Obviously it isn't the exact same thing as doing sales, but, who cares? Sales folks have been dealing with rejection since the beginning of time, and from the folks I know in sales, when they have prospects (ie people in the funnel) and they can just keep moving them along, they seem to be ok psychologically.
Obviously it isn't the exact same thing as doing sales, but, who cares? Sales folks have been dealing with rejection since the beginning of time, and from the folks I know in sales, when they have prospects (ie people in the funnel) and they can just keep moving them along, they seem to be ok psychologically.
Yes, fundraising is a sales process.
The key thing about sales is that it's about what the customer wants, not you. In addition, most investment pitches result in "no", so you need to get out of that expectation-path as quickly as possible. (Most pitch templates that you see on the web get one or both of these wrong.)
"Qualified leads" mentioned above is very important. "qualified" is far more than "I think that they have money". It's "they're investing money in companies like mine RIGHT NOW." (VC funds do all of the new-to-the-fund investments during the first 1-3 years of the fund. During the next 7+ years, they just make follow-on investments in the winners. If a VC firm has $400M and four partners, they don't have the time to do $100k investments. The investors that you want don't invest in competitors. And so on.)
The other thing is that you have to sell what they're buying, which is an investment with the kind of return that the investor is looking for.
"Investment" trips up a lot of people. A good product is not enough; there are lots of good products in bad businesses. A good business is not enough - there are many great businesses that are not venture-investable. (Amazon, Apple, and Google stopped being venture-investable long before they stopped being great businesses.) There are even great investments where the current product is pretty bad.
The "kind of return" is important. Venture investors are NOT interested in "100% chance of 3-5x in three years". (That might work for private-equity firms.)
Early stage VC firms want each investment to have "return the fund" potential. (Yes, the $400M fund mentioned above is looking for companies where their 20-25% for $4M can return $400M.) They're willing to accept "70% will return 0, 15% will break even, 10% will return <10x" risk to get that upside potential. Some angels have a different risk profile, but if you'll need VC investment later on, they'll use the VC criteria.
You also need to understand how the person you're pitching makes money. VCs and angel groups need exits within a reasonable period of time. (LPs insist on exits and someone in every angel group does as well.) Some individual angels don't.
Do not take "how to pitch" advice from people who haven't either raised money or made a reasonable number of investments. In fact, the latter are often a bit wrong about what gets them to invest.
BTW - Don't ask someone who says "no" for an introduction. The first question the introducee will ask is "did you invest?" (The exception is when Marc Andreessen calls a friend with a small fund and says "I can't do deals this small.")
The key thing about sales is that it's about what the customer wants, not you. In addition, most investment pitches result in "no", so you need to get out of that expectation-path as quickly as possible. (Most pitch templates that you see on the web get one or both of these wrong.)
"Qualified leads" mentioned above is very important. "qualified" is far more than "I think that they have money". It's "they're investing money in companies like mine RIGHT NOW." (VC funds do all of the new-to-the-fund investments during the first 1-3 years of the fund. During the next 7+ years, they just make follow-on investments in the winners. If a VC firm has $400M and four partners, they don't have the time to do $100k investments. The investors that you want don't invest in competitors. And so on.)
The other thing is that you have to sell what they're buying, which is an investment with the kind of return that the investor is looking for.
"Investment" trips up a lot of people. A good product is not enough; there are lots of good products in bad businesses. A good business is not enough - there are many great businesses that are not venture-investable. (Amazon, Apple, and Google stopped being venture-investable long before they stopped being great businesses.) There are even great investments where the current product is pretty bad.
The "kind of return" is important. Venture investors are NOT interested in "100% chance of 3-5x in three years". (That might work for private-equity firms.)
Early stage VC firms want each investment to have "return the fund" potential. (Yes, the $400M fund mentioned above is looking for companies where their 20-25% for $4M can return $400M.) They're willing to accept "70% will return 0, 15% will break even, 10% will return <10x" risk to get that upside potential. Some angels have a different risk profile, but if you'll need VC investment later on, they'll use the VC criteria.
You also need to understand how the person you're pitching makes money. VCs and angel groups need exits within a reasonable period of time. (LPs insist on exits and someone in every angel group does as well.) Some individual angels don't.
Do not take "how to pitch" advice from people who haven't either raised money or made a reasonable number of investments. In fact, the latter are often a bit wrong about what gets them to invest.
BTW - Don't ask someone who says "no" for an introduction. The first question the introducee will ask is "did you invest?" (The exception is when Marc Andreessen calls a friend with a small fund and says "I can't do deals this small.")
If you don't mind my asking, what is involved? I'm curious if you're open to sharing what's involved with fund raising.
As a naive person who has at best a "well, this is what I'd try..." point of view... Just shhot straight, don't bullshit, get down to brass tacks. They have money to park somewhere that will make a return, you've got their ear for a bit, try to line up their desires with your instrumentality, and as long as you give it your all, even if you end up empty handed, they just weren't the one. Don't take it personally.
Also, learn your cofounder's comfort zone. There is nothing more energizing than an introvert in their groove. If you can find a way to work that in just right, the two of you can play off one another to keep the energy and confidence up.
Do not sell what you don't intend to make good on. Horrible things lurk that route.
As a naive person who has at best a "well, this is what I'd try..." point of view... Just shhot straight, don't bullshit, get down to brass tacks. They have money to park somewhere that will make a return, you've got their ear for a bit, try to line up their desires with your instrumentality, and as long as you give it your all, even if you end up empty handed, they just weren't the one. Don't take it personally.
Also, learn your cofounder's comfort zone. There is nothing more energizing than an introvert in their groove. If you can find a way to work that in just right, the two of you can play off one another to keep the energy and confidence up.
Do not sell what you don't intend to make good on. Horrible things lurk that route.
> we have to keep a straight face in front of our team
You might get more support and sympathy if you stopped that. Building a culture where you hide the state of the company from the team is the first step towards the "us vs. them" culture that makes teams mistrust leadership. If you are small enough to be seeking a seed round, you are small enough to be open with your team.
Also, rejections are not a statement against you or your product. They are a statement that your product doesn't meet that investor's goals. Those are not the same thing. Your product can have value without matching someone else's goals.
You might get more support and sympathy if you stopped that. Building a culture where you hide the state of the company from the team is the first step towards the "us vs. them" culture that makes teams mistrust leadership. If you are small enough to be seeking a seed round, you are small enough to be open with your team.
Also, rejections are not a statement against you or your product. They are a statement that your product doesn't meet that investor's goals. Those are not the same thing. Your product can have value without matching someone else's goals.
Speaking from experience:
- If you believe in what you are doing, then keep going.
- Yes, it can be difficult and depressing. Yes, your audience may not understand the value you are pitching. Just keep going, learn over time from the experiences, and revise/experiment when there is a possibility of making a little more traction with your audience.
- Always work to improve both your product and your pitch -- neither will ever be perfect, and both will need revisions and improvements for tomorrow's world.
- Collect testimonials from your customers to help validate to yourself and to others the value in what you are doing.
Good luck, and hang in there.
- If you believe in what you are doing, then keep going.
- Yes, it can be difficult and depressing. Yes, your audience may not understand the value you are pitching. Just keep going, learn over time from the experiences, and revise/experiment when there is a possibility of making a little more traction with your audience.
- Always work to improve both your product and your pitch -- neither will ever be perfect, and both will need revisions and improvements for tomorrow's world.
- Collect testimonials from your customers to help validate to yourself and to others the value in what you are doing.
Good luck, and hang in there.
Business angels (especially those dedicated to your area of business) tend to be easier to talk to in my experience because they already know your domain and understand the pain you are trying to solve. Maybe start convincing a few BAs and have them open the door to larger financial VCs for you.
we never raised money. over time i found out investors have a million ways to say no and that your business or product matters less than who you are and if they know you. i thought a good product and business would be enough. i saw idiots left and right raising millions for stuff like razor subscription businesses. they were able to do so because they knew X or Y for many years already. as a founder/engineer i had no time to go to parties and spend all my time in powerpoint making pitch decks. it becomes a full time job. no time for that if you are building a moderately advanced product with a small team. we tried accelerators (you know which one that includes) and we came to the conclusion that knowing people is what makes the difference. it always comes down to that.
to lower the stress: think about what is missing and how you can hack the process. if it feels too hard you should probably find another way.
to lower the stress: think about what is missing and how you can hack the process. if it feels too hard you should probably find another way.
You will get 400 no's and just 1 yes. You only need that 1 yes, so chin up! If you get 400 no's you are doing it right.
In my experience, investors love backing:
- B2C startups with a large # of users (100k minimum with strong growth, ideally 500k-1M) if it's a digital product. Physical products are a different beast - B2B startups with a small # of customers (200 sounds great!)
But if you're in the middle, it can be a challenge. For example, a to-do list tool with 200 users paying $10 a month isn't usually that interesting to VC's
Some options to consider!
- A startup incubator! Incubators like YC or MassChallenge or TechStars love taking on small teams of builders with initial traction. They take 5-10%, sure, but a good incubator can help coach and prepare you for the VC's
- Bootstrapping. There's an awesome thriving community of people over at https://www.indiehackers.com/ (as well as other sites) building profitable businesses. If it's just the 2-3 of you, is there a path to profitability within a year?
- Can you pivot to B2B? B2C is fun but can be really really challenging (I spent 5 years building B2C software) because consumers rarely know what they want, have low budgets, and are incredibly fickle. Businesses are the opposite of all 3 (usually)
- B2C startups with a large # of users (100k minimum with strong growth, ideally 500k-1M) if it's a digital product. Physical products are a different beast - B2B startups with a small # of customers (200 sounds great!)
But if you're in the middle, it can be a challenge. For example, a to-do list tool with 200 users paying $10 a month isn't usually that interesting to VC's
Some options to consider!
- A startup incubator! Incubators like YC or MassChallenge or TechStars love taking on small teams of builders with initial traction. They take 5-10%, sure, but a good incubator can help coach and prepare you for the VC's
- Bootstrapping. There's an awesome thriving community of people over at https://www.indiehackers.com/ (as well as other sites) building profitable businesses. If it's just the 2-3 of you, is there a path to profitability within a year?
- Can you pivot to B2B? B2C is fun but can be really really challenging (I spent 5 years building B2C software) because consumers rarely know what they want, have low budgets, and are incredibly fickle. Businesses are the opposite of all 3 (usually)
To start, treat fundraising not as an unpleasant side distraction but what it actually is – your primary job. Forget about engineering and product development, at least for now. Delegate all of it to someone else. 100% of your energy should be spent on what is most important for your business at any given moment.
As an engineer, you don't get disheartened by random bugs or scaling challenges or outages. Rather, you work harder and overcome them. Heck for some that's the actual fun part of the job. Think of fundraising the same way.
As an engineer, you don't get disheartened by random bugs or scaling challenges or outages. Rather, you work harder and overcome them. Heck for some that's the actual fun part of the job. Think of fundraising the same way.
I just did this in the last few weeks — I’m a first time solo founder, engineer and mostly introverted. We’re pre-product launch and no customers. I just finished our first seed round, oversubscribed. Especially with customers and two engineer founders you can 100% do it. I have some advice you may find helpful - and happy to share more details around our experience over email (in profile).
What kind of investors subscribed to your round? Institutional VCs, angels, friends / family? Did you have pre-existing relationships with any of the investors? And if you're comfortable sharing, how much did you raise?
Do you need to raise capital in order to make payroll and keep your company alive? If yes, welcome to one of the most stressful periods of your business. In my experience this is a terrifying 3am-stare-at-the-ceiling territory level stress because it combines the prospect of your idea failing + damaging the great people who have quit other good jobs to come work for you. Spend as little time here as possible. Get an independent coach / therapist that can help you process this level of stress.
If you’re company is default alive and doesn’t NEED to raise right now then (congratulations, and) some of the below things might help you deal with the stress of fundraising:
1. Adopt the mindset that when fundraising it’s just as much YOUR job to say no to a potential investor as it is their job to say no to you. Most investors are not a fit for you. It’s your job to find the ones that are a fit for your business. Understand that the investor is incentivised to preserve optionality and give you an indefinite “maybe” rather than a quick no. In my experience great investors will give you a quick no with good specific feedback about why - that then lets you then calibrate if they missed an important point about your business (which means you need to level up how you communicate the story) or that you’re just not a fit for how they see the world (which is fine as early stage investing is more opinion than science).
2. View fundraising as a process - and structure that process in a way that best serves you. For me this means doing a lot of research up front about who might be a good investor for my business, preparing outreach messages and then crunching everything into a 90-day period from initial outreach to close (all money in the bank). The nice thing about how competitive VC has gotten is that they are all forced to broadcast their investment thesis in order to try and get inbound deal flow. Ideally target not just a fund but which General Partner at that fund so that you can draft initial messages that can say things like “Hi you’ve invested in X, and tweeted Y and Z which means we might be a fit for you”. It’s a three line email max. Use docsend for a teaser (max 10 slides) pitch deck so you know if they hit it. Understand that many investors will look at this on their phone so AVOID tiny text. If they hit the pitch deck but don't reply within 3 days email them again ask for a meeting. For a first round I like to have ideally at least 100 targets before I press the go button to send out all the prepared messages. If you’ve done great research then this should net you at least 20 first meetings as you search for a Lead (to price the round and set terms). Ideally jam ALL of these first conversations into the same 2 week window. If you let this stretch out over an extended period then some might be 3 meetings deep with you in DD while others you’re just taking the first meetings. This makes it hard for you to run a good process and having competing term sheets turn up within the same reasonable time window.
3. During the first meeting ask them lots of questions that let you qualify if they are a fit for you. It’s hard to have a list of generic questions to ask them as it depends on the context of your business but things like “do you Lead?” “what is your ideal investment size?” “do you have a target ownership percentage?” “can you give me examples of when you have led rounds in companies like mine?” “what is the decision making and approval process in your fund?” “normally how long do you take to go from first meeting to term sheet?”. If they don’t have good answers to these questions (or balk at answering them) then qualify them out as “Not a Lead” and move on. Stop talking to them until you have found a lead.
4. Do not believe positive language until someone gives you a term sheet. Words are free. I’ve seen VCs go 5+ meetings deep, repeatedly say things like “I will lead this round” and then say no. See my earlier point about their incentives to preserve optionality. Do not get your hopes up. The phrase "I am interested" is your enemy. Start to feel hope only if they send you a term sheet.
5. If you get a no ask for feedback - do not let them off the hook with things like “you need more traction” - push them to be specific about why they don't believe you will be successful enough for the risk you're asking them to take.
6. If you find a lead (and hopefully multiple competing leads) then negotiate terms, sign the term sheet and circle back to all the investors on your original list and invite them to Follow (if there is space in the round). If you don’t have a strong network or are doing this for the first time then lean on your Lead to help you. Great investors will do serious work to help you close a round fast. If you ask for help and your lead doesn’t lean in this is a red flag that they might be a bad investor for you.
7. Find ways to share the emotional burden. Getting told “no” over and over sucks no matter who you are. Find a way to share SOME of how bad this feels with your team (and then also share with them what about your idea that gives you the resilience to keeps you going). Authentic vulnerability helps build trust. If you know other early founders who are 12-24 months ahead of you then talk to them as well so you can vent and potentially learn some tips from them.
8. Good luck. This is a lottery if you are a first time founder without a good network.
If you’re company is default alive and doesn’t NEED to raise right now then (congratulations, and) some of the below things might help you deal with the stress of fundraising:
1. Adopt the mindset that when fundraising it’s just as much YOUR job to say no to a potential investor as it is their job to say no to you. Most investors are not a fit for you. It’s your job to find the ones that are a fit for your business. Understand that the investor is incentivised to preserve optionality and give you an indefinite “maybe” rather than a quick no. In my experience great investors will give you a quick no with good specific feedback about why - that then lets you then calibrate if they missed an important point about your business (which means you need to level up how you communicate the story) or that you’re just not a fit for how they see the world (which is fine as early stage investing is more opinion than science).
2. View fundraising as a process - and structure that process in a way that best serves you. For me this means doing a lot of research up front about who might be a good investor for my business, preparing outreach messages and then crunching everything into a 90-day period from initial outreach to close (all money in the bank). The nice thing about how competitive VC has gotten is that they are all forced to broadcast their investment thesis in order to try and get inbound deal flow. Ideally target not just a fund but which General Partner at that fund so that you can draft initial messages that can say things like “Hi you’ve invested in X, and tweeted Y and Z which means we might be a fit for you”. It’s a three line email max. Use docsend for a teaser (max 10 slides) pitch deck so you know if they hit it. Understand that many investors will look at this on their phone so AVOID tiny text. If they hit the pitch deck but don't reply within 3 days email them again ask for a meeting. For a first round I like to have ideally at least 100 targets before I press the go button to send out all the prepared messages. If you’ve done great research then this should net you at least 20 first meetings as you search for a Lead (to price the round and set terms). Ideally jam ALL of these first conversations into the same 2 week window. If you let this stretch out over an extended period then some might be 3 meetings deep with you in DD while others you’re just taking the first meetings. This makes it hard for you to run a good process and having competing term sheets turn up within the same reasonable time window.
3. During the first meeting ask them lots of questions that let you qualify if they are a fit for you. It’s hard to have a list of generic questions to ask them as it depends on the context of your business but things like “do you Lead?” “what is your ideal investment size?” “do you have a target ownership percentage?” “can you give me examples of when you have led rounds in companies like mine?” “what is the decision making and approval process in your fund?” “normally how long do you take to go from first meeting to term sheet?”. If they don’t have good answers to these questions (or balk at answering them) then qualify them out as “Not a Lead” and move on. Stop talking to them until you have found a lead.
4. Do not believe positive language until someone gives you a term sheet. Words are free. I’ve seen VCs go 5+ meetings deep, repeatedly say things like “I will lead this round” and then say no. See my earlier point about their incentives to preserve optionality. Do not get your hopes up. The phrase "I am interested" is your enemy. Start to feel hope only if they send you a term sheet.
5. If you get a no ask for feedback - do not let them off the hook with things like “you need more traction” - push them to be specific about why they don't believe you will be successful enough for the risk you're asking them to take.
6. If you find a lead (and hopefully multiple competing leads) then negotiate terms, sign the term sheet and circle back to all the investors on your original list and invite them to Follow (if there is space in the round). If you don’t have a strong network or are doing this for the first time then lean on your Lead to help you. Great investors will do serious work to help you close a round fast. If you ask for help and your lead doesn’t lean in this is a red flag that they might be a bad investor for you.
7. Find ways to share the emotional burden. Getting told “no” over and over sucks no matter who you are. Find a way to share SOME of how bad this feels with your team (and then also share with them what about your idea that gives you the resilience to keeps you going). Authentic vulnerability helps build trust. If you know other early founders who are 12-24 months ahead of you then talk to them as well so you can vent and potentially learn some tips from them.
8. Good luck. This is a lottery if you are a first time founder without a good network.
Both of us are engineers, and new to fundraising. As the relatively less introverted one, I'm the one in charge of the conversations. Not that I'm any good at story telling, but I'm getting better with every subsequent pitch.
The experience so far has been brutal. There's a constant stream of negativity to deal with. We wake up to rejections, get ghosted by those who showed genuine interest. To top it all off, we have to keep a straight face in front of our team to hide the pain of someone not seeing the value in what we are building.
My question to HN is, what can I do to make this process less emotionally taxing?
Thank you! :)