How to Raise Investment(tomblomfield.com)
tomblomfield.com
How to Raise Investment
https://tomblomfield.com/post/662033487432466432/how-to-raise-investment
43 comments
One note of caution. As someone who gets a lot of these kinds of update emails, it's also very apparent when or when not a company is hitting an inflection point.
Why does that matter?
If things are going well, great - you'll have a much easier time fundraising. The potential investors on your list will see your progress and realize they have a chance to preempt.
If things are not going well, you're providing a continuous stream of proof that you haven't cracked the nut yet. Which there is no shame in. But broadcasting that can be harmful.
So what do you do? It's tempting to hype up your updates so it looks more positive. Or should you be honest (which your ACTUAL investors and advisors need to help you)? Hmmm. Or do you run 2 update emails, the insider one and outsider one?
OR do you just focus on growth, and realize that none of this matters if you're growing 300% YoY at non-trivial revenue? Imagine if the time you spent on a weekly email was spent on making 5 add'l client calls?
Final thing to be aware of. The most powerful force in fundraising is FOMO. Every VC or angel investors has an "oh shit" moment when a startup they kind of know (but had kind of written off) all of a sudden is doing a hot round, and you feel late to the party.
I'm not telling anyone to NOT do update emails like this. Just recognize the signal leakage and really evaluate if the time spent is worth it.
Why does that matter?
If things are going well, great - you'll have a much easier time fundraising. The potential investors on your list will see your progress and realize they have a chance to preempt.
If things are not going well, you're providing a continuous stream of proof that you haven't cracked the nut yet. Which there is no shame in. But broadcasting that can be harmful.
So what do you do? It's tempting to hype up your updates so it looks more positive. Or should you be honest (which your ACTUAL investors and advisors need to help you)? Hmmm. Or do you run 2 update emails, the insider one and outsider one?
OR do you just focus on growth, and realize that none of this matters if you're growing 300% YoY at non-trivial revenue? Imagine if the time you spent on a weekly email was spent on making 5 add'l client calls?
Final thing to be aware of. The most powerful force in fundraising is FOMO. Every VC or angel investors has an "oh shit" moment when a startup they kind of know (but had kind of written off) all of a sudden is doing a hot round, and you feel late to the party.
I'm not telling anyone to NOT do update emails like this. Just recognize the signal leakage and really evaluate if the time spent is worth it.
Thanks for the insights. Makes a ton of sense.
So the main question as a corollary to your statement is: How do you effectively create investor FOMO? Do you have any experience to share here as well?
So the main question as a corollary to your statement is: How do you effectively create investor FOMO? Do you have any experience to share here as well?
> How do you effectively create investor FOMO?
By succeeding.
That sounds either snarky or obvious, however, I mean it quite literally. The absolute single best way to create investor fear of missing out, is to actually succeed at what you're doing. There's nothing close to that. Succeed at whatever stage you're at and be able to demonstrate that to the potential investors. If you're the real deal, you can build, execute and deliver on what you're attempting and claiming. Nothing prompts FOMO from investors like actually delivering and building up a demonstrated chain of success as you go; they see it, and they want to be part of it.
All the other methods are shady, deceitful, disingenuous, fake it until you make it types of bullshit cons. Akin to attempting to trick someone into funding you (ha! look at that! I made myself look more successful than I am, I really pulled one over on them; Theranos).
By succeeding.
That sounds either snarky or obvious, however, I mean it quite literally. The absolute single best way to create investor fear of missing out, is to actually succeed at what you're doing. There's nothing close to that. Succeed at whatever stage you're at and be able to demonstrate that to the potential investors. If you're the real deal, you can build, execute and deliver on what you're attempting and claiming. Nothing prompts FOMO from investors like actually delivering and building up a demonstrated chain of success as you go; they see it, and they want to be part of it.
All the other methods are shady, deceitful, disingenuous, fake it until you make it types of bullshit cons. Akin to attempting to trick someone into funding you (ha! look at that! I made myself look more successful than I am, I really pulled one over on them; Theranos).
Spot on, nothing to add to this.
"Make something people want" is the #1 fundraising hack. If you do it well enough, fundraising isn't an issue.
"Make something people want" is the #1 fundraising hack. If you do it well enough, fundraising isn't an issue.
I broadly agree, but weekly seems like the effort outweighs the benefit.
It seems like fortnightly or monthly gets the same impact with 25-50% effort.
It seems like fortnightly or monthly gets the same impact with 25-50% effort.
Do you have a structure to your update emails? And from your experience, what shouldn't be included in an update email?
To be very clear , this articles won’t help you much if you don’t fit the criteria’s the OP does.
Having discussed with VC a long time ago , it was very HARD to raise money without a very strong traction.
Very often VC were convinced with my pitch , and my product but would not invest either because they had stuff somewhat similar in their portfolio and often because I didn’t have a “track records” to proof my capability.
If I can recommend one thing to technical founder : don’t listen to this and build slowly while creating your own community ( users , customers etc...) and VC will come , don’t worry.
VCs are like dogs when they smell money they have the urge to come at you, you won’t need to call them.
For non-tech founder it’s the opposite : don’t make anything that is complicated or sophisticated, focus 100% on marketing and prototyping , I had friends raising 10M+€ for products that didn’t exist or couldn’t do a tenth of what was promised , but because they graduated from the most prestigious schools in Paris or London and had invested hundred of thousands in marketing ( 50K€ Website , Dozens of Articles in the Press claiming their idea was worth billions , Attending Conferences to reach out to executives in order to get corporates sponsors etc..)
VCs will prefer a strong team with a stupid idea that a Fortune 500 will be naive enough to acquire , rather than a good idea with an unproven team that would make money quickly after initial build phase.
Having discussed with VC a long time ago , it was very HARD to raise money without a very strong traction.
Very often VC were convinced with my pitch , and my product but would not invest either because they had stuff somewhat similar in their portfolio and often because I didn’t have a “track records” to proof my capability.
If I can recommend one thing to technical founder : don’t listen to this and build slowly while creating your own community ( users , customers etc...) and VC will come , don’t worry.
VCs are like dogs when they smell money they have the urge to come at you, you won’t need to call them.
For non-tech founder it’s the opposite : don’t make anything that is complicated or sophisticated, focus 100% on marketing and prototyping , I had friends raising 10M+€ for products that didn’t exist or couldn’t do a tenth of what was promised , but because they graduated from the most prestigious schools in Paris or London and had invested hundred of thousands in marketing ( 50K€ Website , Dozens of Articles in the Press claiming their idea was worth billions , Attending Conferences to reach out to executives in order to get corporates sponsors etc..)
VCs will prefer a strong team with a stupid idea that a Fortune 500 will be naive enough to acquire , rather than a good idea with an unproven team that would make money quickly after initial build phase.
Exactly. Remember also that VC are rich and powerful therefore much of what you read and think about investing and startups is written for their benefit. Avoid drinking the kool aid.
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Having raised a seed and A-series in the last 1,5 years from top tier VC’s in the B2B space: this post is 100% spot on.
Will recommend.
We actually used the YC seed and A-series pitchdeck templates the OP mentions.
Last thing: everything becomes 1000% easier if you have customers. Focus on customers. Raising becomes almost easy after that.
Will recommend.
We actually used the YC seed and A-series pitchdeck templates the OP mentions.
Last thing: everything becomes 1000% easier if you have customers. Focus on customers. Raising becomes almost easy after that.
I’ve had customers for a bit — couple K to setup with some monthly recurring revenue (#00/month) and have really struggled to raise.
Just a weird looking TAM (small as all get out and competitive market) is all I can chalk it up to - or I’m a crappy story teller
Just a weird looking TAM (small as all get out and competitive market) is all I can chalk it up to - or I’m a crappy story teller
With the "open in app" banner on top, the "never miss a post" banner in the middle and the cookie banner at the bottom, I can see exactly 4 lines of text on my smartphone screen.
Lucky for me, I have the Firefox reader mode. But to every regular person, this presentation screams "the actual text is not important".
Lucky for me, I have the Firefox reader mode. But to every regular person, this presentation screams "the actual text is not important".
Safari reader mode also seems to work
On a sidenote, I'd be interested in reading an article exploring the inverse of this! How to -not- raise investment. Most people look at funding like "yeah well I mean that's just the thing you do" but it's not for all cases. Sometimes tossing gasoline on something is just enough to make it fizzle.
I'm looking forward to the pendulum swinging back around to 2022, bring on the slow-biz startups, the organic growth, gimme 2x and 3x, bootstrapped on shoestrings, companies run by people who created those companies.
I have this reflex every time I see something cool now where I can't enjoy new SaaS offerings because I'm always trying to imagine the ways in which this new cool thing can backfire and frustrate me once it takes funding or goes public. I don't think it's a problem in me, either, that model just sucks.
I'm looking forward to the pendulum swinging back around to 2022, bring on the slow-biz startups, the organic growth, gimme 2x and 3x, bootstrapped on shoestrings, companies run by people who created those companies.
I have this reflex every time I see something cool now where I can't enjoy new SaaS offerings because I'm always trying to imagine the ways in which this new cool thing can backfire and frustrate me once it takes funding or goes public. I don't think it's a problem in me, either, that model just sucks.
You might be interested in indie hacking or bootstrapping as phrases to google when looking for such articles.
www.indiehackers.com
www.bootstrappers.com
www.indiehackers.com
www.bootstrappers.com
I like this article: “Venture capital money kills more businesses than it helps”
https://www.vox.com/2019/1/23/18193685/venture-capital-money...
https://www.vox.com/2019/1/23/18193685/venture-capital-money...
This advice is interesting, but almost entirely useless for anybody outside the US / Silicon Valley bubble. Exactly how are you going to go for coffee with your "VC buddies" if you live 8,000km away? The idea is frankly ridiculous for anybody not in a tiny circle. edit: apparently London is the same. Only further away.
This article really highlights how stupid frauds like Theranos get funded. The real answer is between the lines:
To get funded:
a) Be connected, physically close and already in the clique. b) Don't be outside the clique.
I mean I get the idea that rich kids giving their rich mates money to start yet another dogshit fintech is just how the game is played, but what a frustrating time it is for the rest of us.
This article really highlights how stupid frauds like Theranos get funded. The real answer is between the lines:
To get funded:
a) Be connected, physically close and already in the clique. b) Don't be outside the clique.
I mean I get the idea that rich kids giving their rich mates money to start yet another dogshit fintech is just how the game is played, but what a frustrating time it is for the rest of us.
VC funds give companies tens of millions of dollars. That's always going to be a high-touch in-person sales job.
A society where that can routinely be done remotely is certainly physically possible, but it would look very different from this world.
A society where that can routinely be done remotely is certainly physically possible, but it would look very different from this world.
Well if you're the one seeking money, you need to go where the money is, no? You can't stay where you are with no connections and expect VCs to come to you.
It has always been the case that those who need money go to those who have money, not vice versa.
It has always been the case that those who need money go to those who have money, not vice versa.
In my experience it just isn't that simple. Early stage VC's like SOSV are happy to talk to anybody from anywhere. Later stage? Not so much. If you are doing something out of the general wheelhouse of the VC community (in my case AgTech) you're boned because the number of companies that invest in Ag are a much smaller set than all the VC firms, and explaining things like genetics to them is like trying to teach pigs how to write html.
In a lot of ways it is easier if you are doing something truly out there, like some kind of lab-based science that requires everybody to have a PhD, because it's easier to convince somebody that you know what you're doing if they are completely ignorant of the topic. In the middle ground of more practical applications of technology it isn't sexy enough and isn't esoteric enough to get anybodies attention regardless of the potential or the business model.
In a lot of ways it is easier if you are doing something truly out there, like some kind of lab-based science that requires everybody to have a PhD, because it's easier to convince somebody that you know what you're doing if they are completely ignorant of the topic. In the middle ground of more practical applications of technology it isn't sexy enough and isn't esoteric enough to get anybodies attention regardless of the potential or the business model.
Author here - happy to answer any questions
Most comprehensive article I have read on fundraising at the Seed / Series-A level. Well done and thank you for your contribution.
Thanks for reading :-)
Thanks for sharing this, Tom!
Should European remote startups re-domicile in the US for fundraising (or other) purposes?
We have a London presence/HQ, the team works from 4 European countries, and we raised pre-seed during Covid.
Should European remote startups re-domicile in the US for fundraising (or other) purposes?
We have a London presence/HQ, the team works from 4 European countries, and we raised pre-seed during Covid.
Thanks for sharing with us, I would love to read "How not to raise investment", exploring the inverse. As in, not how to attract funding in bad ways, but exploring the ways that funding or maybe a misaligned partnership can skew the trajectory of nascent startups/concepts.
Interesting to read those valuation benchmarks. I'd seen this article in SeedLegals previously https://seedlegals.com/resources/how-to-value-your-company/ that seem to be quite a lot lower.
It was written at the end of 2019, do you think it's just wrong? Or has it changed that much in the past 2 years? Or is it a different set of startups?
It was written at the end of 2019, do you think it's just wrong? Or has it changed that much in the past 2 years? Or is it a different set of startups?
Hi Tom, it's Anthony from SeedLegals here, author of that article.
Actually I've seen nothing to suggest that valuations have changed since our article. If you're seeing differently, all feedback welcome.
I should add that I always have a lingering concern that so many people reference that article - both founders and investors - that in some ways it's moved from reflecting market to making market... which means the bar to making sure it's accurate is high.
Actually I've seen nothing to suggest that valuations have changed since our article. If you're seeing differently, all feedback welcome.
I should add that I always have a lingering concern that so many people reference that article - both founders and investors - that in some ways it's moved from reflecting market to making market... which means the bar to making sure it's accurate is high.
I have made 43 angel investments in the last 6 months, 90% at seed and pre-seed. 75% in the UK.
The lowest valuation I've paid was £3m, and this happened exactly once.
My mean valuation for seed is around £8-10m.
It tops out at around £20m.
Perhaps my sample is skewed. Not many of the companies I'm investing in use SeedLegals. Investors often insist they use actual lawyers.
The lowest valuation I've paid was £3m, and this happened exactly once.
My mean valuation for seed is around £8-10m.
It tops out at around £20m.
Perhaps my sample is skewed. Not many of the companies I'm investing in use SeedLegals. Investors often insist they use actual lawyers.
AD: great article Tom, covers a lot of questions I've had. One I didn't see was in regards to mentors. How important would you say having a mentor was to some of your initial raises? If at all?
You said “It is considered bad form to share the contents of a termsheet with other investors” and “You do not want to be seen ‘shopping around’ your unsigned termsheet”.
The benefits to a founder of shopping around seem clear, so could you quantify the downside risks? Do the risks matter for a “hot deal”?
PS: Thank you so much for your awesome article: it is especially gratifying to see something that isn’t from the valley (I am in NZ).
The benefits to a founder of shopping around seem clear, so could you quantify the downside risks? Do the risks matter for a “hot deal”?
PS: Thank you so much for your awesome article: it is especially gratifying to see something that isn’t from the valley (I am in NZ).
The downside in the extreme is that the original investor pulls the termsheet and you end up empty handed. I know of cases of this happening, but it's rare.
More commonly, you develop a bad reputation in the VC community, which is very close-knit. Next time you come to raise money, this can hurt.
More commonly, you develop a bad reputation in the VC community, which is very close-knit. Next time you come to raise money, this can hurt.
Hi Tom, just want to say I love what you did with Monzo. I briefly met you back in 2018 at a Monzo meetup when you were on City Road, and it was so amazing to meet the people who created Monzo in-person. And the food was the best of any Meetup I've been to since!
Looking forward to seeing whatever you do next!
Looking forward to seeing whatever you do next!
Why doesn’t the back button work on your site?
How do you decide between raising money and bootstrapping (like Mailchimp acquired for $12b today did)? I think the typical response is whether you want to be a bigger $1b+ company or die, or just slowly see where it takes you by the revenue of your customers. But how do you estimate the eventual potential/TAM of your startup/business as something that needs funding to grow ASAP?
You can't really trust VC's opinions as they're self-interested.
Can anyone comment on raising investment for software projects that might earn on the order of several million dollars but with no real potential to become 'unicorns'?
Where does someone look for smaller business ideas like this (which may have a higher probability of success, lower earning potential than typical startup targets, less initial capital required)?
Where does someone look for smaller business ideas like this (which may have a higher probability of success, lower earning potential than typical startup targets, less initial capital required)?
Check out micro VCs like Calm, TinySeed, etc. They operate on the model you describe, where they're not looking for 100x returns but merely several million dollars in revenue.
"Probably 30% of the rounds I’ve raised have been “hot” - and very fast. 70% have been hard work, slow and stressful."
My favorite part. The ideal scenario is running a tight, targeted and short process for a hot deal...but don't be surprised if that doesn't happen.
My favorite part. The ideal scenario is running a tight, targeted and short process for a hot deal...but don't be surprised if that doesn't happen.
I asked Tom for some of this advice earlier this year. Glad to see he wrote it up into a blog post — it's really useful!
Thanks for sharing this Tom. Just shared it with my cofounder.
Be careful going to this website. It doesn’t let you go back out.
I want to ask, do people here understand a difference in between raising an investment, and soliciting voluntary participation in a pump, and dump scheme, which can sometimes, as a side effect, turn out a viable business?
Start sending thing to all the people you interview for advice, supporters you know in the same space, and peers/coworkers. If you keep a regular email showing your progress, even though you may not have traction, potential investors will see the pace at which you are developing/iterating, and have a reference point to be able to cut a check.
I started this 3 months before I planned on raising any money, and it allowed for people who were on the email to confidently make recommendations on my behalf to investors they knew, and also made our company top of mind.
I have continued this for almost a year now, and its led to customer development opportunities, investment inbound, and a steam of good relevant advice.