Hi, everyone. This is Alejandro Cremades, and today we’re going to be talking about
how to build momentum in a financing round. Let’s face it; the sense of urgency, that
fear of missing out is ultimately what pushes the investors to get in and invest in your
business. Without that, when they see that the train is stuck, that the train is not
leaving the station, it’s going to be very difficult for them to give you a check and
to invest in your business. So, with that being said, let’s get into it.
The first thing is to get your data in order before you’re even getting out there and
speaking with investors, you want to really understand your numbers; your data around
the competition, maybe there are some numbers on the competition; the data on your own market,
the market size, how the market is growing. So you need to have all that data already
in place in your head memorized because, for sure, the investor is going to ask you about
it. Now, here’s the tip: if you go into the
meeting and there’s a certain question that the investor is asking you that you don’t
understand or you don’t know, don’t make it up. Just say, “Thank you. If it’s okay,
I’ll follow-up with you later.” Then after that meeting, later in the day, you send a
thank you note, and you say, “By the way, to your question, here is the answer.”
Never make it up; never lie because that’s all going to come out on the disclosure schedules
when you do the due diligence, and that is going to be a reason for the investors to
pull out of the deal. So, get your data and understand your numbers.
The next thing is you need to constantly be polishing your pitch deck. A pitch deck is
never a final and complete document. It’s always a work in progress. And by the way,
you can download the pitch deck template below, which you can get for free and that founders
have used to raise millions all around the world.
This pitch deck is going to be 15 to 20 slides. On every single meeting, there are going to
be new things that are going to be popping up. Perhaps there are certain holes that you
didn’t know were there. So, that’s why it’s key to listen because ultimately, those
questions that you receive, let’s say, on meeting #5 or meeting #6, you’re going to
see that are starting to repeat. That’s why you want to iterate and optimize your
deck, and you want to continue to polish it as you go so that you can nail it for subsequent
meetings when you’re speaking with other investors.
You also want to do a ton of research either with investors that you’re already in discussions
with or with investors that you’re about to have discussions with. For example, with
the ones that you’ve already had discussions, you’re doing your research, you have your
Google news alerts when they do a new financing or anything else that could impact your own
round or something that is an update on how well they’re doing. It’s a good way for
you to stay on top and either send them a thank you or to use that information that
you’re getting as a way to polish the way that you’re engaging with that investor.
On the other end, with the new investors that you’re going to be reaching or that you’re
going to be meeting with, you want to have done your research, or the articles that they’re
tweeting about, the groups that they’ve joined on LinkedIn so that when you arrive
on the call, you have done your homework. You know, even though you have never met that
investor, you’ve already done the research to a point where it could be as you’ve known
them all their life. If they’ve published a book, you want to read that book. If they’ve
done a ton of blog posts, you want to read the ones that have the most amount of popularity
on the internet. You want to arrive at those meetings and also do those engagements with
certain information that is going to give you an advantage and an edge toward everyone
else in order to understand how you handle the communication.
The next thing is, you want to know the investor. Obviously, at the beginning when you haven’t
had that much of an exchange, one of the tactics that you can use is you can go out to founders
that have already received an investment from that specific investor and not only use those
to receive an introduction but also use those founders to ask them how the investor is.
Maybe there are certain stories that they can share with you.
Ultimately, those stories and that information that they give you is certain info that is
going to help you understand if that’s an investor that you want to have involved in
your business; but then also, an investor that you want to handle or approach in a different
way that you didn’t know you could. So that’s a good tool that you can use, founders of
portfolio companies, and ideally, those founders that are working at a board level and that
have a tight relationship with that investor that you’re looking to target.
The next thing is, you want to start early. The biggest mistake that I find founders making
is that they wait until the sixth-month mark when they are about to run out of money, and
then they go out and try to find the investors. The problem is that time is of the essence
– the more time, the more leverage that you have.
What I would recommend that you do is, even if you’re not raising money today, you’re
already building the relationship with that specific investor that you may be reaching
out to in the next 12 to 14 to 18 months, whatever that amount is. But you’re doing
it ahead of time so that they get comfortable with you so that they get to know you, and
also, they get to know your business. That way, when you actually meet them, it’s just
one phone call away rather than having to start everything from the ground up. So, start
early – as early as literally having an idea on a napkin.
The next thing is taking commitments. There are going to be investors that are not going
to be lead investors. Maybe it’s not that person or institution that’s coming in;
it’s pricing the round for everyone else to come.
One thing that you could do is, even with the people that you’re speaking with, you
can ask them, “Would you be willing to make a commitment? Would you be willing to commit
to making a certain amount of investment, and what would that be?”
With that, you’re already creating some type of storm, some type of snowball effect
where you can leverage that potential commitment, especially if it’s a good name, a big name
in the space that perhaps is signaling to others so that for further discussions, you
can say, “By the way, (investor’s name) has already made a commitment of this amount,
and we are going to move very quickly as soon as we get the lead investor. That’s a good
way to get things kickstarted and to push them into that fear of missing out state,
which is what is going to push investors to go over the edge.
Then, you want to start low and go high. What this means is rather than, for example, if
you need to raise $5 million, and you’re not sure if you’re going to be able to raise
the $5 million, then you go for that amount that you know for sure, from the relationship
that you already have, that they’re going to come in and they’re going to invest in
the business. For example, if you think that $2 million
is going to be a for-sure amount that you can raise, go out and don’t say that you’re
going for $5 million. Just say, “I’m going to be raising $2 million or maybe $2 million
to $5 million,” that way, if you fall short and you don’t hit the $5 million, you’re
not sending a negative signal to the market where people are going to be like, “Hold
on. He or she didn’t raise that money. Perhaps there’s something off with this business.
It’s all about signaling, and it’s going to give that psychological message to the
market that you’ve reached your target very early and that you got the money that you
need in order to execute and that you’re not falling short.
Another great method to build momentum is to offer discounts. What this means is that
if you see an investor that could be a very well-regarded investor or a popular investor,
and perhaps send a very positive signal to the market, one thing that you could do is
offer them a convertible note with a certain amount of discount and interest on their investment
if they were to help you in structuring the equity round later on.
Maybe there is an equity round that is happening 3, 6, or 12 months, but for that investor,
it makes total sense to jump in now so that they get to benefit from that discount, and
they also help you in forming the entire round by making the right introductions, and then
by guiding you to structuring it the right way.
Next, you want to carefully use that moment when you announce who your lead investor is
meaning who that investor that is coming in and investing 20% or more of your financing
round because that is going to send a super powerful message to the market if it’s a
well-regarded investor, or it may scare investors out if perhaps that investor is someone that
people are not that familiar with. Here, you want to not treat this lightly.
You want to make sure that the moment you announce that is the moment where you’ve
already built meaningful relationships with those investors that you want to push over
the edge that are followers; because, ultimately, when it comes to fundraising, investors are
like sheep; they follow other investors. They typically don’t want to take the lead. They
don’t want to be the first ones that up a price tag on the round. That’s why you’re
never, for the most part, going to hear the word no from investors because they want to
leave that door open just in case your deal gets traction.
So, with that being said, wait for that lead to come in. Always go for feedback. Never
say that you’re raising money, and once one of those people that you’re engaging
and receiving feedback from, they say, “Are you looking to raise money?”
At that point, you give then that little push to become the lead investor and to go to the
other ones that have been giving you feedback to tell them that a round has started, and
if they would like to receive the offering documents – that will lead to their wiring
the money in the bank. That’s also how you use that as a way to show progress and as
a way to drive that sense of urgency to get people to want to jump in.
You also want to pack in the meetings. The last thing that you want is to have the emails,
the communication all over the place. This is like a sales process. It’s on that sales
final that you have created; you have different stages that you’re going to pass those investors
from A all the way to Z. You want to have them all in the same stage
all at the same time because that’s also going to give you a great boost of confidence
because you know that there are going to be other options in the event that investor doesn’t
come in, and also, in many instances, that is going to show up even though you’re not
realizing that. People are going to know because the venture world is quite small. They’re
going to know that you’re meeting with other investors, and perhaps they’re sitting on
another board or things like that. So, that confidence is going to come across
and perhaps they’re even going to ask you who else you’re speaking with. Those are
things that you can use to leverage and to continue pushing them to think that they’re
going to miss their seat, and if they don’t jump in now, they’re either going to lose
their ticket or that ticket is going to be more expensive.
Then, remember: you want to really send powerful updates. Fundraising is not about that first
meeting that you have where you’re pitching them because you’re never going to receive
a check on that first day. You need to follow-up as time goes on, every couple of weeks until
you have that lead investor that is pushing everyone over the edge.
During those follow-ups, those powerful updates that you’re using, you want to talk about
those great milestones that you’re accomplishing, those team members that you’re adding in,
those milestones that, all of a sudden, are happening with press mentions that are putting
you all over the place in a very good light. I find that those updates are going to tell
the investor that you’re delivering on the promises that you made to them during those
first days when you were meeting. That’s going to give that sense of trust, too, in
that relationship-building that is super-critical for them to jump in and make an investment
in your business. The last thing is, you could use a countdown.
But the countdown, you want to be very careful how you use it. Never use a countdown unless
you have over 20% of the round already covered, meaning 20% of that round that you know for
sure is going to come to your bank account. This is when you have a lead investor. This
happens when you reach out to all the other people that you have been in communication
with after having your lead investor, and you tell them that the round is going to be
closing by x-date and that either they’re in or they’re out. At that point, you’re
pushing them over the edge. If that doesn’t do it, then they’re not a good investor
in any case. With that being said, hopefully, you like
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