Fundraising (start here)
A primer on early stage tech fundraising based on YCombinator's guidance and my own learning in-the-trenches as a successful founder
Raising money is a necessity for most startups and fundraising is a vital skillset for almost all CEOs. If you’re a first time founder, you probably haven’t done this before. Luckily, it’s a skillset you can learn and get better at over time.
When you start raising, you’ll first start seeking angel checks from people you already know. This can feel awkward because most founders don’t have “play” money on the order of $25k-100k to invest in startups that will most likely disappear, and yet that’s what seed stage investors are doing. And, if you already have a pre-existing friendship or professional relationship with people you’re raising from, you may have never talked about money with them before. Luckily, these folks are most likely to trust YOU, and so they are the best people to start with when you’re the worst you will ever be at asking for money. Even if you’re awkward, they’ll still probably like you. And, they might just invest in your startup.
So, how do you get them on the phone? There’s the age old wisdom, “ask for money, you’ll get advice, ask for advice, you’ll get money.” I have no idea where this comes from, but the general idea is people don’t love being asked for money without understanding what that money would go towards (investing is a fairly emotional decision for most people), and receiving an email saying “hey Tara, I’m raising for my startup, are you investing these days?” will be much less likely to get them on the phone than “hey Tara, I’m starting to think about fundraising for my startup, would you be open to giving feedback on my story?” Your goal is to get them on the phone with the understanding that they’ll be helping you in your fundraising process, and they can decide later if that help will include actually investing their money.
Sequence
The first people you should be talking to are the lowest stakes ones who can help you craft your pitch, even if they can’t invest themselves. Other founders are great people to start with because they have likely fundraised before and have an investor network, and can give you advice on your pitch while it’s still early and rough. Reach out to friends and acquaintances first, and if you don’t have 5-10 people to talk to in this phase, try contacting alumni from your school. Anyone you know well will likely get on the phone with you, but for looser network folks (e.g., school alumni), targeting people who recently completed seed raises or are still earlier in their journey and not running billion dollar companies will make it more likely they’ll chat with you. Also, investors tend to have specialty areas, so if you’re a climate tech company and doing outreach to other founders, prioritize outreach to founders in that space who are not direct competitors since they will be able to help you with relevant intros later. Your goal with this stage is to:
Craft your story and pitch in the lowest-stakes way possible with people who can give useful feedback based on experience
Practice actually giving your pitch
Build your network of people who can later introduce you to investors
Many founders I’ve worked with seem inclined to skip this stage and just straight to investors. Don’t. Your first ten pitches won’t be very good. Get help and practice making your pitch stronger better before wasting your one shot with a potential investor.
The next phase of people you should be talking to are angel investors you already know. This might be people in your professional network who have had some level of financial success and you know invest, or people who are former successful founders. The ask to them is as described above - help with crafting your pitch. When you get them on the phone, ask if they are willing to “pretend” to be an investor and give you feedback on your pitch. Before you get off the phone, ask them if they would be interested in investing. Make sure you’ve already got your docs in order to start moving folks across the finish line. Make sure your SAFEs are ready to go. Lastly, make sure to ask them who they can introduce you to, and then follow up on those intros. Read more about building your network and getting intros.
The last phase of people to talk to will be angels you don’t know via intros, followed by seed funds and larger funds. Prioritize smaller funds with fewer decision-makers first, since they’ll be able to move the fastest. The larger funds will often take weeks to make decisions and may not be worth waiting for during a seed round (while getting a big name fund as a seed investor can be a great signal to potential employees early on, if they don’t follow on for your Series A, it will be a negative signal to other investors).
Next up: Timing
Luna Ray works with post-PMF founders as an executive coach. She is the founder and Chair of YCombinator-backed Plura and ex-Meta, Instagram, Faire, and Bain & Company.