Below are some topics that have come up often lately in conversation with early-stage founders, so I wanted to write them down. Most of them are not related to each other, so I just smashed them into one post for brevity’s sake. I hope some of this resonates with you and, if you see something different, I’d love to hear your perspective. -Semil
Owning The Metrics: At a certain point in a company’s fundraising path, the foundation of conversation shifts from promise to data. Executive team, market, and vision remain critical, no doubt, but so much of every conversation, every piece of diligence and modeling, revolve around metrics. One thing I’ve observed is the best executive teams don’t just grasp their metrics — they own their metrics. Owning the metrics means the team has defined each term, pegged them to industry standards, and has set up systems to measure, record, and slice data in ways that demonstrate a firm grasp of modeling, ratios, and drivers. While investors can fall in love with narratives, a grasp of the metrics can instill a more rational level of confidence.
Confusing Inbound Interest With Real Interest: This scene usually unfolds as follows. The founder receives a cold email from an investment fund. Often, it will come from the big dog at the fund, some times an underling. A few of these rack up, and the founder starts saying “we have inbound interest.” No, you have inbound email, and inbound email is not necessarily interest. Most of this “interest” is just trolling. So, how does a founder measure real interest? I’ve written about this a bit in a post titled “Turf Signaling.” Read it. Then, ask yourself: Will this investor engage in conversation on email, and/or hop on the phone? If that goes well, will the investor come to your office or a place that’s convenient for you? The moment you start bending to the schedule of the investor who emails you, you’ve already signaled you’ll go out of your way for him/her. You’ve signaled your intent before even meeting the person.
Anticipating Reference Calls: In the diligence process, an interested investor will talk to customers, big and small. The easy tip for the founder is: Train those references! Reach out well in advance, spend time with them, explain to them that investors will be reaching out, explain the process, and do it early. Priming those conversations helps make for smoother diligence, and also demonstrates the executive ability to anticipate events, to marshall resources, and to engage third-parties in the success of your company.
The Peculiar Seasonality Of Valley Fundraising: This comment only replies to larger investment rounds, say those of about $8M and above, the types the very large Series A funds now make. (For rounds small than $8M, this doesn’t apply.) There is a seasonality of how larger rounds are raised in the Bay Area. While deals can certain “close” in the summer or in late November and December, those times in particular are not great times for kicking off a fundraising process. (Read an earlier post I’ve written called “Creating A Fundraising Process.”) Put another way, it’s great and wise to “start” discussions formally with investment firms from January to about Memorial Day, and then again in September, maybe a bit into October. Outside of those windows, it’s tougher (not impossible) to start conversation with the types of firms and partners that a founder may want to engage. Again, not impossible, but much harder. Investors won’t like to admit this because they work hard (it’s true) and many have had their summers or holidays evaporate because they’re working on a deal, but it’s more often to close a deal that likely started a discussion earlier in the year. (Again, I know people will cite data about when deals happen, but that’s when they’re reported to that source. They likely closed earlier, much earlier.)