Test investor reactions before running a full process
(at minute 33:33)
Once founders have a good handle on their startup, the topic of raising money is never too far behind. Because raising capital takes so much time & energy I’m always looking for lessons to help me think about this topic.
This podcast captured my attention because the founders detailed a step-by-step process that they used to raise money for their e-commerce company.
Here’s how they described an ideal process...
Make list of investors you want to work with. Find the ones with the highest likelihood of being interested in your model/space. Find a way to get a good warm introduction to them.
Meet with a few of them to gauge their interest. Have someone in the meeting focused on just taking notes, so you are able to read between the lines of what they are asking. Investors will rarely ask direct questions and give real feedback (good feedback vs real feedback).
Refine your pitch (ie story, team, business/financial model) and talk with a few more to see if you get any different feedback.
Remember…investors will usually make you feel good because they want to support entrepreneurs and maintain optionality.
If the feedback is authentically positive, be ready to start a full process that takes 50% of your time for six months. If the feedback isn’t great or is just lukewarm, spend time evaluating what you heard. it won’t always be right (or consistent with your vision), but it’s valuable feedback if you are meeting with the right investors.
Most founders who have raised capital - including the team on this podcast - realized pretty quickly that investors are looking for certain patterns. So talk with a few investors before running a full process to gauge their temperature. Once you’ve met with 3-5 investors you’ll start to get very similar questions and feedback - this feedback will likely not be much different if you were to meet with a few dozen more investors.
Since raising a round takes a long time (especially in less mature startups towns like Atlanta), I’d recommend testing investor reaction before running a full fund-raising process.
Get Right to the Lesson
I’d recommend listening to the entire thing, but to get right to the point go to minute 33:33 of this podcast.
Thanks to these folks for helping us all learn faster
Shilpa Shah (@shift8designs), co-founder of Cuyana (@cuyana)
Y Combinator (@ycombinator)
Paul Graham (@paulg) of YC (@ycombinator)
Kat Manalac (@KatManalac), Partner at YC (@ycombinator)
Please let me and others know what you think about this topic
Email me privately at email@example.com or let's discuss publicly at @davempayne.
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