Above: The status of my seed funding sales funnel in early 2013 (software: a plugin called Streak).
As CEO, fundraising is just one of the many sales cycles you’re expected to execute. The good thing is, you can use many of the same tools from selling your product to customers when you’re pitching your startup to investors. Here is a simple game plan to manage your investor pipeline, from lead generation through final close:
Build your sales funnel
All sales start with leads. However, if you’re like me, you don’t have any VC partners in your family tree. You didn’t go to Harvard or Stanford, and your friends and family have never made an angel investment in their lives. So where do you find your investor leads?
First, look around for connectors in your network. It may be your startup accelerator, a friend who just raised a seed round,
Then supplement this approach with some old-fashioned hustle. Read and respond thoughtfully to investors’ blog posts and tweets. Make a 30-second pitch to an investor at a conference or party (there are rules on how to approach this). Some investors even thoughtfully read and respond to cold email introductions. I know this approach has been successful a few times with Mark Cuban and Brad Feld; however, investors like Jeff Clavier are on record as having never invested off of a cold intro. It’s all about understanding your target audience.
Then, make sure to attack your leads in parallel, not series. Your goal in the early stage of your fundraising process is to fill your funnel with as many qualified leads as possible, then connect with them as quickly and efficiently as possible.
Always show positive momentum
If ever there was a time to ensure your metrics are going up and to the right, it’s the couple months while you’re closing a funding round. I’m not advocating making any product decisions that would harm the long-term viability of the business. In fact, at LabDoor, our team spent most of the three-month fundraising system investing in projects with extended payoffs, from continuous integration and back-end upgrades to content generation and customer analytics tools.
But we still made sure we hit the end of our fundraising round trending upward, and that went a long way to ensuring that the velocity of incoming funds increased through our close.
I hear stories all the time about a funding round that fell apart at the end because a key customer ended a contract. Make sure there are only happy thoughts in investors’ minds when they’re holding the checkbook.
Which brings me to the corollary:
One of the easiest ways to sell your product is to have someone else pitch it for you. Whether that’s an excited fan or an interested journalist, having people talking positively about your product is an excellent tool to push investors to commit.
In our case, LabDoor received a glowing review from Fast Company just days after we launched our seed round. At a number of investor meetings that week, the person on the other side of the table would start the conversation with “I’ve reviewed your deck and some of the press about your company. Let’s now dig into the details of your startup.” I know had a 15-minute head start in an hour meeting, and someone else had primed the pump for me.
Leverage anchor tenants
No one ever wants to make the first move. Game theory indicates that it’s much smarter to shoot second, and you never want to be the only idiot that rushed into a losing battle.
That’s why so many ‘fundraising experts’ often recommend spending a great deal of effort in identifying a lead investor.
Sites like AngelList, along with standardized seed round terms, have made it easier than ever to raise without a lead investor. However, even in a ‘mass syndication’ or ‘party round’, you’ll still need to show momentum from incoming commitments before closing your seed round.
Once you close your initial investor(s) and terms, don’t be shy to press on the accelerator. Increase the frequency of your introduction requests, reinitiate contact with prospective investors, and feel free to name-drop your existing investors in your upcoming meetings.
Always be closing
Make sure you manage a consistent conversation with the investors in your pipeline, demonstrating a little more momentum each time you return (i.e. “since we last talked, our startup has closed $100K from three value-add angels.”). Few things inspire investors to finally sign and wire money than seeing the window closing on a round.
Put a little pressure on the folks that are waiting around for a lead. Use tools like AngelList’s “Invest Online” feature to close reservations from smaller investors.
Carefully leverage time and space constraints to your advantage. Give investors firm deadlines, and don’t back down on them.
Just close your seed round and get back to work.