There you go. All right. So let’s get started guys. So, welcoming you guys to the webinar The Seven Deadly Fundraising Sins AKA Everything I Know about Fundraising from Steli Efti from Close.io.
As I mentioned, for people who are going to be watching the recording or people that are going to be joining and dropping into the live webinar, I’m a little sick today as you can hear. But I consider giving webinars as a healing medicine to myself. So I’m excited about feeling better and better every minute that we go along with each other.
Make sure to use the chat room to ask your questions. We’re going to be presenting for 30, 40 minutes and then doing Q and A. I’m going to share with you everything that I know about fundraising. All right? Let’s really make this the most valuable 40 minutes we could have together. Make sure that you guys are going to avoid every single fundraising sin and mistake that I made in the past.
All right. So a little bit about my background, I’m going to spare you the entire life story. I’ve been an entrepreneur my entire life yada, yada, yada. But what I want to talk about more recently is the company that I’m running today.
Originally we started as Elastic Sales. What we did with Elastic is we helped the B2B startups in Silicon Valley do outsource sales. We helped – this slide is actually outdated. We helped over 200 venture-backed startups in Silicon Valley scale their sales efforts, develop predictable, reputable sales models and help them crush it in sales. In the process, we developed an internal piece of software called Close.io, which was the software that helped our salespeople outperform and crush others.
So it’s an inside sales tool, an inside sales CRM that allows your team to send more and better emails, make more and better calls, get the result, crush it in sales and that takes away all of the manual data entry bullshit that salespeople have to do today and automates it to free up time and space with salespeople to do what they are paid to do or what they want to do which is make revenue, make deals, close.
All right. So that is a little bit about what I’m doing today but I want to give you a background of my fundraising track record, right? So I’m going to open the kimono here and share with you guys everything I have done. Not just what I know about fundraising but what I have done, accomplished, failed at, when it comes to fundraising.
So I came to the US in 2007 with a one-way ticket to start my first technology company and for the first business that I came to Silicon Valley to build for, it took me over 18 months to raise a seed round of $50,000.
Yes, I know. It sucks. The worst almost two years of my life and part of the reason why that company failed was not just that we raised so little money but that it was such a massive distraction and it took so much time to raise it in the first place. It sucked.
Based on all these learnings, in 2010/2011, I finally killed that business that was a zombie of a business and I stumbled into my next startup. In that startup, we went through Y Combinator. We actually raised 300K within two weeks, then got accepted into the Y Combinator and had launched the product, got press, and had 20 percent week over week user growth within just like four, five weeks.
So a lot of shit happened really, really quickly and right after demo day, we raised a seed round of 1.5 million in just a little under a month actually, just four weeks.
So I went from struggling for almost two years to raise 50K to raising over 1.5 million in just four weeks.
Those were all the lessons – all the mistakes I made the first time around, I avoided the second time around. I’m going to share with you all the secrets that I learned and all the tactics I applied to go from raising 50K to 1.5 million. It’s such a drastic difference in terms of timeframe.
But the story doesn’t end there. Yes, YC is an unfair advantage. But just to be fair, this is a really good point. So Attila in chat is saying, “Hey, you guys went through YC. That’s kind of an unfair competitive advantage.”
It is. But it’s not like we didn’t hustle hard to get into YC. So coming out of YC, we were amongst the – we had raised one of the biggest and best routes, the timeframe, the investors we had, the terms we got, and that was not because we have the sexiest business. That was not because we had the most user traction. It was because we were one of the best startups after YC in raising funding. It was all because of the mistakes I had made before. I will share those with you.
Excuse me. There’s the occasional cough because I’m really sick today. All right. What happened next was that as we were building the business out, we tried to actually raise a Series A. We failed. I was raising money for three months to raise a Series A in 2013 and we failed that. We didn’t get that check. We didn’t get the term sheets and we had to bootstrap and self-fund our company to the point where we are today which today the funny thing is that we’re the profitable high growth category with Close.io in which we are able and have the luxury to say no to investors every single week. I just said no to a $10 million check a few weeks back.
I’m getting about two to three emails a week from the investors that want to put money in our company and we have so much cash flow and so many profits. We have such high growth without taking that money that we can afford to just say no to investors right now because we don’t need it.
So this is kind of a journey from struggling to raise 50K to easily raising 1.5 million, from struggling to raising a Series A to not giving a shit about Series A anymore because we have a business that’s growing and scaling and exploding. It doesn’t need any fucking money.
All right. Let’s jump right into the seven deadly fundraising sins.
Fundraising sin #1: Not creating a market.
Fundraising sin number one is not creating a market. Here’s the deal. I will summarize the way that you’re able to raise money in three simple steps and this applies to everyone. It’s including all of you guys, anybody that’s going to watch this.
There are only three ways to easily and I’m underscoring the word “easily” and successfully raise money. There are only three ways to successfully raise money and success here is defined by good terms from good investors, in a short a time as possible.
As a founder, you want to raise that money as quickly as possible because every day you’re out there fundraising is a day that you’re not investing and building your business. It’s a very dangerous path to go down to and it’s a very dangerous thing to deposit a lot of your time into.
There are only three ways to successfully raise money:
1. Number one is you have rockstar and outstanding growth and traction, which means – I know everybody is like, well, we have growth and rockstar traction. No, you don’t. What I mean by growth and traction is that when I look at your growth, I don’t care what you do and I don’t care who you are. I just want to invest immediately. I’m talking about you’re adding hundreds of thousands of users every day.
I’m talking you’re adding tens of thousands, hundreds of thousands in revenue every single week. I’m talking like growth that’s just massive, the Slacks of the world, the Facebooks, the Twitters. Like growth that is just insanely explosive. If you had that category, if you have rock star traction, nobody gives a shit who you are, what you do, what your problems are. Investors want to invest and they’re incentivized to invest quickly because every day they wait around and fuck around is a day where your company has grown so disproportionately that they know the price of investing and admission is going to go up drastically.
So the first way to successfully raise money is to have rockstar traction.
2. The second way to successfully raise money is to have a rockstar team and again, I know that you’re going to think, “We are a rockstar team.” No, you’re not. What I mean by rock star team is – the definition of it, the criteria is that if I looked at just the names of the people on paper, I would want to put out a check and invest.
These names need to be things like ex-CTO of Facebook, ex-VP at Google. We’re talking names where the – your name is so big that I don’t care what you do. I don’t care if you’ve launched or not. I don’t care if you have traction. I don’t care which market you’re in. I look at the company of the team and I go – even the worst case possible, we’re going to be able to sell this company for hundreds of millions just because of the team. If you have a rockstar team, investors are going to throw themselves at you. Done deal. You’re going to successfully raise money.
The problem with these first two out of the three ways of how to successfully raise money is that almost nobody on this planet has this. Almost nobody has rockstar growth or rockstar team at that level. So the only available model to successfully raise money for us mere mortals, for most people, is to create a market.
1. Creating a market means that you’ve created enough interest in a short period of time, investor interest, that investors know that a lot of other investors are looking at you and many of them are likely to invest.
Here’s the deal why you need to create a market or why not creating a market is a deadly fundraising sin. You want to create a market because as an investor, every day that I look at your deal and I’m not investing is a good day. It’s a day we have a little less risk. It’s a day we get a little bit more information. As long as I have my foot in the door, if you are not exploding in growth, you don’t have a market, tons of other investors that want to invest right now, then the best strategy for me as an investor is to stay in touch as long as possible without investing.
Now that interest for me as an investor is opposed to your interest because you as an entrepreneur, every day that you’re fundraising and you’re not getting a check is a devastating day, a day that’s going to make your business worse.
So the interests here are completely misaligned. You want to raise money as quickly as possible and investors have an interest to delay the writing of the check as long as possible to reduce risk.
So the only way to force a decision from an investor is if an investor knows that lots of other investors are looking at your deal and if they don’t make up their minds, other investors will come in and the deal is going to be off the table. That’s the only forcing function that would make an investor want to move fast.
You want investors to move fast. If you’re raising money and you’re not creating a market which means you’re not talking to shit tons of investors all at the same time in the best possible way, the very compressed period of time, you’re fucking yourself.
The problem is – and here’s the kind of energy that you want to create. You want investor – investors are all talking to each other. So here’s what you want and here’s what you don’t want.
What you don’t want is you don’t want to meet with investors and pitch them your Series A or your seed round and then the investor goes and talks to a few other investors and says, “Hey, I see this interesting deal. Have you heard of these guys?” and the investor goes, “Yeah, I met with them four months ago.”
Boom! You’re dead. What that tells them as an investor is, “Oh shit, I’m looking at a cold deal. I’m looking at something that’s four months old and still hasn’t raised.”
That’s the death sentence for fundraising. What you want to do instead is you want to create a market.
So if I as an investor talk to you today and chat with a few of my investor friends, they all tell me, “Oh, yeah. I looked at that deal yesterday.”
The next investor I ask, “Do you know who these guys are?” He says, “Yeah, yeah. I’m meeting with them tomorrow.”
Now that creates the impression of hotness and I go, “Oh, shit! Everybody is meeting with this startup. Everybody is looking to investing in this startup. I better make up my mind right now.”
You have to create a market. Not creating a market means you’re dead in the water when you’re beginning fundraising. You don’t even realize it.
Fundraising sin #2: Raising money in packs.
Fundraising sin number two is raising money in packs. Now here’s what I mean by that. Too many startups commit this mistake. They go out and they raise money as the entire team, which is suicide or they go and raise money. The two or three founders together, they go to all investor meetings, to all investor presentations. This is just pure insanity.
Here’s the basic truth. Fundraising is a very, very all-consuming activity and the challenge is that as you are fundraising, you need to keep making progress with your company and if everybody in the team is fundraising, then you’re not making progress anymore with your company or you’re making a lot slower progress with your company.
Now here’s the problem. You went with an investor today. You show them the product and a few weeks later you meet with them again and they go, “Hey, show me what has happened since last time we met.”
You tell them, “Well, we’ve got this little improvement, that little improvement. But we’re out here fundraising. So we’re not able to really move the product forward.”
Again, what that does is it creates the impression that you’re not hot, that you’re not moving fast, that things are not happening.
What you want to be able to do is as – you want to have one person have the full-time job or responsibility to do fundraising and the rest of the team needs to be back there building the business, building the product, getting users, getting customers, hiring more people, moving the business forward. So every time you re-meet an investor, they ask, “Hey, what has happened since the last time we met?” you have shit to tell.
You’re like, “Oh, the team has launched this awesome feature. We had this great guy and we got this press. We have increased this amount of users and we have this growth and we had this revenue. We closed this deal.”
You want to give the impression that the train is leaving the station and the train is accelerating and they can either jump on the train right now or miss it forever.
But the train is going. You are on your way to success. You’re on your way of building a business that you’re pitching and either they’re with that or not, but the train needs to be moving. You can’t be like pitching somebody and three months later, you meet them and still not much has happened.
That is going to make – prevent any investor from putting in money. So you need one person to full-time raise money and you need the rest of the team to full-time build the business and move it forward and create traction. That gives a specific challenge. The challenge is that you have to trust the person that’s fundraising and the person that’s fundraising needs to trust the team to be making good decisions.
The person that’s fundraising can’t be micromanaging the team and the team that’s building product and moving the company forward can’t be trying to always have a tap on what happened to the fundraising.
Do they have a meeting today? Did the meeting go well? What did the investors say? You need to compartmentalize these two things? One person goes out – goes to raise money and that person either succeeds or fails. The rest of the team keeps pushing the company forward and both groups need to trust each other. You can’t be raising money in packs or it’s going to kill your company and kill your fundraising.
Fundraising sin #3: Fundraising a little bit and part-time or on the side.
Fundraising sin number three is raising money slowly and a little bit. Listen, fundraising is a full-time activity. You fully commit. It’s like being pregnant. You can’t be a little pregnant. You can’t be doing a little fundraising. Fundraising is not a part-time job. You can’t be like doing – well, we’re building our startup and on the side I’m trying to raise money.
That shit is not going to work like that. All right? You need to realize that fundraising is a full-time job. You need to be fully immersed in it and that’s why you want to do it as quickly as possible. You don’t want to be full-time fundraising for a year. It’s going to kill your company to have somebody crucial usually do fundraising for an entire fucking year.
That’s why you want to step into fundraising mode, commit to it fully, doing it as fast as possible. Once you raise the money, go back to operationally building your business. All right?
So there is no little fundraising. There is no – don’t commit the mistake to meeting an investor today. I’m going to have another investor meeting in three weeks and then next month I might have an investor meeting. You will never raise money this way.
When you go out to raise money, what you want to do is you want to compress everything as much as possible. This is also part of creating a market. As I said, you want to meet with all people at once. You want to schedule 10 investor meetings every fucking day for like a week or two and just meet with everybody at once and find the people that are going to be most likely to want to invest in your company.
Focus on them. Get money from them and use that momentum to get more checks and more checks and as quickly as possible close the round and get back to running the business.
There’s no little and slowly raising money. You’re either doing it full-time and fast or you’re not doing it at all and you just don’t realize it.
Fundraising sin #4: Being confused by conflicting feedback.
Fundraising sin number four. Being confused by conflicting feedback. So this is a problem that a lot of founders have, a lot of startups have and this is also additionally a reason why it’s so crucial for just one person to be fundraising, not everybody to be fundraising. Here’s the deal. Every investor has a bias just like every human being has.
Based on their bias, based on their history, based on their success or failures of the past, they’re going to be giving you different feedback. Here’s the problem. Because these people are typically – pretty accomplished and pretty successful, their feedback is going to sound pretty smart and pretty reasonable.
Here’s the problem that I see happening many times and I went through this myself personally. You go meet with one investor. You tell them about your plans and that investor – let’s say that investor has made his or her most money because they invested – let’s say in Airbnb, right?
So you’re going to pitch your B2B startup. At the end of the fucking pitch, the person, the investor goes, “You know what? This is kind of cool. But I think the big opportunity here is for you to build a true marketplace.”
They make this whole case that makes total sense, so why you should be a marketplace. The reason why they do that is because their biggest success has been in marketplaces. So now they’re giving you this elaborate picture of why marketplaces would really be the bigger play here, the bigger idea. What you do is you come out of that meeting – they do it very passionately. So you think, “Oh shit, if we did marketplaces, maybe they will invest because they seem to like marketplaces.”
So you now go back to your team and this is the other thing that I’m going to say next. You don’t fundraise in packs. That doesn’t only mean that you can all go to these meetings. It also means that you can’t come out of – every single meeting, running to your team to update them, because here’s what happens.
You come out of that meeting and you go back to your team and you go, “Holy shit! Stop everything we’re doing. This guy told me we need to be a marketplace. Here are the 20 reasons why he said that that’s a great idea. They make all perfect sense to me, and I think if we did marketplace, he would want to invest. So should we do marketplace?”
The entire fucking startup is sitting around and thinking, “Oh shit. Should we do marketplace?”
Yeah, yeah, blah, blah, blah. You guys convince yourself. You’re telling yourself. Yes, let’s fucking do marketplace. So now you stop what you were doing. You stop with your initial plan and you divert – you start a new fucking plan. Let’s do a marketplace. Now here’s what’s happening.
A week or two later, you will meet with another investor. That investor made all of his money with a mobile app. So now you’re going to that investor, meeting him, pitch him on the fucking marketplace idea.
The investor goes, “You know what? It makes no sense to me. Why would you want to be a marketplace? I mean I think that your guy – you really should be a mobile – mobile is really where it’s at. Mobile is really big. Everything goes to mobile. You guys should really be a powerful mobile application. Why don’t you have a great mobile strategy? If you had a great mobile strategy, I would invest.”
He or she tells you tons of stuff that makes a ton of sense to you. So you go back to the team. You go, “Holy shit! Maybe we should be a mobile app.”
This shit continues on for weeks and weeks and weeks. All you do is not just that you are fucking confused out of your mind as the person that’s fundraising but you constantly go back to the team and you confuse everybody else as well.
So now your startup is zigzagging into Nowhere Land and you’re not able to make any decisions and you’re constantly confused and conflicted. Should we be doing A or B? Maybe we should be this. Maybe we should be that.
You’re fucking yourselves. Don’t be confused by conflicting feedback.
Here’s the way to avoid this deadly fundraising sin. Number one, going back to the other ones, you want to compress these meetings as much as possible because imagine, instead of having one meeting, then having time and space to be confused by that feedback, imagine you had the one meeting with the marketplace person and the next meeting with the mobile person within two hours.
You come out of the marketplace meeting and you go, “Oh shit, maybe we should do marketplaces.”
Then you go meet the mobile person and you go, “Oh, that person says we should be doing mobile.”
Then you have the next investor meeting. That person tells you you should be a consumer app. The next person tells you you should be something else.
After seven meetings, you know what you do? You relax a little bit.
You go, “These motherfuckers all have different opinions.” You relax. Don’t take that feedback or those opinions as gospel and truth. You take it for what they are. They’re just fucking opinions.
So the other thing is once you had like a week of getting every investor’s opinion, now you can get back to the team and elaborate on this and get some ideas out of it. But you don’t want to zigzag that much.
So, one way of avoiding this is to compress all your meetings in one. The other thing is to not instantly go from investor meeting to your team sharing everything that happened there and getting them distracted and stopping them from doing the work.
The other thing is you need to anticipate bias. Look at every investor that you are meeting with and try to figure out what has been their career path. What was it that made her successful? What was her biggest success, the things she made the most money with, the biggest investment? What’s her bias?
So when you go into the meeting, you can anticipate the bias that you’re going to be confronted with and you’re not like surprised by it.
Fundraising sin #5: Turning into little insecure teenagers.
Fundraising sin number five, turning into little insecure teenagers that are pissing in their pants.
Here’s the crazy thing. Most entrepreneurs are risk takers. People that go and work at startups are risk takers. We said fuck you corporate world. We said fuck you academia. We said we don’t care about the traditional path that you want us to be on.
We’re risk takers. We don’t care what our parents want us to do. We go out there to make shit happen and we take risks.
But the moment we are in front of an investor, we turn to little, insecure teenagers. It’s the craziest thing. I see this all the time and I went through this myself. You’re so confident but the moment you meet with an investor, you just want them to love you. You just want them to say that you’re pretty, that you’re cool. You want them to love your baby and say that it’s great.
If they don’t, it crushes your heart. This is one of the biggest fundraising sins ever. There’s nothing less attractive than a needy, little, insecure teenager. Nobody wants to give their money to that and it’s the same with attraction between two opposite sexes or the same sexes.
Confidence is an incredibly attractive trait. That’s the same thing in fundraising. What somebody wants is they want to be attracted to you and one of the strongest ways to be attracted to you is for you to be confident, for you to believe in what you do.
That confidence is going to translate into making me as an investor confident and attracted to you. Nothing is less attractive than somebody that’s like coming into the relationship with weak and apologetic attitude and with a needy attitude that’s like I just want you to like me.
“Well, we could do whatever you want, dear investor. Oh, you tell us to be a marketplace? Sure, we’re going to change everything we set into being a marketplace. Oh, you want us to be a mobile app? We will do a mobile app. Oh, you want us to change our logo? We will change our logo. We will do whatever you tell us to do.”
Nothing is less attractive and nothing will make you less likely to getting money than being a little insecure teenager. You need to get over your fucking yourself. Investors need you more than you need them and I know this is a hard truth to believe. But there’s a lot more fucking money on this planet than there are great startups. That’s a fact.
So if you are truly a great startup, they need you more than you need them and yes, I’m sick and yes, I’m feeling better and better by the minute. So for you people that are joining into the webinar that are wondering what’s going on with me, I’m a little sick. So that’s an accurate statement.
So you want to have confidence. I shared this in more detail in an article. You could search for this. There’s an article on VentureBeat that I wrote called Investors Turn Entrepreneurs into Insecure Little Teenagers. You can read the entire story there.
The funny thing is this. I will give you a back story on this. When I wrote this article, there was an investor that emailed us because they wanted to meet with us and here’s the email that I got.
It was something along the lines of like, “Hey, I’m writing from this big, important investment firm that you’ve heard of, we’re San Francisco and around the world. You might know all our portfolio companies,” insert a bunch of really incredible companies. “Our partner Travis, who’s one of the founding partners of the firm, he’s really impressed with your company and really asked me to find out more about you guys and try to make a time for a brief call. Let’s chat. When is a good time for you?”
The crazy thing is that when I got that email – now that I’m a little bit experienced with this, I realize, “Oh, this is probably an associate that’s sending me this email or an assistant.”
They’re not setting me up for a meeting with the investor or the main partner. They’re probably going to try to set me up with a meeting with the junior associate. I will tell you why this is sometimes a risky strategy.
If you meet with junior associates that have no decision-making power, their job, their full-time job is to learn as much as possible about as many markets as possible. The job is going to be to spend as much time with you, learning as much about your market, your company as possible. But that doesn’t really translate into them being able to make a decision on investing in you.
So a lot of times these meetings are a waste of time. So I’m not meeting with the associates.
So when I got that email, my reply was, “Hey, thanks for the kind words. Thanks for reaching out. I’m happy to jump on a call with Travis next week, maybe Thursday or Friday.”
They had this email, which was exactly what I anticipated.
“Hey, thanks for getting back. I would really like to schedule a call with Justin.”
I’m like, “Who the fuck is Justin?”
“We were talking about this big partner. He’s part of our – he’s a team member that works really closely with Travis. Would that work for you?”
My response was, “Thank you, but no thanks,” basically. I’m happy to meet with Travis, whatever his time. If he doesn’t have time, I don’t want to meet with Justin.
She replies, “Hey, I totally understand that. Unfortunately, Travis’ schedule is so busy. It’s so dense. So he needs some data points first.”
Which means like he wants to know everything about my fucking business before he takes 10 minutes to chat with me. Should that go well, then we would certainly find a time to meet with you, with Travis. But basically, shut the fuck up and take the meeting with Justin.
To which I replied, “I’m happy to jump on a quick call with Travis. I’m cool postponing a discussion until he has time.”
I’m saying, “Listen, if he doesn’t have time for this meeting, I don’t give a fuck. Then let’s not meet. But I’m not going to meet with fucking Justin or anybody else in the firm. If Travis reached out because he’s “so impressed,” which is bullshit, but if he’s really impressed, then he needs to talk to me. If he doesn’t want to talk to me, that’s cool with me. Let’s not talk.”
So here’s what happens next. I get an email from the partner and the partner says, “Hey dude. I see that you follow your own advice 🙂 I just read your blog post about founders not being intimidated by investors. My assistant is copied on this email, coordinating a time for us to talk ASAP.”
Funny how that worked, right?
So big partner reaches out, wants to meet, then pushes me down to some junior associate. I say no. They push and say you really have to meet with the junior associate. I say I don’t give a shit. I’m not going to meet with him. Then the partner looks at this, sees the article I wrote about founders not being intimidated by investors and sends me an email and says, “Yes, let’s meet ASAP.”
Nothing more attractive for investors than a founder that has balls, metaphorically speaking. Many women have bigger balls than men. You just have to have guts. You have to be confident. You can’t be intimidated.
You have to realize that investors are not smarter than you and they don’t know shit more than you. They have money. So what? Other people have money too.
You need to be confident. You can’t be insecure. You need to believe in what you do enough to not be pushed around by them.
Fundraising sin #6: Falling in love.
Fundraising sin number six is falling in love. This is a very dangerous thing in fundraising. So here’s the deal.
Here’s the deal, sorry about that. As a startup person and as a founder, when you go out there to “date” investors, you’re trying to fall in love. You’re trying to get married with somebody for the next five to ten years of your life, maybe even longer. You’re looking for long term commitment. You’re looking for the right partner in your life, raising your baby with you, your startup baby. You’re looking for somebody to be a parent with you, to help you raise a fucking child, right?
But as an investor, their “job” is to be a “professional”. They’re dating with tons of founders. They’re always going to be dating with tons of founders and they’re not going to be monogamous with you. They’re not going to just invest in you for the rest of their lives. They’re going to be fucking around and they’re going to be investing in tons of other startups. They have a portfolio strategy. Their whole idea is that they’re going to be sleeping with tons and tons of startups and one of them surely is going to be massively successful.
Your life and your world is totally different. Your world is that you’re looking for love. You’re looking for that one investor. You’re not going to be – keep getting more and more investors for the next five years, as many investors as possible. It’s usually not how it works.
So they’re also professional at the dating part. Like you are like a newbie. You just go out for the first time dating somebody and they have been like on the streets dating people daily for years. That’s a full-time job.
So the problem is that once they like what you do, investors are really good at flirting and they’re really good at making you fall in love. They will be telling you how awesome you are. They will be telling you how much they like it. They will be spending more and more time with you because – by the way, when an investor spends an hour with you, they’re making money. They’re doing their job.
When you spend an hour with an investor that’s not giving you money, you just wasted an hour you could have built your business, closed a customer, built some code, made some PR happen, hire a person. You’re wasting an hour of your company’s time versus the investor who’s just doing their job. They’re being paid for their fucking hour.
So once they like what you do, investors tend to want to date for as long as possible. They will give you all the right signals. They will make you fall in love. They will be like, oh, I really love it. I’m really excited. I really want to know more. I really can imagine being with you.
You start falling in love and that’s a really, really big mistake. You want to be interested but you don’t want to fall in love because what happens a lot of times – I will give you an example from partner meetings, right?
So in a lot of investment firms, you have a bunch of partners. The way this works is that a single partner will – every partner will be meeting with lots and lots of startups. Once in a while, if a partner really likes a startup, they will bring it in for a Monday meeting which means a full partner meeting. So now you come in and you present it in front of all the partners. You leave the room and then the partners discuss if they want to invest or not and usually all partners need to – need to be onboard with it.
A lot of times, the partner, once they really like you – a partner might bring in a deal every month, maybe every two months a deal. So they will bring in a bunch of deals and not all of them will be investing because most partners join the boards of the companies they invest in. So they can maybe make some aggressive firms. They might make four investments per year in some less aggressive firms. Maybe a partner will just make one new investment per fucking year, right? Because they can’t just join hundreds of boards.
So here’s what happens. An investor will tell you, “Oh, we love you. I love you.”
They will be meeting with you again and again and again and again. We will make you really fall in love. They will fall in love with you, fall-in-love-ish. They’re going to be like flirting and dating you and then they say, “You know what? I want to bring you in for a Monday meeting for a partner meeting.”
Now you show up at that partner meeting. You think – because this partner is so like excited about you, that all the other partners will too and you think surely this partner has briefed everybody. When I come to the partner meeting, these other partners will know who I am, will know about our startup, will be briefed and probably a little positive about it.
So all I have to do is I don’t – I can’t mess it up but I just have to present because this guy loves me. Oh, this gal loves me. So I’m surely just going to present it in front of the partners, answer some of the questions and then hopefully this deal is going to go through.
Here’s what the reality is. You show up on that Monday partner meeting. It’s so crazy. You show up at that meeting and that partner that was loving you, he introduces you and you see the room and you realize these partners don’t know jack shit about me.
They got an email on Friday. This is Monday, about like here’s a quick summary of all the startups that are going to present for us on Monday and half of the partners did not look at that email. They don’t know who I am. They don’t know anything about my startup. They’ve got zero briefing on it. Two of the partners in the room, they’re reading their email on their BlackBerrys or iPhones. They’re not even paying attention to your fucking presentation. One of them seems pissed about something.
You realize, shit, this is not a group of friendly people that are prepared and expecting this. This is a group of random people that just sat in and just got to listen. You present and that one partner is giving really critical feedback or has a very critical question and you kind of expect the partner that brought you in to be supporting you, to be fighting for you. That partner doesn’t say anything. He just sits there and lets the negative partner crush you.
You walk out that door and the partner says, “Yeah, yeah, thank you so much. Thanks for coming in. I will get in touch with you later today. I will let you know how it went.”
You leave that room. You go back to your office and you wait the entire fucking day for a call. No call. The next day, no call and a week later, no call. You go, “Are you fucking kidding me? You were like dating me for months, pushing me to come to this fucking partner meeting. I come. I present. You tell me you’re going to let me know how it went and you’re not emailing me. You’re not calling me. You’re not texting me, nothing. Fucking asshole!”
This is how 90 percent of all partner meetings go. I’m sad to crush all your hopes and I see Vosus in the chats going, “LOL. Were you present in our investor presentation?”
No. It’s because many, many, many partner meetings go down like this. It’s very disappointing and when you’re new to this game, it’s kind of soul-crushing because you fell in love. You believed it was true love and you come into the partner meeting with hopes and dreams.
You walk out and you realize it was just fucking business and the person doesn’t even have the decency to let you know it didn’t work out. A few people do. A few investors are different. A few partner meetings will be different. Once in a while, partner meetings are really fucking awesome and they invest immediately. But most of them will not. So you need to be prepared for that. You need to avoid the fundraising sin of falling in fucking love. This is business. Keep it that way.
Fundraising sin #7: You haven’t raised shit until the cash hits the bank.
The last but not the least fundraising sin is not realizing that you haven’t raised jack shit until cash hits the bank. This is particularly true when you raise money from angel investors but this is also unfortunately true for VC firms.
Inexperienced startups and founders think that the moment you get a handshake or the moment you – when somebody signs a term sheet is the moment you raise money. Nothing could be further from the truth.
The deal is not done, the deal is not done until money is in your fucking bank account. It doesn’t matter who said what. It doesn’t matter how many handshakes you got. It doesn’t matter if the VC firm blogged about your fucking company. You have not raised a penny until that penny hits the bank.
Don’t forget that. A lot of startups are surprised especially when they raise a seed round from angel investors. How fucking long it takes the angel investors to send over the fucking money and how many of the angel investors that say, “Yes, I’m in,” are never sending the fucking money.
So just because you met with a bunch of jokers and they tell you, “Yes, I’m going to give you money,” doesn’t mean you have raised money. I know – I had a personal example with the first round we raised that was a catastrophe, that was only 50K. It took one investor – it was a 15K check. It’s laughable, $15,000, and that investor, it took that person six months to give me that check. Can you imagine that?
Besides that, there were three other investors that are multi, multi, multimillionaires that said, “Yes, we’re going to invest,” and never invested.
Just because somebody says yes doesn’t mean you’re going to get the money. Even with term sheets there’s – the world is littered with dead startups that got term sheets from VC firms where we see firms that said, “Yes, we’re going to give you money,” and then didn’t give them money.
It’s your responsibility when somebody tells you yes, to turn that yes into cash in your bank account as quickly as possible.
When we raised our seed round, 1.5 million in four weeks, you know when we had all the money in the bank? Two weeks later.
You know why? Because I emailed, called and texted every fucking investor and VC firm multiple times a day until we got that fucking money in the bank account.
It’s as simple as that. It’s your job. You’re like a bookie. It’s your job to get the fucking money that people promise you.
Don’t just think, oh, these are important investors. This is a billionaire. This is the VC that invested in blah, blah, blah. I surely don’t have to micromanage them. Bullshit! You have to micromanage everybodyand for people that are really successful who are very experienced, they appreciate somebody that’s on their shit. They appreciate when you call them multiple times.
They go, “You know what? If this startup acts with their customers like they do with me, they got to be fine. They’re on their shit. They’re on the hustle.”
Investors are not annoyed if you are like on their case getting their money and the investors that are, fuck them. They’re assholes. It’s just as simple as that.
Please remember when people promise you to give you money, that promise is not success. Only cash in your hand, in your bank account, in your pocket, only money in the bank is true fundraising success. Don’t make this mistake. OK? Avoid this deadly fundraising sin.
All right. That’s all I got for the official part of the webinar.
These are the seven deadly fundraising mistakes I want you to all avoid, right? I want you guys to –
1. Don’t make the fundraising mistake of not creating a market.
2. Don’t make the fundraising mistake of fundraising in packs.
3. Don’t make the fundraising mistakes of fundraising a little bit and part-time or on the side.
4. Don’t be confused by conflicting feedback.
5. Don’t make the fundraising mistake of turning into little insecure teenagers.
6. Don’t make the fundraising mistake of falling in love.
7. Don’t make the fundraising mistake of thinking that just because somebody promised you money, that that means you’ve raised money.
Don’t make these fundraising mistakes and if you avoid them, you’re going to save yourself so much pain, so much time and so much struggle.
Now if you need a fundraising shrink, and we all do at times, if you’re in the middle of fundraising and you just need to talk to somebody, you just need to let all your emotional pain out, and you don’t want to go to your team and confuse the fuck out of them, send me an email. Send an email to email@example.com.
All right. So, I’m going to jump now to the question part. We can do this as long or as short as we want. As long as you guys have questions, I’m going to stick around. But if you guys don’t, we will let everybody go back to building their business. I’m going to scroll up into the chat. Thanks for everybody so far for paying attention to be part of this. I’m going to go through – back in the history of the chat and go one by one answering any and every question you guys have. All right? So let’s go into that part.
Do you think the initial struggle in 2008 was caused – was the cause that you were a newbie in Silicon Valley? How much time until you don’t smell like a tourist?
OK. So Attila – so I mentioned that when I first tried to raise money, I really struggled. It took me almost two years to raise 50K which is laughable. It was a huge failure and Attila asked, “How much of that failure attributed to me being a tourist or being a newbie to the valley?”
I don’t think a lot. I don’t think that – the smell was not the smell of a tourist. Not of the physical tourist but of a mental or experienced tourist. So what I mean by that is that I was a newbie not to Silicon Valley, the place. I was a newbie to Silicon Valley the idea. I didn’t know how to build a startup. I didn’t know how to build a technology company. I didn’t know how to raise money. I didn’t know how to build a technology or startup team.
So the newbie smell I had was the newbie of a person who doesn’t know how to build a startup. That smell only leaves you – you can be here for 20 years in Silicon Valley and still smell like somebody who doesn’t know what they’re doing.
This smell only leaves you once you learn your craft, once you learn how to raise money, once you learn how to build teams, once you know how to build technology, once you know how to grow a startup, once you get it.
For me, it took five years to get off that smell. For other people – I’ve met people that were able to turn that off in a year and I’ve met people that are around for 20 years in the valley and they still smell like people who don’t know what they’re doing.
So I think it’s a question of, “How successful are you in what you’re doing? How much do you understand how to play the game and how to build the startup?” I did not know anything and people could tell. But it was not that I was not living here for a long time. It was that I just didn’t know what I was doing. Great question by the way, Attila. I hope this answers it.
All right. So Nick asked, “Is this going to be a topic in Hiten and Steli’s podcast?”
Yeah. So go to thestartupchat.com, subscribe to Hiten Shah’s and my podcast if you haven’t already. Yes, this is definitely a podcast. We’re going to talk about startup incubators. We’re going to talk about fundraising. We’re going to talk about how to manage a board of directors and investors. We’re going to talk about a lot of funding and fundraising and investor-related issues on The Startup Chat. For sure, Nick. Great question.
All right. Next question. All right. So there’s a bunch of jokes. All right.
So Forrest asked, “How did you get the money from the handshake to the cash in the bank? Few tips and tricks.”
Very simple Forrest. You just fucking hustle people. So if you give me a handshake, you say, “Yes, I’m going to invest,” my next question to you is, “Awesome. By when can I expect the money and in what form are you going to deliver it?”
The investor is going to laugh and go, “Well, that’s a good question.” If it’s legitimate, they will say, “You know what? I will put you in touch with my accountant. He’s going to wire the money.” Then you’re going to say, “OK, cool. Can you put me in touch today?” Yeah. Today, if you don’t get an email, you send an email. You go, “Hey, can you please put me in touch with your accountant?”
The next day if you don’t hear, you follow up. Hey, quick, Bob. Please introduce me to your accountant. The next day you follow up. Please introduce me with your accountant. The next day you call. You say, “Hey, can you just do me a favor. What’s your accountant’s name and email? I can send them an email myself.”
You just fucking hustle and follow up until that connection happens. If it’s a shitty investor, they might tell you some stupid answer like, “Oh, well, I don’t know. I’m probably going to just – don’t worry about it. I’m probably just going to wire or send the money. We can figure that out later.”
No! No, motherfucker. We can’t figure that out later. That’s important and if you want to avoid that detail, that’s a bad sign, that’s a red flag. All you do to get the money is you follow up until you get it. You just hustle them. You just micromanage the process until you get the money.
You ask them, “How are you going to get me the money and by when?” Then you keep them accountable for it and if they don’t do it, you follow up. You make sure they tell you when they are going to do it and how until they do. Very simple. There’s no magic trick here. You just have to hustle and follow up a lot. I hope that answers the question. All right. The next question.
Let me scroll up here. All right.
So question, how to get warm intros and how to get intros from existing investors.
So that’s a good point. There’s a video actually that I made. I made a whole recording, five to ten-minute video, about how to get warm introductions to investors because I think cold emailing investors is a waste of time. The best way to get warm introductions from investors, if you have existing investors, you just ask them. Who’s another investor I need to talk to? Send me – get me in touch with them and if they say, “Yes, I will,” open your laptop, start incognito mode and tell them. Log into your email account and send that fucking email right now.
If you don’t have investors, you want to get warm introductions to investors, the best path to get that is to find – not to try to find other investors, but what you want to do is you want to find the startups that investor has invested in, that you want to find these startups that you find closest to you in stage or industry or relationship, whatever.
You email the founders of those startups and you tell them, “Hey, I’m trying to do something that’s similar with you. I need 10 minutes of your time to get your advice. Please, can we just jump on a quick call?”
Jump on a call. You pitch these people. You get their advice and if they really like what you do, you ask them. Hey, I saw that you got investment from XYZ. We really want them as an investor. Did you like them? Did you have good experiences with them?
If they really endorse them, then go, “Would you mind making an intro if you think that what we do is relevant for this investor?” The warmest and easiest path to get warm interested investors is through other founders because founders are very likely to try to help you because they got help from someone, from somebody else.
I hope that helps. If you want more details on that strategy, just find that video.
So next question, so what is the plan for Close.io? Are you planning to sell at some point? Are you planning to get any investor money in the future like 20 million plus?
The answers that – our plan for Close.io is to build it into a big bad ass business that we will want to run forever. We might sell – we might go IPO or we might keep it private forever. We don’t really give a shit. The way we run the business is we are trying to build the house we want to live in. We’re trying to build the type of business, the type of company that we would want to work in forever.
We just want to build a $100 million business as quickly as possible with as little people as possible because we love small teams. So we would rather be a 50-person team that does 100 million than being a 5000-person team that does 10 billion of revenue.
We might raise some money in the future once we think that we can utilize that money and we have a good way of turning $1 into $5 or $2 but we might never raise money. So our whole plan for Close.io is to build it into a huge business and have a fucking ton of fun with it. Everything else is tactical and we might go one way or another depending on what the future holds.
All right. So next question. There you go.
So Ben asks, “Steli. What do you think about starting conversations early…?” Where is it? Starting conversations early like asking for advice rather than for fundraising, a few months before going fundraising. Does that ruin the whole creating the market rule?
Ben, no it doesn’t. That’s actually a good point. So yes, you can – it is a lot of times a wise idea to build relationships with investors prior to needing their money. It’s not a bad idea.
But when you do that, what you want to do is you want to be very, very, very explicit that you’re not fundraising right now. You really want to tell people, “Hey, we’re not raising money for another year or two. I heard good things about you as an investor. All I want to do is I want to start the relationship to see if down the line, when we do raise money, if we’re going to work together. We would love to have a quick meeting and get some of your feedback and advice.”
That’s not a bad idea. But if you do that, make sure you don’t waste too much time on it. What I mean by that is that you don’t want to be meeting and updating hundreds of investors every fucking month. What you want to do is you want to meet with tons of investors and then decide who of these people do I like the most. Who of these people would I want to meet even if they didn’t have money to give me?
Some investors you’re going to like more than others and that’s important. When you meet with an investor, it doesn’t matter how important they are. It doesn’t matter how much money they have. It doesn’t matter how much success they had. If you meet with them and you don’t like them, don’t fucking take their money. Don’t build a fucking relationship.
So if you meet with tons of investors, it’s just like with any other person or people. You’re going to like some. You’re going to hate some. And most of them you’re going to feel like lukewarm, so-so, not at all. I didn’t like that person. I didn’t hate the person. It was fine. The ones that you want to build a relationship and invest that much time into are the people that you really, really fucking like. For those it makes sense. All right. I hope this answered the question. Let me go scroll back up and find the next question.
Funny thing here is that every time you ask a question, the chat jumps back, so I have to scroll back to find where I was in the chat history. All right. So all right. So next question is Ceil.
Hey Steli. What would be my next step when I wanted to raise money in the States next year from Germany?
If you’re in Germany, you want to raise money in Silicon Valley next year, the next step is to get on a fucking plane and visit Silicon Valley right now. What you want to do is you want to start meeting people, building a network. When you’re here, send me an email. I will meet you for coffee and connect with some people. You want to start building a name. You want to start learning how to play the game. You want to start being a familiar name and maybe for the next four quarters, once every three or once every four months, you want to come here for a week or two and re-meet the people you like and meet some new people.
Build a little bit of a network before you would try to raise money because if you don’t have a rockstar team and if you don’t have rockstar traction, if you’re not like – rockstar traction means like you grow so fast that every day your company’s value goes up by 10, 20 million. It’s insanity.
If you’re not at that boat and I assume you’re not, don’t fly in here and try to raise money in a month or two cold. You’ve never been to Silicon Valley and then you fly here. You try to raise money within a month or two. It’s not going to work.
So the best thing for you to do is start investing in relationships here. Fly over here. Meet with people. Start building a network for the next year by coming here, keeping people up-to-date, learning more and more, meeting more and more people, so that in a year from now, when you’re raising money, you have some friends that help you.
All right. Next question. So next question is from Nick. Really open-ended question.
What’s your opinion on how do you set the valuation, your pitch to investors?
So I’m not exactly sure what you mean here Nick? Is it about like what the valuation of your startup should be when you pitch to investors? That’s both a trick and a simple one because the reality is that seed startups at a certain stage have just like standard valuations in certain markets. Just go with that shit.
You need to reverse engineer this. The way that it works if you talk to experienced investors is that they want a certain percentage of your business and a certain stage of your company. So the valuation is based on what the percentage is based on the money you want.
So let’s say you want to raise a Series A. Series A in the valley, investors typically will want to have between – let’s say on average they will want to have 20 percent. In some cases they go lower. In some cases, they went higher. But let’s say on average they want like about 20 percent.
If you know that, then based on the amount of money you want, the valuation is calculated. It sounds crazy but it’s as simple as that. So if you raise 10 million, then your valuation is fucking 50 million pre – and if you raise 1 million, then it’s fine. Whatever the amount of money that you’re raising should represent 20 percent of your company because that’s roughly what a Series A investor will want.
With seed rounds, it’s different. Like right now, seed rounds in the valley, if you are – there are just certain standards. You will learn these if you meet with a lot of founders that will raise money. You will learn, hey, kind of every founder at the seed stage at Silicon Valley is between five – the lowest end all the way to 15, to 20 million in valuation depending if you’re a YC alumni, depending on a bunch of things.
So you learn kind of the standards and then you go with that. If you talk to unsophisticated investors, those are people that have money but have not invested tons and tons of startup and don’t know that game, then it’s very different.
I’m not sure if I would advice you to go to dentists and doctors and executives of – somebody that owns a restaurant and get money from them and try to pitch them the value of your startup because it’s going to be hard for them to grasp that.
All right. Let me see if I can answer another question. Let me scroll up. All right. So what’s the next question? Hadas he’s pitching himself, applying for positions, emailed you. Hadas- I appreciate and I acknowledge your hustle. Keep hustling. That’s all I have to say for now.
All right. So next question. Ashish is asking. Where is it? All right. Every time somebody chats – and I want you to keep chatting but all it does is the chat fucking window jumps. I have to scroll again and find the question again.
All right. So Ashish asked.
Steli, what’s your suggestion here? Seven meetings and then a partner meeting with the VC firm and they are still not saying yes.
My suggestion is fuck them. Again, take my advice with a grain of salt. I don’t live your life. I don’t have the perfect context of your situation. My advice might be horrible. Once in a while it is. So you need to make your own decisions.
But if you ask for my opinion, if you met with somebody seven times and get a partner meeting and then not yes, then they are a no. They’re not saying no because investors don’t like saying no because there’s no money in no.
It doesn’t bring them any benefit to tell you no. They could just indefinitely be in the Maybe Land and keep their foot in the door. If somebody meets with you seven times and then you have a partner meeting and they haven’t invested, they’re a no. You need to stop trying to get them and start focusing on the people that like your startup or realize that you can’t raise right now and go back and build your business in an alternative way. That’s my suggestion to you.
All right. Oleg-
Are you planning to go to the enterprise market? What is your percentage right now? SMB? Enterprise for Close.io?
So Oleg, we’re not planning to go to the enterprise market anytime soon. We’re the SMB market and we like it there. So right now if you’re like a Fortune 500 company, you want to buy Close.io, we will tell you not to buy it and to fuck off.
So our customers are usually between 5 employees and 1,000 employees because customers are probably 100, 150 salespeople on the Close.io system for one single customer. That’s kind of the range that we’re playing in and we like that.
All right. Next question. Are your investors – let me see. Let me scroll up. It jumped again.
Are your investors OK with your vision for the company? Some of them want exit and cash out.
Well, the funny thing with us is that when we raised money, we raise the seed round or convertible debt which means that we don’t have a board of directors. I mean we do but the founders are the board of directors. We don’t have any investors on the board. So we kind of run the company the way we see fit and our investors trust us. They don’t try to micromanage us. They can’t because they don’t have that power but even considering that, none of them has tried to micromanage us. So we don’t have that problem.
Padas asked, “Hi Steli. Did you have any magic moment with your investors that you want to share with us?”
It’s too open-ended of a question my friend. I had many shitty moments with investors. I had some good moments with investors, many of which I shared in multiple various stories. If you send me this question as an email, I will think about it. I will share with you some links and might record a video about it. But for now, it’s a bit too open-ended. I wouldn’t know where to start or where to end. But good question. Just shoot me an email about that.
Should founders give discounts to investors who can give more time and advice than others?
No. At least I wouldn’t. Fuck it. If they have time and advice, then give them a fucking job and pay the money for it. If they’re supposed to do work for your startup, just fucking pay them. But I wouldn’t give them discounts on advice bullshit because the truth is that that’s – you don’t know if their advice is going to be good. You don’t know if they might be telling you, “All right, I have lots of time.” Then you give them a big discount of the investment and then a month later, they go, “Shit. I just started a new company. So now I don’t have as much time.” Now what do you do? Nothing. You’re fucked. You already gave them a discount for something that’s not certain, which is how much time and how much valuable advice they could give you.
No. Give them the same deal as every other investor and then tell them. Every month that you’re in the business and you’re helpful, I will give you a bonus amount of equity. You could just have a separate advisor agreement with them that says that over a three-year investing period, on a monthly basis, every month that they’re spending X amount of time with you and give you advice, they get another batch of shares. That’s a good deal because if they start spending time with you, if you don’t like the relationship, you can cancel it at any time. They could still get those extra shares for all the extra work they do. But don’t give them a discount upfront. No.
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