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December 2020

VC Minute: One Word You Should Never Say While Fundraising

By Startups

Let’s talk about one word you should never say while fundraising: conservative. 

Your pro forma financial statements are not conservative. Your revenue projections are not conservative. They are complete fabrications… and that’s OK. The point of your pro forma financials is not to accurately forecast how you get to $10MM in MRR by year 3. The purpose is in the name:  “Pro Forma” is Latin for “for form” as in, something done for the sake of doing it.

Whether or not I believe you are going to get to $10MM in MRR by year 3 is beside the point. The point is in the exercise of doing it. I want to see where you think that revenue is coming from, if your cost of sales is realistic, what your staffing plan is, and more. Show how you get from here to there and let me better understand the drivers of growth. 

When you say your projections are conservative, it says two things to me: first it reinforces the fact that you haven’t been through this process before. Second, if they’re conservative projections then why are you presenting them to a growth investor? 

The lesson here is that you don’t need to label them at all, because you have already done so. They are pro forma. And they should reflect the growth that you can reasonably expect to achieve. 

Listen to the whole episode here:
Startup of the Year Podcast Episode #0042 – Startup Stories with Kara Goldin, CEO of Hint, and Bestselling Author of Undaunted

On this episode of the Startup of the Year Podcast, Frank Gruber talks with Kara Goldin about her journey as an entrepreneur and her new bestselling book “Undaunted,” which was just released in October of 2020.

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VC Minute: The Magic of the Soft Circle

By Startups

Let’s talk about the magic of the “soft circle.”

On the last VC minute I talked about treating your fundraise like a sales process. But there are a few critical  differences between fundraising and sales, one of which is that in fundraising there’s an important stage called the “soft circle.” 

The soft circle is broadly, every investor you’ve talked to that has not yet said yes or no. So, the “maybes.” More specifically, it should be investors that have expressed interest and there’s a reasonable chance you can get them to commit to the round. 

The way you get an investor in your “soft circle” grouping is by asking direct questions: “If we were to close the round on Friday, would you invest?” The answer here is going to be some shade of “maybe” and that’s OK. The follow-up question is, “what concerns do you have?” This opens up a dialogue about where to go with that investor.  And you can specifically ask them, “is it OK if I count you in my soft circle group?”

Here’s the critical piece of why “soft circle” is so important: you use it to show one investor the interest that other investors have in your raise. For example, you could say something like, “We’re raising $750k with $500k committed and another $400k soft circled.” The investor you’re talking to knows that you won’t close everything in your soft-circled. 

I usually take that soft circled number and divide it by three to make a rough estimate of where you’ll end up. And that’s OK. You’re showing that there is interest in your raise, and if they want in, they’ll have to act. 

One quick caveat: don’t fudge these numbers and don’t lie to yourself about who’s really soft circled. Your reputation can take a ding if you stretch or overstate your numbers. If you say you have $500k committed, you better be sure that’s $500k and not $100k. 

Listen to the whole episode here:
Startup of the Year Podcast Episode #0041 – Valuable Lessons from GrubHub Founder Mike Evans

On this episode of the Startup of the Year podcast, Frank Gruber talks with Mike Evans at our 2020 Summit. Mike shared his story behind starting and taking GrubHub to IPO. He also talked about his new startup, and forthcoming book Hangry.

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