Rich

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

Saying you’re raising a bridge round immediately conjures this question in investors’ minds: “is it a bridge to nowhere?” Investors will ask this of themselves or of their colleagues. It’s gone from being a joke, to an old joke, to simply an expected next question. 

If you say this while fundraising it immediately puts you in a defensive position, having to explain why this is not a bridge to nowhere. 

If you never want to call your funding round a bridge, what do you call it? 

The beauty of the current seed fundraising environment is that it’s a phase. You may raise a Pre-Seed, Seed, a Seed 2, a Seed Extension all before you raise a Series A. None of those is a “bridge” and none should ever be labeled as such. It may seem minor, but investors can no more stop themselves from picturing “a bridge to nowhere” than you can prevent yourself from thinking about a pink elephant no matter how emphatically I tell you not to think about a pink elephant. 

Good luck raising your Seed 2 round!

Listen to the whole episode here:
Startup of the Year Podcast Episode #0046 – Zvi Band Talks About Scaling a Company

On this episode of the Startup of the Year Podcast, Frank Gruber talks with Zvi Band, the co-founder CEO of Contactually, a top CRM which empowers professionals in real estate, consulting, and other professional industries to build authentic relationships. He is also the author of the book Success is in Your Sphere.

Back to the VC Minute main page

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.

Back to the VC Minute main page

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 Fixer.com, and forthcoming book Hangry.

Back to the VC Minute main page

Let’s talk about treating your fundraise like a sales process. 

At its core, selling and fundraising are very similar. In both cases you are asking an individual or a company to give you money in exchange for something of value. In both cases you are competing for a limited pool of capital from people with limited time that have a wide selection of choices. 

Treating your fundraise like a sales process doesn’t mean you need to be a salesperson. It means that you should be organized because that organization gives you focus. You should have a system that you use to track potential investors—it could be as simple as a spreadsheet or as involved as a fundraising-specific CRM. 

Having an organized approach will make it easier to focus your energy. For example, if you have a stage called “Targets” filled with investors that you are targeting, then you can ask for referrals to specific investors. You can also track who you’ve pitched, when you pitched them, and what their interest level is. Even just the visual representation of seeing how many investors are in different stages can help direct your next set of emails and meeting requests. 

Organization brings focus. And Focus turns soft-circled VCs into committed capital. 

Listen to the whole episode here:
Startup of the Year Podcast Episode #0040 – 2020 Startup of the Year Summit Recap and Winners

On this episode of the Startup of the Year podcast, we included a recap of highlights from the 2020 Startup of the Year Summit.

Back to the VC Minute main page

Let’s talk about the right target amount for your fundraise. 

The amount you’re telling investors you want to raise is too high. 

This is one of the most common pieces of advice I give to founders, and one of the most consistent mistakes that founders make. And it is completely counter-intuitive. You actually want to set your fundraising target slightly lower than what you want to hit.

If you told me you were raising one million dollars and had $400k committed, you’re only 40% of the way there and I have plenty of time to sit on the sidelines. If you told me you’re raising $750k and have $400k committed, now engaged and leaning in. You may fill out the round and if I want to hit my target check size I need to move quick. 

There’s a lot more to this advice than I can squeeze into a two minute segment, but the lesson here is you want to be able to say this magic word to investors: oversubscribed. You get there by having a both a lowball target and high interest. 

Listen to the whole episode here:
Startup of the Year Podcast Episode #0039 – Funding Strategies with Dawn Dickson-Akpoghene of PopCom

On this episode of the Startup of the Year podcast, we talk with Dawn Dickson-Akpoghene, the Founder & CEO of PopCom, which has developed software to make kiosks and vending machines intelligent through data and analytics at the point of purchase. PopCom uses facial recognition, A.I, and blockchain technology to help retailers collect valuable customer insights. We first met Dawn when she participated in the Startup of the Year program with a company called Flat Out of Heels.

Back to the VC Minute main page