Ask an Investor: How can I hack the fundraising process?

Silicon Valley

Welcome to a new BetaKit weekly series designed to help startups and entrepreneurs. Each week, investors Roger Chabra and Katherine Hague tackle the tough questions facing founders today. Have a question you would like answered? Tweet them with the #askaninvestor hashtag, or email them here.


Founders are always trying to hack the system, even when it comes to fundraising.

While the fundraising process itself is quite straight forward — get introductions, pitch, try to get multiple offers, and then close — many founders implement hacks along the way to get investors to commit faster, to encourage competition, and to get better terms.

Knowing what hacks other entrepreneurs have used, and what effects, both positive and negative, they can have can have on a fundraise will help you make an informed decision about whether to implement any of these tactics in your situation. So today we’ll cover the top 10 fundraising hacks — why they work, and when they backfire.

1. Set a deadline to create urgency

A common fundraising hack is to set a close date for your fundraise, either an arbitrary date or a company milestone, and state it publicly. Creating this deadline will force investors to act, making them commit faster than they might have otherwise.

The danger in setting a public close date is that if you aren’t able to get your commitments by your cutoff date, you go away looking like you failed. You lose leverage in any future conversations and you’ll likely need to wait until your company’s next milestone to hit the fundraising trail again, assuming you have enough money to make it there. Use deadlines cautiously.

2. Network your way to investors through entrepreneurs

This hack is a fundraising tactic from Dan Martell. Martell’s approach to getting warm introductions is to find companies on CrunchBase or AngelList who have raised money from the investors he’s interested in, and then cold emailing founders to ask to schedule a call with them for advice.

In all business situations, information is power. The more insight and context you have, the more leverage you will have. You should work hard to get information on your target investors.

Martell develops a rapport with them, and then asks who their investors are and if they’d be willing to make an intro. Where this strategy could backfire is if a founder you reach out to doesn’t like you or your tactics, and ends up sharing a negative opinion with their investor. If you choose to use this tactic, put as much effort into building a rapport with the founders as you would with an investor. Do your best to make the relationship reciprocal. Don’t just ask for things for yourself, have something to offer them too — like introductions that might be useful to them in growing their business.

 

3. Time media around a raise

Timing big media announcements to happen around your fundraise can help drive investor interest and provide social proof to investors. Publications like BetaKit that are read by investors are the best places to target for such announcements.

There isn’t really a downside to timing media around your fundraise, apart from the fact that coordinating media, and possibly the launch of features associated with that media, could distract you from executing your fundraise.

4. Inflate demand

Make yourself seem more in demand than you actually are. The way to do this is by claiming your schedule is really packed except for one specific hour, or claiming you are only in town for a limited time. Investors want what they can’t have.

Inflating demand usually works to peak investor interest, but if you aren’t able to raise, it may make you look worse (as it appears that you were in many pitch meetings.)

5. Play investors against each other

An example of playing investors off each other would be casually mentioning to one investor that you’ll be having dinner with another investor. People are inherently competitive; they don’t want to be outdone by their peers.

Also, people often believe that others have more information about a situation than they do. So if an investor knows another investor is interested in your deal, they might believe that investor knows something they don’t and look more favourably at the deal.

investors

6. Use software to get to know investors

The more you know about the investors you are reaching out to, the more you can customize your communication. Investors expect you to do your research. Luckily, there are a lot of great online tools to help you learn more about your targets:

  • Crystal tells you how individuals like to be emailed. Do they like short and to the point emails? Do they prefer friendly emails?
  • Rapportive is a great Gmail plugin to help you see a snapshot of your investor’s social profile before you hit send.
  • Zoominfo, Pipl, Klout, Data.com, and Boardex will do a biographical analysis of individuals, telling you about commonalities you can use in future outreach.
  • LinkedIn can be a powerful tool for telling you how you are connected to investors.

7. Use social media to turn cold outreach into warm leads

Social media is also a great way to establish an initial connection with investors you currently have no connection to. We spend more hours on social media than we do on email. Finding where your target investors live online, and engaging with them on those channels, will turn cold leads into warm connections that you can reach out to directly over email.

Hacks for non-Valley founders

The final three hacks that we’ll cover are specifically for Canadian founders and founders located outside Silicon Valley and other major funding hubs like New York or Tel Aviv.

8. Make local investors think you have Valley interest

Many entrepreneurs based outside the Valley like the idea of raising money locally, in part due to regional pride, and in part to keep their company and its investors local as long as possible.

But even if your goal is to raise money locally, I wouldn’t recommend you start with local investors. Non-Valley investors wish they were Valley investors. Try flying to the Valley multiple times, and dropping hints locally that you are taking multiple meetings with Valley investors. Give the impression of paying little attention to local investors. Local investors will get anxious, wondering what they are missing out on. We all want what we can’t have.

Silicon Valley

9. Say when you’ll be in town, even if you don’t know yet

Sometimes it can be hard to get an investor to nail down a date to meet, especially when there is no urgency. You can create urgency by stating that you are only going to be in town on a certain number of days, even if you don’t have a trip booked. It will likely force an investor to act and pick a time, more so than if you said, “let me know what works for you.” It also changes the power dynamic, shifting some of the power in the conversation back to you. Once the investor confirms, book your travel.

10. Fake that you’re based in the Valley — at least part time.

Silicon Valley is one of the easiest places in the world to give locals the impression that you live there. Everyone in the Valley travels a lot and is from somewhere else. Show up at all the right industry events, and be in the Valley every six weeks or so and you’ll quickly find that many people simply assume you live there.

Once people think you’re local, they’re much more likely to invite you to events and make introductions. While you don’t want to lie about where you’re based, or trick investors into thinking you’re based locally, the illusion of being local will help you grow a network of supporters from which to kickstart your fundraise.


Roger’s Take:

Roger Chabra

It’s fundraising season and this is a great topic for us all to focus on. I love this post because it puts the leverage and power in the fundraising exercise back where it belongs – with the entrepreneur. VC behaviour is driven entirely by Fear of Missing Out (FOMO) and greed. These hacks help founders play beautifully on both of these.
 

Yet, as Katherine points out, you need to use these tactics cautiously. After all, fake things too much and this could all blow up in your face, leaving you with no lead, little cash left in your company, and an employee base that is sitting there discouraged and wondering what went wrong. However, being an entrepreneur is all about taking risks; you have to accept this, plan for success, and go for it.

Ideally, you would have some built-in optionality. By all means, tell yourself that your fundraise will be successful and you will find a great lead investor quickly, but make sure you have a backup plan that you’ve discussed with your fellow founders, existing investors, and advisors.

You can’t control everything in your fundraise, particularly external things like a sudden economic downturn or a competitor of yours announcing a round that you weren’t anticipating. Both of these situations may cause investor’s purse strings to tighten up. Backup plans come out of the optionality you have worked hard to build into your business for leverage in situations like fundraising. Optionality refers to the other paths your company can take outside of securing a new lead investor.

Time the raising of your round when you have ample amounts of money in the bank; this will help you get better terms with potential new leads, and if you don’t actually find a new lead, you can just put off your fundraise for a while and use your cash on hand. For some — typically later stage companies — optionality could come from the ability to become profitable quickly and fund the operations of your business from cash flow. Alternately, optionality can come from your ability to tap other financing sources such as debt or your existing syndicate of investors.

In all business situations, information is power. The more insight and context you have, the more leverage you will have. As a founder, you should work hard to get as much information on your target investors as possible. On top of networking with other entrepreneurs and the tools Katherine mentioned, some other great resources are Mattermark (their mobile app is great!), CrunchBase, and CB Insights. All of these contain very valuable information to help shape your fundraising hacks.

Happy fundraising!

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Katherine Hague

Katherine Hague

Katherine Hague is a serial entrepreneur, angel investor, and the founder of Female Funders, an online destination dedicated to inspiring and educating the next generation of female angels. She is the author of O’Reilly’s upcoming book, “Funded: The Entrepreneur’s Guide toRaising Your First Round”. Prior to leading Female Funders, Katherine founded ShopLocket —acquired in 2014 by PCH. Katherine has been named one of the Women to Watch in Wearables, one of Canada’s Top 100 Most Powerful Women and one of Flare’s Sixty Under 30. She has been quoted in the New York Times on fashion tech and was recently interviewed for the Oprah Winfrey Network. Find Katherine online at katherinehague.com.