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In fundraising, trust comes before FOMO
Founders often make a similar mistake with their first fundraising as they do with their first launch: they expect people to care right away, out of the blue.
In one regard, you’re right: after all, part of a VC’s job is to listen to your pitch.
So there is a kind of “natural” audience waiting if you decide to raise money. Since VCs don’t want to miss out on anything, you can likely get a first meeting with several funds - assuming you have a sufficiently interesting team taking on a big enough market.
But often, founders come out of that first meeting with nothing more than, “Keep me posted on how the round evolves” or the tragically iconic, “Let me know if I can be helpful.” At that point, there aren’t any clear next steps: the round lacks momentum.
This is especially true for first-time founders in ecosystems with relatively few funds or angel investors: the inertia is simply very high there. It’s so high that a lot of the fundraising advice written for other ecosystems (SF, NYC, London..) doesn’t end up being particularly relevant for them.
Since investors are trying to assess the risks tied to any potential investment, time plays in their favor: they want to see how you behave as a team, understand how your customers are engaging with your product, and learn about your market. Until they feel like they might lose the deal to someone else, they have no incentive to move fast.
But time matters on both sides - building a trusting relationship takes a lot of it.
One of the founders should be building and maintaining relationships with a few potential investors from the moment you realize you’ll eventually need to fundraise.
This isn’t about talking to 50 investors - make it more like 10, maximum. Among them, you should have your true top 5. Those are the ones you want to speak to regularly, every 4-5 weeks. For all the others, just keep saying your heads are down right now, busy building & selling.
The purpose of these updates & conversations isn’t to discuss fundraising. That’s never what you should be optimizing for anyway. The point is to build a brand & install trust.
Your first conversation will likely focus on your product and your vision. Each of the following ones should be geared towards extracting value from the investor as well as showcasing your progress: talking about the team, the progress on the product, the clients you’re upselling, etc.
You’re cutting the trailer for your roadshow - a trailer that keeps them excited for the upcoming movie.
Putting yourself in the shoes of the investor helps here.
VCs are trying to draw your company’s “curve”. They need to find all the potential reasons a company could be a great investment while also understanding the risks that lie ahead. This curve is a lot easier to plot if they have several reference points rather than just one.
VCs are also trying to figure out if you’re “a good match”, i.e. if they feel you’ll be able to work together for several years. So you need to approach these conversations as discussions amongst equals. And the outcome might not even be an investment in this current venture, but it might lead to the right introduction or to a bond that carries over to your next business.
This might also give you some idea on when might be the right time to raise, namely if the investors start bringing up the topic.
Which brings me back to the title of this newsletter.
In a way, you should treat the “formal” fundraising process like you would treat a “formal” product launch. This should not be your first conversation with the people you’re “selling” to.
If you wait until you’ve launched on Product Hunt to start speaking to potential customers, you’re unlikely to have built a product people are desperately craving. You might have, but only because you got lucky.
In the same way, if you wait until the last minute to start speaking to investors, you likely won’t give them the time to buy into your story.
Raising a great round is all about building trust and figuring out the story that creates FOMO amongst investors; so start building those relationships sooner rather than later!
The Family team is counting down the days until our next batch of startups in January. If you're an entrepreneur willing to grow your startup in the best conditions, apply here. Be ready for an intense 6-week program: getting smart advice, accessing top operators and fundraising with the best investors.