Some Rules for Fundraising

Fundraising sucks. 

No one likes it.  Founders don't start companies so they can spend half their time asking people for money and VCs don't love the dance either.  

However, it's a necessary animal, so the least everyone can do is act professionally, and most of all value each other's time.  That's what I'm most frustrated by--the lack of respect for other people's time.  Too often, both sides walk away from fundraising processes feeling like a lot of it wasn't time efficiently spend--even when it does lead to a round.

So here are a few things both sides should do to make the whole thing go a lot smoother.

For VCs:

  1. Be upfront about the possibility of you investing now versus whether this is a "get to know you" kind of thing.  It's fine if you want to learn about blockchain or you never do pre-product and maybe the founder will oblige your curiosity at some point, but right now, they need cash, so don't waste their time if chances are 0%.  
  2. Don't take multiple meetings and then pass for a reason that you should have passed on at either the e-mail state or after the first meeting.  "We just can't get there on a consumer deal" is not a reason for passing after five meetings.  
  3. Be transparent about process and timeline.  If you need 8 partners and a Magic 8 Ball all to agree, let them know when you've decided to start serious due diligence.
  4. Never ever take a meeting with a founder when you're in the middle of fundraising your own and can't write a check within reasonable timelines for this round (usually about 30-60 days for a seed.)--unless you let them know beforehand.
  5. Make it clear where your money comes from and what control you have over it.  Are you a fund?  Is it personal money?  How did you come into it?  Does anyone else need to approve this deal?
  6. Make references to founders you've backed available upon request.

 

For Founders:

  1. Be transparent around where you are in the fundraising process.  Does the VC need to call a special partner meeting because you already have three term sheets or is this the beginning?  I know you want to move fast, but don't make a VC prioritize your timing when I'm literally the first meeting.  I have other founders who literally need to know tomorrow or the round will close.
  2. If you're going to take a meeting with an investor and you don't think it's a good fit, just say it.  Don't make them do any due diligence or make an offer only to not take it.
  3. If you wind up getting more interest than you anticipated in a seed round, give the investors a fair opportunity to work together.  When you send terms around, get a hard number from everyone within a reasonable deadline.  I favor the simple math approach.  Take the amount you want to take, and divid it by the amounts offered based on everyone's average or requested size.  If you're 2x oversubbed, as long as you like everyone, give them a shot to do half their allocation, and distribute evenly what isn't taken.  People might gripe or bail, but the absolute worst is when you do a bunch of work, take meetings when you say you're still fundraising, and then get completely shut out of a deal.  
  4. Don't accept introductions to other co-investors investors unless you're willing to take money from the person making the introductions.  If someone shows me a deal, and then you cut that person out, that's professionally embarrassing for them and puts me and them in a weird spot.  There's just no reason for that if you manage the process right. If you really don't want to work with them, just be upfront about it.
  5. Take a moment to think about who might expect you to pitch them--former bosses that have been successful, people who funded the last place you worked at.  If your experience is due in part to the effort and resources of others, it feels like good practice and courtesy that you at least give them a look--or let them know why you might be going in a different direction.  

 

For both sides:

  1. Take professional meetings in professional or public settings during business hours--busy hotel lobbies are ok, but ideally, you avoid happy hour time because that's a less professional vibe.
  2. Alcohol should not be consumed in a professional discussion between two people where money and uneven power dynamics exist.

There's Always Other Money

In reading the NYT piece about the negative experiences of female founders raising, one quote stuck out to me:

"They put up with the comments, Ms. Renock said, because they “couldn’t imagine a world in which that $500,000 wasn’t on the table anymore.”

If you've ever had to fundraise, you can understand this.  It's an extremely vulnerable time where you're getting a lot of rejection.  When you finally get someone willing to fund what by now seems like a crazy idea, especially after all the criticism you've gotten during the process, you get in a mode of pushing for a close.  You're willing to overlook just about anything because you really need this money.  Rent is due.  Credit cards are maxed.  You don't want to lose this fish while it's on the hook.  

That's why so many of these founders went down rabbit holes that, in hindsight, maybe they shouldn't have--and where they have gotten some pushback.  That's why the agreed to meet at such and such time or place, or ignored the first set of comments.  

They felt like this was the *only* opportunity for their company to survive.  

The reality, and what it's important to remind founders of, is that there is *always* other money.  If one investor seriously wants to put money in, there's nearly zero chance that they're the only high net worth individual or VC on the face of the earth that will get there.  You convinced one person, and that means you can convince another.

It's never ever worth having your values take a back seat or not receiving the utmost respect from those who invest in you.  Know that you can move on, and there will undoubtedly be a much better partner for you in someone else.  

In fact, this is where you can use the ecosystem to your advantage.  If you tell community leaders that you got an offer for investment from someone you don't trust or someone that you don't think respects you or your boundaries, so you want to find replacement investors, I guarantee people will be willing to help.  

It's one thing to take time to just help someone raising--it's another to help someone who has had a crappy fundraising experience that no one should have to go through.  Founders and investors alike will point you in the direction of well-respected and professional investors.

Plus, many of the high net worth angels who mistreat founders aren't serious investors anyway--and there would have always been a strong chance that they would have bailed on you before the finish line.  

Why hasn't anyone else funded this?

This is the worst question a VC can ask.

It presupposes that the only good deals are the ones they can't get into--which is an odd way to think about the world.  I suppose the only club deal they would want to get into is the one that doesn't want them as a member.

There are lots of examples of huge deals that could have been had by anyone early on--Airbnb, Casper, Uber, etc.

And there are even more examples of oversubscribed companies that flopped.  

In the seed round, there seems to be little to no correlation between the "hotness" of a deal and its eventual success--and even less so with the returns.  Hot deals get bid up.  Prices go up, and returns go down.  The more you pay, the less you make.  It's simple math.  

Yet, so many investors--those who tout their networks and ability to see things early--question how they got to something first, or why it hasn't been scooped up already.

Weird, no?

Could you imagine them pitching to their LPs?

"We see the best deals--they're so good, they're already taken and we couldn't get in."

I wonder if this is the same conversation they had with their significant others the first time they met.  

"Why are you single?"  

Glad they weren't trying to adopt children...

"How come no one wants this baby?"

House hunting must be difficult...

"You mean, the people who lived here before don't want it anymore?"

Happy Fundraising!  :)

A Call to Brains: Can We Mobilize Education Like Manufacturing in WWII?

"In May 1940, Franklin D. Roosevelt called for the production of 185,000 aeroplanes, 120,000 tanks, 55,000 anti-aircraft guns and 18 million tons of merchant shipping in two years. Adolf Hitler was told by his advisors that this was American propaganda; in 1939, annual aircraft production for the US military was less than 3,000 planes. By the end of the war US factories had produced 300,000 planes,[2][3] and by 1944 had produced two-thirds of the Allied military equipment used in the war." 

- Wikipedia

Never before and not since then had any country mobilized itself, and so dramatically reshaped its economic focus, around a singular focus.  The ability of the US economy to churn out the mechanisms of war at such a scale in such short order changed the tide of history.

Today, we face different kinds of threats--and while we hear of stories about bombs and guns--the real wars are being fought with ideology, the environment and technology.  Our everyday lives are being threatened by lone wolves influenced by words, hackers who need nothing more than an internet connection and never have to touch a gun, and our own fragile planets inability to recover from what we've done to it over the years..

If someone has an explosive backpack, you can't stop them with a tank.

No bullet in the world can stop a hacker from breaking into our most vulnerable of systems.  

And floods?  Good luck with your missiles.  

These threats are only stopped with raw human intelligence, ingenuity, and yes, the ability to reach across cultures and connect with people as fellow humans not separated by borders.

Smart people are our last line of defense.  Kids learning to code or learning Arabic are going to do more good than kids learning how to shoot--and yet, intelligence is under attack in our society.  The same politicians who champion strength and defense are making the most destructive cuts to our best weapon against our enemies: education.

At a time when we should be undergoing the most massive mobilization of human intelligence we've ever seen--we've got a government trying to build more bombs and guns at the expense of every other social program to improve ourselves as a nation.  

Could you imagine if, at the onset of World War II, Roosevelt called for more shovels and barbed wire to dig trenches?  Or bows and arrows?

That's what we're doing if we're not making sure that we win the race to produce the most computer scientists, the most impossible cryptography to break, or the best solutions to combat our changing environment.

Exponentially spending on education should be seen as patriotic in the way that increasing industrial output was in the 1940's.  Rosie the Riveter should be Rosie the Programmer.  The GI Bill shouldn't just be paying for you to go to college if you sign up to shoot a gun--it should pay for your education if you sign up to protect our cyber infrastructure or learn the language of our enemies so we can gather intelligence.

We need a serious public commitment to getting smart as a country in the same way we committed to being strong over three quarters of a century ago.  Instead, we're rehashing Hillary's e-mails, fighting on Twitter, and trying to win meaningless political points instead of solving our biggest issues.  

How in the world did we get to the point where being intelligent was partisan?  

We're not the smartest country on earth--and we're not the country with the most PhDs, coders, scientists, language experts, etc., and that should put the fear of God into us the same as when we weren't the country with the most nuclear weapons.  Whether you're a Republican or Democrat, if you can't see the writing on the wall that this country isn't well prepared at all for the threats of the next 50 years--and that those threats aren't threats of military takeover, then I don't know how to even begin to have this conversation with you.

You Can Hear the Desperation When They Pull the Trigger: Gun Control or Empathy

I didn't grow up in a neighborhood where gunshots were a thing--and I know I am incredibly lucky for that.  That's why when I pulled up to the corner of Atlantic and Fourth by the Barclay's Center yesterday at a couple of minutes after 2pm, the sound of gunfire was pretty startling, and it's not something I can easily shake.

Pop!  Pop!  Pop!  Pop-pop-pop!  Pop!

I knew what it was right away.  

A car or motorcycle backfires once.  Construction noises are mechanical and repetitive.  Fireworks go off with a kind of chaotic randomness that you only get when timing is dictated by the burning of a fuse.

These pops had intent, and moreover, desperation.  You hear it in the cadence.  Those three quick squeezes in broad daylight on what is perhaps the busiest intersection in Brooklyn can only come from someone who has long stopped caring about the moments after their actions.  

I was glad to be on my bike because I was out of there immediately.  Whereas my first instinct in many instances might be to help--I was one of the first on the scene when I paddled out in a kayak to the helicopter and plane crash over the Hudson quite a few summers ago now--guns change the game.  Guns are to be run from--unless you're in unfortunate enough proximity to be closer to grabbing it than you are to getting away. 

I got away and called 911, and flagged down some MTA police on Hansen Place as well.  

This post isn't intended to say we need gun control.

It's to say that if you have any logical thoughts in your head, a desperate person with a gun presents a relatively simple choice for society:

If you don't believe that babies are born pure evil out of the womb, then you have to concede that either the problem is the gun or the desperate person.  This is a person consumed with so much fear, hate, frustration, etc., that they believe that ultimately, the risk of throwing their whole life away is worth pulling the trigger.  If you pull a trigger, chances are you're going to get caught or killed.  

So if you don't mind the guns, then what are you doing to address the person?

At one point, this person went down a path that conceivably could have been avoided with some help.  We know that--and we know the root causes.  Maybe they had an unaddressed mental illness.  Maybe they grew up in a family decimated by unfair criminal justice policies and lacking in positive role models.  Maybe they lacked economic opportunity, and turned to crime out of financial desperation--that they saw that the upside of theft or drugs calculated out to be higher than a life on welfare or in homelessness.

Sure, not everyone who deals with this winds up in a life of crime.  That doesn't make the people who do purely to blame.  Not everyone who eats spoiled food gets sick--but you don't blame the sick people for not having iron stomachs, you blame the restaurant.  You don't just enact policies to penalize restaurants either--you give them little hand washing signs for the bathroom, you inspect food along the supply chain.  You figure out the root causes and work on preventing them no matter how far up they go.

We know, factually, that all of these things contribute to crime--so if you want to prevent this from happening again and again, and you're not going to blame the gun, then you've got to enact policies that have way more empathy for people than the system currently does.  

You have to decide, as a society, that we're not going to let anyone get to the point where they think the solution to any issue they have is to start shooting in broad daylight in a busy intersection.  You'll decide that you'll teach kids anger management, communication, and give them skills that make them productive in society, not forgotten by it.  You're going to fix the issues that create havoc and desperation in people's lives--like getting bankrupted by a health issue or having an unstable housing issue.  You'll treat addiction for what it is--a disease--rather than a crime.  

That's what I can't reconcile about most of the gun rights defenders.  Their policies seem to align with not providing any services or social safety nets to people.  It's like, "We know your world sucks and is full of pitfalls that other people don't run into, but still, we're not only not going to do anything to help you, but we're not going to do much to curtail the guns that exacerbate these issues."

At this point, it doesn't seem worth arguing about whether guns should be a meaningful part of people's lives--but I hope we can all agree that desperation should not be.  Throwing people in jail and losing the key doesn't solve for the desperation component, but we know what does. 

So if you don't have a policy of gun control, I look forward to hearing about your support to increase funding for education, housing, physical and mental healthcare, and worker protections.