Fundraising is Sales — Filling the Top of the Funnel
Fundraising is a sales process and it’s foolish to not run it like one. You’re selling ownership in your company in exchange for capital and bringing on great people. Like any sales process, there’s a funnel.
The typical breakdown of the fundraising funnel looks like this:
Top of the funnel — Individuals that you’re either getting inbound interest from or can get a warm intro to for a first meeting.
Middle of the funnel — Everything that comes between the intro and getting a term sheet. There are different stages here from first meeting to partner meetings.
Bottom of the funnel — Negotiating the term sheet and closing the deal.
There have been many posts put together on the middle and bottom of the funnel, but not many on how to fill the top of the funnel. This post is about the top of the funnel and making sure you have qualified “leads” for your fundraise. FYI — this isn’t a “how to meet investors” post either.
How to think about filling the top of the funnel for your fundraise
Create a qualified pipeline — Like any sales process, you should put a qualified pipeline together. Think strategically and go for quality over quantity. Here’s a way to think about what “qualifies” an investor:
- They actually write the check size you’re looking for. ie- don’t talk to Series A firms if you’re raising Seed…yet. Eventually you’ll want to build a relationship, but it’s a waste of time right now. It’s like selling enterprise customers when you’re going after SMB. Wait until you have the product ready.
- They have an interest in your area. Don’t pitch the consumer tech guy a SaaS startup. Also dig into areas that are interesting to them. You can see this through their blog posts, tweets, and previous investments.
- Make sure there aren’t any direct conflicts. A lot of entrepreneurs also get too scared here.
Partners Over Firms — Many people tend to focus on the firm and the firm name, especially when it’s a high profile one. You should be focusing in on the individual partner. That’s who you’re selling primarily at the beginning stages of the middle of the funnel and who you will work with for a long time. When you look for “interest in your area”, I’m talking more about the partner than the firm.
Inbound is the best — Like all sales, Inbound is usually going to be better. It means that there’s real interest there and they want to talk. At the same time, prequalify your inbound! If it’s just someone going on a fishing expedition from a later stage firm, politely find time to talk with them at a later date or at least understand that you’re selling someone for you’re next round. Things that can create inbound interest are press, other portfolio CEOs talking, and just general research. If someone is interested in an area, they’re going to dig to find companies and you’ll likely come up.
Use existing investors or portfolio CEOs for intros — If you already have angels lined up or are fundraising for an A round or beyond, then existing investors will be a big help. One criteria more founders should think about when raising a seed round is how that investor will be able to help get them intro’d to an A round. Angels are often a great way to get intros to potential leads. They’re putting their money where their mouth is AND they’ve often been in deals with the VCs you want intros from.
Portfolio CEOs are also another great route to go. VCs often trust these recommendations highly — they did back the CEO you’re asking for an intro from.
Accelerators are a big help — If you can get into a top tier accelerator like Techstars… do it. I’ve gone through it twice and frankly I couldn’t imagine starting a company without it. First and foremost, great accelerators are a great prequalifier for seed deals. Smart folks run these programs and they’re selective in who they take… < 1% get in to the top programs. That sends a signal that you’re trusted and someone worth talking to. Accelerators can also help you build this funnel either through warm intros or thinking through the pipeline. FYI — there are many more benefits to an accelerator besides fundraising, but that’s another post.
Build relationships — The phrase often goes — “Ask for a check, get advice. Ask for advice, get a check.” It’s not always true, but this is a relationship business. Start building relationships with VCs early on. Not with the intention of getting money, but because you respect them. They might be former operators, sit on company boards, and have a broad range of advice that’s helpful. When the time comes, maybe they’ll be someone you want to work with. Maybe you’ll build something that’s outside their core. Who knows. What I do know is that this is a very serendipitous business and relationships are the fuel for that.
Your Market Matters— At the end of the day, certain markets are going to be more interesting or less interesting to investors. You’re selling a product, yet they can only invest in a finite number of these products every year. It has to be something that they’re interested in working on, especially in the early stages. If you’re in a hot market in 2016 like drones, AI, or VR, there are going to be more customers for your product. If you’re in a cooler market like “On-Demand” or “Uber for X”, you’re going to have less customers for your product. This doesn’t mean shift your business or make it something that it isn’t. It just means, take that into account when fundraising. You have to have conviction in what you’re doing. What’s hot shifts every 9 months in technology.
What about cold emails — Some people like it, some don’t. I’m in the camp of don’t do it, because I think there are better ways to meet someone. In today’s world I also believe getting an intro is not as hard as it used to be. A big part of a VCs job is to fill their top of the funnel with meetings and dealflow.
I may continue this as a series of blog posts about the different funnels of fundraising and how to approach them. Truth is, most of it has been written already. Top of the funnel is where I feel there’s been the most amount of information glossed over.