These Startups Get Funded, These Don’t — a lesson I’ve learned

This is Silicon Valley: Chapter 3 of 6

5 min readOct 13, 2017

Looking to land the first investment in your startup? I feel you. A dozen founders like yourself will start a dozen businesses before you finish your morning coffee, so things can get tough when it comes to attracting investors.

Since founding the Startup Fund, I’ve seen too many people demotivated after a few unfruitful attempts to raise their first round. Does it surprise me? Not really. If you happen to be a first-time founder, it’s easy to grasp the idea that success either happens overnight or doesn’t happen at all. One can also easily get lost in all the do’s and don’ts of seed funding.

So instead of presenting yet another list of self-motivating but not really actionable tips, let me share our firsthand experience about who gets funded and who doesn’t.

These founders land investments:

They identify investors who focus on companies in their space

You’ll get rejected. A lot. But that doesn’t mean your startup is predestined to fail! As they say: sometimes you win, sometimes you learn.

A lesson to take from unfruitful pitches might be that it’s neither your product nor your pitch that’s wrong.

It’s the choice of the investor that you should work on.

Identify investors that target companies in your space. Most VCs clearly state that on their website, or you can tell by looking at their existing portfolio. It’s homework worth doing!

They visit places where VCs hang out

This might sound like a no-brainer, but here’s why you better take it seriously:

Kevin Systrom, founder of Instagram, after being asked how he raised his first round of capital stated that “I went in a bar where a bunch of investors were getting together.”

Oh, and this was back in the days when Instagram had a couple of thousand users.

They seek funding when they have numbers in their hands

It’s not that I’d try to lower the power of great ideas and visions. However, these alone will hardly ever do.

In most cases, data beats gut feeling. And since you’re seeking investments, data is what your future business partner will want to get.

2,573 users is better than a few thousand users.

A 34% bounce rate is better than a low bounce rate.

12,632 pre-orders thus far is better than aiming at 20,000 pre-orders.

You see the point.

They treat junior VCs with respect

Not only can juniors get you in front of the decision-makers above them, most of them will be happy to do so. Why? Simple: if their firm ends up investing in you, they’ll be the hero!

Instead of spending weeks trying to get in a meeting with a senior partner, grab a drink with a junior who shares your motivation to a) get funded and b) succeed.

They ask for intros

Don’t be shy. Many doors will open if you just ask.

Look through your network on LinkedIn, look at who your contacts know, be assertive (but not pushy) and ask for an introduction.

These founders get ignored:

They fundraise just because it’s the thing to do

Truth be told, most companies can go far without getting funded by VCs. And that’s something you, too, should aim for.

Go as long as you can without someone else’s money.

Being a “funded startup” sounds very desirable. In the early days; however, you better dive into fine-tuning your product and acquiring a user/customer base.

A great example of the right approach is (as usual) Basecamp. In fact, they stepped it up a bit and made fun of Silicon Valley itself. You can read Jason Fried’s thoughts on the topic here.

They cold email investors

This never works. Period. Always aim for the warm intros.

Their meeting preparation is just so-so

We all know how hard it is to get a meeting with a potential investor. So make it count, and do your homework.

Can you explain your business case in less than 7 words? Learn it!

Get ready to answer questions about your market size and the speed it’s growing at, what milestones you have hit and are expecting to hit, what KPIs you track. Be prepared to discuss anything from UAC (user acquisition cost) to CLV (customer lifetime value) to conversion rates. Have these figures prepared in nice graphs; show them in an easily digestible and memorable way.

Be prepared to defend your statements. Some VCs will try to put you under pressure just to see how you react in stressful situations.

And last but not least…

Don’t expect to leave your first meeting with a check in your hand.

It will take time to negotiate terms and find co-investors to fill your round. Investing is a relationships game and most early-stage investors will want to build a relationship with you before making an investment.

It’s not an easy game to play, but if we all wanted things easy, who’d be left to drive the change, right?

Ask away if you have any questions or leave a comment if there’s anything you’d like to add!

Give this post some 👏 if it helped you in any way!