Fundraising for Founders, from a CEO who raised $155M
The CEO has three jobs: focus on customers and products, recruit good talent, and ensure the company doesn’t run out of money. No money = no company. Fundraising is one of the most consequential rituals in building a venture-backed company. But most founders have limited or no experience.
So I interviewed a founder with considerable fundraising experience: Jerry Ting is the co-founder and CEO of Evisort, an AI-powered contract management tool, and raised over $155M from venture capitalists (including yours truly). Jerry distills the key lessons learned from his journey and raises a few pieces of advice for founders. I included some takeaways below, and you can watch the full interview here:
Your sales pitch deck isn’t your fundraising deck.
Put yourself in the shoes of VCs: they’re concerned with understanding how an investment will lead to a meaningful financial outcome for their funds’ investors. Investors are looking for patterns that unlock non-linear growth. Conversely, the sales deck focuses on product features, value propositions, and explanations about how the technology works. Skip the sales deck and instead paint the big picture about why a company matters:
- What is the widespread problem that buyers are desperate to solve?
- How much value can this company reasonably capture if they solve it?
- What gives this company the right to solve it uniquely?
- What’s changing such that this problem can be solved now?
- Are there macro trends that will accelerate this company’s success?
Investors want to know what winning looks like for this business and determine if owning a percentage of this outcome will drive their fund’s returns. How do you quantify winning? The formula is simple: the # of companies desperate to solve this problem multiplied by the value you expect to capture by solving it.
Get to know the investor.
The typical VC investment for a successful company last 10+ years, which is longer than the average marriage in the US. And investors are harder to “divorce,” too! Consider the important role investors will play through board governance and get to know the person. It’s lonely at the top as a CEO, and your investor can be one of the few people you can lean on.
Ask yourself: Is this person really a partner you will work with long-term? Can you call them when a bump happens in the night — not “if” but “when” — and will they be a steady hand? Cash is green. But you don’t need cash — you need a partner.
Jerry rightly describes this relationship as a partnership. Founders typicaly collaborate with their investors to recruit and evaluate key executives, incubate strategic partnerships, and debate key decisions. Pick someone who will augment these tasks. As is true with any partnership, you must establish trust and invest in the relationship.
Be intentional about board composition.
Jerry talks about how each investor in Evisort played a distinct role at each stage of financing. His seed investor pushed him to focus on product, while he leaned on his Series A investor to help him navigate the operating challenges of a growing startup. It’s tempting to optimize for a venture firm’s brand or the highest valuation. But recognize that your VC’s brand won’t make you a better operator, and optimizing for valuation might mean passing on the investor who could have that influence.
For valuations, find the balance.
As a founder, you should aim to minimize dilution. It’s a long road ahead, and you should be compensated for the inevitable grind! However, don’t raise the bar so high that you can’t surpass it. Higher valuations translate to higher expectations, so choose a valuation that corresponds to achievable expectations while also minimizing dilution. Jerry summarizes this idea nicely:
The one important thing that I learned is that markets are efficient. You can kick the can down the road right now, but if you don’t catch up, the can will be jammed right down your throat the next time you fundraise.
And consider the exit. As Jerry puts it:
There are only three ways to exit the company: You go public, you get bought, or you die. If there’s a fourth, I’d love to learn it.
Yes, the dream is to take a company public. However, nearly all startups with successful exits are acquired. As your valuation increases, the market for potential buyers decreases. The number of companies acquired for more than $100M during 2023 was 257, while the number of venture deals in the US during the same period was 11,935.¹ Identify the potential buyers and take note of their size. You must identify the point at which your company becomes too big for potential acquirers so that you can control valuation and fundraising plans accordingly.
How to optimize the fundraising process.
Aim to timebox fundraising into 4–6 weeks. Stack rank the partners you want to work with (Tier 1, Tier 2, Tier 3). Don’t borrow someone else’s ranked fund list — build your own based on what your company needs in a partner at this stage. Do you need someone with sales experience? Or a domain expert? Would it be more impactful to have someone who has hired and managed execs? Figure this out ahead of time!
Meet initially with the Tier 3 funds to refine the pitch. This cohort will reveal common objections, helping you refine the answers and tweak the pitch deck for the partners you’re especially keen to work with. By week three, you should meet with your designated Tier 1 and 2 funds. Aim to make an announcement during the process that demonstrates momentum, like a big customer win or a key product release. If you earn press coverage for this announcement, that’s even better.
Remember that you’re always fundraising, even if you think you’re not. Meet investors between fundraising rounds to build relationships once the narrative is sharp. You can only make one first impression, which means articulating the company narrative mentioned above: What is the widespread problem that buyers are desperate to solve, and what’s your unique insight about how to solve it? It’s okay to meet with investors ahead of key milestones (email me anytime 😎) — this helps you evaluate their potential value and build a relationship!
While fundraising happens infrequently, mishandling the process can have grave consequences. Check out the interview for more fundraising advice. There are more takeaways beyond those listed above!
[1] Acquisition data from E&Y as of November 30, 2023. Deal volume data from Pitchbook and NVCA as of September 30, 2023.
