Recently I was fortunate enough to have raised a seed funding round from a fantastic group of investors for my pre-product, pre-revenue B2B SaaS startup here in Austin, Texas. If you would like to read more about my company, here is the product launch and funding announcement.
Raising the round was a full-time job for four months. Enough people have asked me about exactly what process I followed and what the experience was like that I thought it might help other founders if I shared what I learned and exactly how I attacked it here.
So that we speak the same language, first we need to agree on some definitions. Next, I will share facts about our raise. Towards the end, I’ll share some opinions. In conclusion, I’ll share the one important thing that kept me going through some challenging times.
I believe that most of life can be visualized in a funnel or a Gantt chart. I’m weird that way. It’s the lens through which I view every relationship, transaction, thought, and action.
Most importantly, just because this process worked or me does not mean it will work for you. There are no roadmaps to building companies.
Cold Prospect: A person or firm who I have no connections to and one who I did not get an introduction to.
Warm Prospect: A person or firm who I have a relationship with, who I received a personal introduction to, or who I have a strong second-degree connection to.
Lead Investor: The person or firm who defines the terms of the round. This is not defined by check size or by being the first person to commit.
I tracked my raise using HubSpot’s free CRM. Every email, phone call, meeting, and text message was noted. It worked well enough that I ended up buying it for my sales team.
I wrote a lot of emails. It was the primary way I communicated with prospective investors. Every single prospecting email was hand written for that specific investor.
Over the course of the raise, from prospecting to answering questions, to dealing with logistics and closing, I wrote more than…
My approach to deciding the amount of the round was that I wanted to raise enough to achieve something meaningful, not just enough to keep the lights on for 6 months. I used the S3 Ventures operating model to come up with my number.
Early on I decided that finding a lead first was important and I aimed high. I found a great lead in Mark Cuban. His team was fantastic, they were fair, they helped provide us with a good foundation for other investors to participate in. Having a reputable lead not only helps with establishing terms, it helps to get other investors to participate.
I did a bit of cold prospecting whenever I had time. My cold contacts came from LinkedIn and Angel List. I used Rocket Reach to get the email addresses for those contacts. You’ll be surprised who you can reach if you try. The key to getting a response on any email is to be brief. Answer the “who are you, what do you want, why should they care” questions in under 5 sentences.
Every initial email I sent also had a single page PDF executive summary attached to it. That summary provided a very high-level overview of what we were doing, who we were, and a bit more about the market. Enough to pique interest or answer really important questions not addressed in my brief email, but nothing as in depth as a deck.
The bottom line though is that cold prospecting for investors really doesn’t work. Even some personal intros told me they just didn’t know me well enough. As I’ve written before, human connections are the only way money changes hands in seed investing. Here is my cold prospecting funnel. It’s possible I could have had more success on cold prospecting if I had cast a much wider net or if I was willing to automate the emails but I dislike being on the receiving end of automated pitches so I wasn’t willing to do that.
Warm prospects were far more valuable. The vast majority of my investors are people I personally knew before even deciding to start the company. The rest came through introductions.
If I had relied only on Austin as my source of capital, I would have been in trouble. Here is our investor breakdown by region by the number of investors.
Here is our investor breakdown by region by dollars.
It is interesting to see that although the number of investors in Austin was much larger, the average check size was much smaller. This data corresponds to what I see most founders in Austin experiencing. There are plenty of investors in Austin, they just write smaller checks.
Anecdotally, I received ~10 inbound investor inquiries after our Angel.co page went live. 100% of them turned out to be advisors or investors to competitors who were looking for intel. Angel List provides no recourse for this behavior so I stopped answering inbound inquiries.
- There were plenty of times I felt like it was impossible and I wanted to give up. I didn’t. My view was that until every last qualified investor in America had told me no or ignored me that I hadn’t yet arrived at the end of the line.
- Lots of startups (in Austin) seem like they are constantly raising their seed round. I don’t understand how they get any work done or plan for the future with a rolling $25k at a time fund raise. I don’t think that is a good way to run your business. Raise enough to get you 12–18 months and hit growth to get you into the larger institutional investors (or profitability if that’s your goal.)
- If you don’t treat the raise like a sales process by tracking it in a CRM you will definitely let potential investors fall through the cracks and you don’t deserve anybody’s money.
- Startup deal flow is the most important thing in an institutional investor’s life. If they go dark it means they are not going to invest. Just move on. Personally, anybody who went dark on me and didn’t give the courtesy of a “no” is on my black list and will not be allowed to participate in future rounds. I have zero respect for investors who don’t have enough respect for a founder’s time to utter the word “no”. If you are raising money in Austin and you’d like to know who to avoid, the list is short, just contact me and I’ll share it.
- Startup deal flow is the least important thing in a non-institutional (angel) investor’s life. Remember that. When they go dark, it’s usually because they got busy and forgot. Be polite, be persistent, never be rude, but force non-institutional investors to give you an answer and a dollar figure. If they say no, thank them for their time.
- Angel groups are largely not worth your time. You’ll spend a lot of time preparing, pitching, and answering questions from people who don’t know your industry. From a pure time to dollars ROI perspective, there is no less efficient way of raising money than from organized angel groups.
- If you can’t get a meaningful raise done then you should consider whether your business should exist. Alternatively, if you can’t raise the capital necessary but you are positive the business should exist, then it may be an indicator that you are not the right person to run the business.
- Austin startups, for the most part, do an especially shitty job of self-promotion and marketing. It’s unfortunate. Somebody should teach a class at Capital Factory called “How To Peacock For Startups 101”. If you can’t convince investors that you are a bad ass mofo with a bad ass idea who is going to build a rocket ship then why are you even doing this? Don’t you want to be ringing the bell on the NASDAQ? I sure as hell do and I plan to with Meta SaaS, the best SaaS management software if we don’t get bought first.
- Capital Factory served as a fantastic launching point for us and I owe Josh Baer and Gordon Daugherty a debt of gratitude for including me as a mentor, EIR, accelerator company, portfolio company, and friend. Capital Factory itself is a startup that is evolving and I think some of the recent decisions they have made are sending it in an even better direction. Even as an experienced entrepreneur I attend classes there occasionally and I actively leveraged the office hours as well as the discounts and freebies. There is no better place in Austin to go if you want to build your company. In fact, I’ll go so far as to say there is no other place to go.
Two Final Thoughts
- My company is at the beginning of a long road. Raising capital is not the goal, capital is a just one of many tools to help achieve the goal. The real challenge is execution. Execution is the part that keeps me up at night.
- Raising money is REALLY HARD as it should be. Throughout the raise, this one quote by Jeff Bezos kept me going. Maybe it will help you stay focused & motivated.
I had to take 60 meetings to raise $1 million, and I raised it from 22 people." –@JeffBezos
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