How To Raise First Dollars In A More Difficult Market, The Venture Perspective

It is clear by now that the venture market has changed this year. That means that founders looking to raise first capital for their startup can’t follow last year’s playbook and expect results. So what do founders need to know, and how can they best snag investor attention in a market where the rules are changing? We’re bringing together Annie Case of Kleiner Perkins, Reach Captial’s Jomayra Herrera and Sheel Mohnot of Better Tomorrow Ventures to share the real nuts and bolts of early fundraising in 2022.


Oh good afternoon everyone as Alex sort Of prefaced we're going to be talking About fundraising some of you may be Like wait didn't we talk about this Yesterday on the same stage and we did But we test today we heard from three Founders who just gone through the Process and we're sort of thinking about Their next race and now we get to hear The VC side of the story and as Alex Mentioned and as we've kind of been Running throughout the day this is an Open q a these three VCS have agreed to Let me hold them hostage for the next 40 Minutes so please submit any questions You want to hear from them anything you Think we may not cover we definitely Want this to be sort of a resource so Definitely feel free to reach out Um but something I think would be good To get started with is I know when you Think about pitching you think about Raising money a lot of the focus comes Down to the pitch which makes sense That's when you're getting FaceTime with Investors that's sort of when you're Getting the feedback and you're getting The information on whether or not it's a Good fit for them but something we all Talked about when we were prepping for This is that stuff happens before that And there's some information that would Be good to get from Founders even before They come into that formal pitch session

So I think that actually might be the Best place to get started thinking of Before the pitch what are you guys Looking for and sort of what is helpful To get from Founders before you even Meet them for the first time I don't know if and you want to start Sure happy too hi everyone thanks for Being here in terms of you know what What to share before the actual pitch Meeting I think we see a broad range From the founders that we connect with Some people share a deck some people Share virtually nothing at all and just Get a warm introduction we were talking Before this about how helpful it is when Founders do share a deck in advance I've Always found that it just makes for a Much richer discussion when we do have That pitch meeting I found at times Founders have felt like their the deck That they worked so hard on and you know Spent many hours getting perfect before The pitch meeting feel like that's Something they want to kind of hold off On sharing and wait until the actual Pitch itself to walk through the deck And I've just found it so helpful as as A VC to be able to see it in advance and Really think through you know going Through all of this all the areas that We look for in an investment Market Founders product traction all these Things it's just helpful to walk through

Those materials in advance so that you Can say actually these are the areas That I want to spend are you know 30 or 45 minutes together really diving into So that you as the founder don't have to Repeat yourself you know 12 times a day As you're meeting investors and it can Instead focus on whatever that one Investor may want to drill down on and Get a better sense of what might be Holding them back from an investment or What they're most excited about so I Always recommend that Founders if They're comfortable share the deck in Advance I just think it makes for a much Richer conversation I I totally agree Um and I know that sometimes I think What Annie was referring to you might Feel a little uncomfortable sharing all That information in advance and so what I generally recommend is having almost Like a teaser version of the deck where You have enough data and enough Information to give us a sense of where Are you in terms of the Journey of your Company a little of information about Your team and just enough information so That we come prepared to the meeting and What I also recommend is make sure all The slides in the deck aren't ones that Require a voiceover so leave the Voiceover slides to the what you might Present in a formal pitch and that's Ahead of time another thing I really

Recommend is for products that need to Be seen and that you can actually trial Ahead of time so like an app for example That I can download but actually Something that requires me to go through A sales process or whatever it might be Have a product demo send like a quick Video so that again we have a much Better sense of what your product is and What you've built to date and we can Come prepared to the meeting Yeah I mean no surprise I completely Agree I would say in terms of etiquette You know the way you get introduced I Would say Send an email with a blurb about your Company and then yes a teaser deck or The full deck if you wish Um for folks who don't send that I Actually generally don't even meet with Them because I say hey there could be a Conflict in my portfolio I don't want to Spend the time I don't want to waste Your time Um unless I can learn a little bit more About the company first Um and then you know if I know more About the company it actually can be a Really effective use of time that we can Just Dive Right into questions I might Have about the company because I will Have looked at the deck beforehand Um so I find that to be the best way to Go for my from my perspective and then

Yeah Jamara I think a demo if there is a Product to demo there's amazing pitches I've had that were just really LED with The demo if you look up uh Dylan's uh Seed pitch deck at figma there's a great One on YouTube where he just talks about The problem Loosely for a few minutes It's and demoing a product and getting People to love the product What should Founders be ards me to Answer I think I'm A team so kind of your story journey to Date what got you excited to build this Company talk about you know strengths And weaknesses across the leadership Team who you plan to add to the team Post a raise Thenx on the market how do you think About where you sit in the market what Have you done in terms of customer Discovery and then come up on a Case-by-case basis that maybe are Related to the fundraise at the Beginning but I think sometimes Founders May not spend as much time on it as if You're looking at a seed investment in Particular but but just as true at Series a what is your kind of learned Insight or unique Insight on this on the Space that you're tackling around why This is worth doing like why is this Event or worth pursuing why should we Get on board with you and say like let's

Go build this thing together and put you Know everything on the line to to be Able to build this future I think Sometimes Founders will say yeah like You know I worked in the space before And I thought this was a problem and so Here I'm solving this problem and that's Great but I think the the times that I've really leaned in and said wow like This is a founder I need to work with is When that story is just so compelling That I'm like yes like this person the Sisters to just say this is my life's Work and you should be on board with This because we're going to build Something huge together Um I think it's just an area Founders Should spend more time totally that's Almost always the first question I ask Um I I think I probably heard someone Else say this but there's a bunch of Teas so team like is this the right team To solve the problem Tam is there a big Enough market where if there's if you Really succeed it's going to be a Multi-billion dollar outcome traction Like have you achieved some sort of Meaningful traction or if not like are The brain work by which some investors Use to to gauge an investment and I Think really catches Founders off guard Or maybe a question you think a lot of Founders aren't particularly prepared to Answer when they come to the menu

All right I always ask um at the end What questions did I not ask in this Pitch and it almost nine out of 10 times Always catches Founders off card and They're like well I don't know let me Think and it's and so it's interesting But I almost always ask because I'm sure There are questions or things that we Didn't dig into that they would have Liked to I'll often ask what questions do you Have for me at the end because in a Pitch meeting you know the founder Spends so much time talking but it's Important for us to get to know each Other and I think particularly over Zoom Where you don't get as much of a chance For the small talk on the way into the Meeting when you're walking to a Conference room or whatever I try to Leave to me to the conversation so I'll Say what questions you have for me and Sometimes Saunders are like uh you know What are what are next steps or what's The difference from here which is fine But um you know I think if we're going To be long-term Partners if I'm going to Join your board presumably there are Other things you may want to know about Me as a person or our fund the way we Work with Founders and I like to leave Space for that Yeah I think um on top of those things Like so we're a sector-specific fund

Investing in fintech and I'm Escape like If you're starting a company for which There are at least a little bit about What they're doing what the road maps Look like and if you haven't done that Homework that always comes off as not Great And knowing that this panel is mainly Focused on sort of raising your first Dollars especially in the environment We're in now people are a little more Cautious people are not deploying as Much Capital as before are there Anything else as far as questions or Sort of information you're looking for Specifically now because of this Environment or when you are speaking to Someone who is trying to a newer startup Just trying to raise that first capital I don't think it's changed that much What we're looking for to be honest I Think you know Pace has slowed pretty Much across the board it seems like but In terms of what we look for for a great New investment it really I think is the Same things if anything you know we Spend more time like maybe a year ago it Was Um looking more at just simply growth And what's that growth We've always said okay that's Revenue Like let's kind of Click down and look Further down the p l for unit economics And whether this is really a good

Business but I think that latter part Has become more of the focus whereas Last year you probably could raise a Solid round just on the revenue Trajectory of the company and this year People are a bit more Discerning to say Okay well if that's you know if that Revenue is at 10 margin you know we Should take that into account seriously Or you know a few scaled head count such That you're burning 10 million dollars a Year at an early stage like that's Probably going to be a problem so I Think it's the same core things we're Looking for in Team market all these Things we've talked about earlier but Maybe more of a focus on Union economics Than just pure growth which we saw the Last two years foreign Yeah completely completely the same I do Think Um there's probably more questions this Year on you know economics I think There's probably heard about what do you Need for the next 18 to 24 months to hit The Milestone um and so I would say if There's one big change that's probably One of the biggest ones when we think About pulling together around for a Company Yeah And I know one of the big aspects of Fundraising is Nuance you can't pitch Every investor the same way you don't

Pitch every round the same way it just Wouldn't make sense investors are Looking for different things and Something that I think was interesting Is knowing that some of us on this panel Are generalist investors some of us are More in sort of sector-specific funds I'm curious how much do you want Founders to sort of talk about the niche Of what they're trying to get into or Sort of explain the market they're Trying to tackle when you are a fund Specialized in that broader category I Don't know if you guys want to start Yeah yeah I think Um You know When you're working with a Sector-specific fund you should assume They know a lot about the category Already and if they don't then they're Probably not a good fit Um we're probably not you know probably Not the right partner Um so I think it's really Um sort of level setting or sort of like Changing your pitch based on what Somebody might already know a lot of Things that I found effective people use Are talking about Context of other companies in my Portfolio it shows that they know the Portfolio They know they look up to a particular

Company they describe themselves as like Yeah so we're fun that focuses on Education and the future of work and for Us what we really look for is Self-awareness and are they experts in The category and we think about that as Value-add but you should be this we do Know X competitors are in the space and This is what we know about don't know I'm being open to learning that's Generally what we look for And now Annie thinking that you were at This big fun how much should Founders Dive into the market and the niche of What they're trying to do when they're Pitching someone like Kleiner I actually Think it's pretty similar to both our Kind of our five key buckets but within The fund and within our team we have Areas where we spend more or less time We can talk about them as our majors and Our minors for me I spend the bulk of my Time in healthcare both B2B and b2c and Consumer Tech and so anything in those Areas I spend a lot of my time and so it Would be not too dissimilar from Pitching an edtech fund or a fintech Fund in those areas and then if you're a An edtech focused company you will find The right partner for you if you're a Fintech focus company we'll find the Right partner with for you so we have a Lot of latitude in terms of where we Spend our time but tend to have Focus

Areas within that that makes it easier To kind of sift through all the Companies that we're seeing and find the You know the perfect person or partner For you to meet with depending on what You're you're pitching And sort of looking at the other side of This what are some things in the pitch Or some things about how the founder Pitches or how it sounds pretty good on Paper or looks good with that numbers My biggest red flag is what I just call Hand waviness which is you ask a Question and it's and it's a good Question uh and they get we know Historically it's hard to sell into x y And z customer and they say oh well We've already sold into these 10 Customers we're going to leverage our Networks and we're going to continue to Grow that's a hand wavy answer right It's not actually talking about a Strategy and so I find that to be a Really big red flag because it just Shows a lack of critical thinking and Also a lack of I don't want to say Integrity but it shows that if in the Pitch you're kind of hand wavy I imagine In board meetings you'll probably be Hand waving and when you're talking with Your own employees you'll probably be Hand waving and so for me it's a yellow Competitive slide and say either you Know we actually don't have any

Competition this is we're creating this Market or you know these are our Competitors but they're all bad and That's simply never the case like in Every sector that we spend time I'm in And often it may not even be competitors That you think of as a direct competitor But it's a competitor for your attention Like or spending time with your family Or like literally any other activity and So how are you company is undervalued or Under focused on relative to other Things and we think a lot about it Because it's a competitive market and It's hard to acquire customers in this Environment so yeah there's always the Um the check boxes there's like the Square the Matrix of you your Competitors and you check every box and Your competitors don't but those that Checklist may not be the checklist that Actual customers use and it almost Probably never is that same checklist so That's that's always a fun one Um I'd say another one that that always Trips me up is like metrics like people there are Certain things that don't really matter To the business that people celebrate in Their deck uh our best companies were so Lean yes and like you know a very small Team got to 15 million dollars in Revenue that sort of trimmed down so you Can kind of get to the real conversation

Sometimes I would say Market I would say Probably particularly in a space that You feel like you know really well and Again this is one benefit of sharing the Deck in advance so I've you know joined Meetings where I've seen the deck in Advance and you know been done intros And whatnot and then said you know by The way like I've spent a lot of time in The space you know know this Market Decently well like let we don't need you Don't need to walk me through the six Slides on why this is a big Market why This area is interesting Um I kind of get that And let's move on to like why you are Uniquely differentiated what your Approach is to the problem Um I think that's one yeah I think That's the biggest one for me Um although I did uh like last week have A picture of somebody who spent More than half of the meeting talking About himself only like before I got Into the company we'll really go Overboard there yeah I I think my Biggest feedback is just be adaptable Because I think investors also have to Take a little bit of charge and driving Or Santa Market or you may not know the Depth to which we understand something And so if we're like okay yeah no Totally get it we can skip over that be Flexible and adaptable to that and the

Conversation too And something I know that came up Yesterday when talking or is in this Business and sort of why they're in that Market and why they think it can succeed And I'm definitely curious to get your Take on that like how should Founders Strike the balance between sort of the Story and the numbers Um at seed the stage we play it's really Much more the vision than it is the Numbers like You know we could dive into the the CAC Or LTV but it's out Um it's really much more a vision pitch Generally speaking at the stage that we Play yeah I totally agree and live in Synchronous times those are the times in Which the telling the story and the Vision is a lot more compelling and Reading it is not the same versus the Numbers reading it and synchronous is Almost exactly the same though there Might be some level of nuance and that's Why we'll take some time in the pitch to Discuss that but if you're deciding Which one to prioritize the vision and The story is just so important because You can't really recreate that on an Email You know show me the numbers like you Raised 25 million dollars last year like Let's show you the snapshot and then we Have a data room you know we have a

Deeper so I still think it's you know More on the vision more on High level Um in the initial pitch but it does Change over the course of the life cycle Yeah and there's a difference between The first meeting versus the third or Fourth meaning you have with the person Right like it's going to evolve over Time Um and so you have to be aware of that Too And something else I found interesting That not only came up on the panel Yesterday but it's actually since come Up on multiple panels I've sat in on Today is the concept of how you reach Out to investors to begin with maybe if You don't have an existing relationship And something that panel talked a lot About yesterday is utilizing Twitter and Utilizing Twitter to sort of make those Connections as well as just posting About the company and generating like Organic hype around it from investors Even when you're not reaching out tasks To raise and I'm curious sort of how you Guys approach the concept of not Necessarily fundraising through Twitter But how you feel about Founders using it As a tool in that way and sort of how You would feel if Founders were kind of Reaching out to you through that Platform great like we've Um uh invested in two companies uh that

That 99 of people do it very poorly and Um so then it then like my You know DMS become a cesspool that I Don't even want to look at Um and so you know they like I'd love to Grab 15 minutes of your time like I I Need to know what you're doing like tell Me tell me what you want from me first Um and I would say like those two things Like knowing what I invest in and Sending them a message like about what You do like a quick blurb can give me a Sense of whether I'm gonna be interested Enough to dig in and then I'll share my Email address and we'll schedule time Totally fine I totally agree just do your research Ahead of time and do something nuanced Also if you copy and paste stuff make Sure you change the name at least Um I can't I can't tell you how many Times have been called John Steve or Something along those lines I'm like not Me uh or I get someone else like I've Heard like any act does this I've heard Like minor does this I'm like cool let Me forward this along be responsive if You don't hear a response also know that Like most of our DMS are just like Completely flooded and maybe email is a Better another approach that you can Take and most of our at least I know my Emails on every article I've ever Written so you can find it pretty easily

If you search My bad twitter story is that I actually Also have went through the process ended Up investing and the founder was like by The way I dm'd you on Twitter like three Months ago and didn't respond and I felt Horrible I mean I'm glad I ended up Getting connected that I went back and Read the Twitter DM and it was a great Message yeah but I I do get a lot of Twitter DMS from not even I don't think The tech or startup ecosystem I don't Know how you know the Twitter scams so My DMs are a bit of a disaster so I Totally missed it yeah and now since Then that was last year I'm like I need To stay on top of my Twitter DMS you Never know the next my next investment May come through there but I didn't Realize it at the time so but but also For company Twitter better for the cold DM personal personal oh personal yeah I Have no idea who owns our company one Knowing that reading the headlines about Sort of how this year has gone for Startups rounds are structured and sort Of some Founders feel they're being Asked to dilute more than they wanted to Especially raising some of those really Early rounds and something that we Talked a little bit about yesterday About the founders is sort of how do you Approach Equity with your when you're Talking with these potential investments

In general in your first round of Financing like just rule of thumb expect Anywhere between 20 to sometimes 30 Percent dilution that's probably the Right range Um anything below or above that like Starts to go you know out of the margins But Um that's generally the right range in Terms of thinking about you know the Term date what the right price is Um obviously like you don't want to Create the company but you also don't Want to be so protected only amount of Dilution will take because then you risk Actually not getting any funding at all You know it's going to be a tougher Market Well like if if we revert back to let's Say let's say the last two years we're In aberration in terms of valuations and We're reverting back to 2019 you know Engineering salaries haven't reverted Back and inflation has has happened so Um I think There is some element of the last couple Of years where like throwing resources At every problem and resources being Capital and I think the next few years Are going to be a lot harder and it's Going to be there will be less resources And many of the best companies start During these times as you guys know but That that has changed

Um so you know if you If you think you need a five million Dollar seed round like that that very Well may be the case but I might ask you To suggest I might suggest a smaller Round Um and that has happened and actually in Many cases worked out quite well I've been surprised I occasionally will Meet a Founder where they'll say Um you know at seed we're we're raising Four at 20 post yeah um and you know We're looking for a lead and you're like Well then how do you know it's at 20 Post if you're looking for release Exactly Um so you know the other thing is you Can determine and make a plan for like We think this is the amount of capital We need to raise to get to the next set Of milestones and so you know we're Raising 4 million or whatever the number Is Um but it's strange a bit if you don't Have it already have a term sheet with a Price to say this is you know the price That we've decided makes sense um I Think that may not set you up for Success if there are investors who are Like wow this company is really Interesting but it's super early so I Would you know maybe do that round at 15 Posts but like I'm not going to do it at 20 or 30 or whatever number you chose so

I would be a little bit hesitant to Share what you think the terms are Without the investors saying this is What I'll pay also generally it's a good Idea to go out to Market raising less Than trying to raise more because the Mark it can always pull you up to more Right like if you go out and you say I'm Raising 5 million and then you get a Bunch of no's because folks are like you Don't really need five million like That's actually too much for the stage That you're at you very rarely get Another bite at that Apple a no it's Really hard to turn into a yes but if Instead you go out raising three you get A bunch of interests and actually There's a ton of people that want to be Part of the round then maybe you can Actually get to five so general rule of Thumb is like go out for less and let The market push you up if if there's Enough compete like competition for it Um one thing I would caution you against And and I agree with jemara 20 to 30 I Think is standard Um is two overdiluted companies that we Have seen and Um we tend to stay away from personally But like you know if if it comes into a Situation where A Founder after a seed round you know There's a couple Founders a lot of Dilution along the way

Founders only are 20 I'm thinking about Well I'm gonna need to top that founder Up in the next couple of rounds like how Much more dilution is for that that for Me I don't want to deal with the Conversation like let me just pass on it So you don't be over diluted either yeah And turning to some of the great Questions we've been getting from the Audience one that came through what Advice do you give for the founders that Maybe aren't like that they aren't Um and they've actually beat out their Competitors just by being solid Operators and executing on their plan in An incredible way Um so I think I think first of all you Know don't worry you can build a great Business even if you're not but know That there are a lot of skills that do Correlate quite well between being a Good somebody's good at pitching Investors and somebody's good at running A company like recruiting recruiting is You know one of the most important Things you do as a CEO Um another important thing you do as a CEO in the early days is certainly pitch Customers so if you are not that person That is going to be able to Raise Capital Recruit the best talent and sell to to Customers then you probably need Somebody else on your team who is so I

Would be thinking about that from from Day yeah and the only thing I'll add is Sometimes we equate extraversion and This like Charisma and kind of sales Persona with someone that is more Effective at pitching but instead we Often talk about just the ability to Inspire resources like people that want To work for you or people that want to Advise you and you don't actually have To be that personality in order to get That sometimes that personality is Someone that is a little bit more techy And wonky but they're so passionate and You can tell that they're passionate They're really smart and they Inspire Resources and so we look more for that And less so for the salesy extroverted Type of Personality not that either one Is bad but or better or good but there's Different types of personalities that Have created amazing companies We're in the same boat and I would say Especially for super technical products Like one of my partners invests largely In Enterprise infrastructure and data Infrastructure and a lot of the founders That come through are very different Than some of the founders that we're Looking at when looking at a consumer or Healthcare investment or some of these Other areas and there what we're looking For is the technical capabilities and Will this again to hiring will this

Person be able to hire incredible Engineers out of incredible companies And convince them to come work for them And a lot of Engineers are not looking To go work for the you know big Personality sales leader they're like I Want to work with Incredible technical Talent and so you actually may be more Effective as a exceptional engineer than If you you know are more outward facing More sales oriented so I think it also Depends a bit on the type of company You're looking to build totally Another good one on here is sort of Thinking about how should Founders pitch If they are looking to raise funding for A company that maybe is in a crowded Category or maybe is at a similar stage Or evaluation to someone else like in The very sort of micro sector that They're looking at how can a Founder Help themselves sort of stand out when They are pitching something that could Be seen maybe as similar I think the biggest thing is what do you Know that we don't know or your Competitors don't know right like what Is the unique Insight because you can Convince me of that if you have enough Kind of evidence or you you have like This really really strong Insight but That would be that would be the biggest Thing is what is that secret that no one Else knows that you do

Oh great why are you different and why Will you win yeah it all comes back to The first question you asked or the yeah The question you said you you start with Which is like why are you doing this why Have you chosen to spend your time doing This when there are a bunch of other Companies out there doing the same thing Right and if you can compel us on why That is then that's great like you as The founder aren't dumb you you aren't Saying wow this space has already been Won this incumbent's going to be Impot like you've clearly seen something To suggest a new approach is needed and So you just need to share that with us Yeah and I would say in order to get the Introduction lead with that because Sometimes you'll see investors just Quickly look at the deck and be like There's a million people in this Category I won't even take the meeting So you kind of have to lead with that And don't make investors kind of work to Figure it out like here's how we're Different from the incumbent that you're Off exactly about exactly hearing us Yeah and I think we probably have time For one last question but I think this One is particularly relevant to the Market we're in right now someone asked About how should Founders approach Pitching when you're pitching a capital Intensive business like a Marketplace or

Something that is going to look heavy on The cash burn heavy on sort of the Balance sheet side of it when I know a Lot of investors in a market like this Are definitely looking for maybe lean Slimmer like low type of metrics in that Area so how should those Founders pitch The more Capital intensive businesses I mean I think kind of going back to the Fundamentals that that any mentioned Before like how do we make sure because People are still investing in capital Intensive business if one the market is Huge and the outcome can actually be Huge if you win it and to the actual Fundamentals are sound uh I think people Are still very much open to that I might Also Focus your efforts potentially on Folks that have a bit more cash or Deeper Pockets too just it assures you More stability moving forward Um but that's that's how I would kind of Frame it Yeah same I think I think the challenge has been in the Last few years these Capital intensive Businesses have needed a certain amount Of capital and then you kind of work Backwards and the valuation was dictated By the amount of capital they needed Um and then you have all these companies That are upside down when they go public Right like they they raise so much Capital at crazy valuations that the

Public markets could not justify so if If it's a capital intensive business Like it probably needs to be priced Appropriately for me right be interested Um I know that I'm going to take on a Lot more dilution than I would have Otherwise even if the in many of these Cases the headline number looks really Great but if you dive into it the Returns aren't great right so that's That's something that I think about yeah I think you just need a clear narrative Around your path to profitability which Is like this is what the unit economics Look like today or this is what it costs To stand up a new market and here's how We're going to phase our five New Market Launches over the next two years but It's not going to take 10 plus

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