Season 1 | Part 1 | Episodes 1-25

This is Rich Maloy with SpringTime Ventures,bringing you the VC Minute,quick advice to help startup founders fundraise better.Raising a seed round is like throwing a pool party.No single investor has enough capital to take the whole round.So that means you're running around trying to get six to12investors ranging from angels to angel groups,to SPVs,to a whole lot of venture funds to commit to you.This is the pool party.Worse,it's like a high school pool party where the peer pressure is so thick,you could cut it with a knife.No one wants to be the first one in the pool.So everyone's standing around wondering,"is anyone else going to get in the pool?Are you going to get in the pool?I'll get in the pool.If you get in the pool."This is the opposite of FOMO.This is FOLS,Fear Of Looking Stupid.What if I jump in and no one else does?Now I look stupid.Your job as a founder on the fundraising trail is to throw the coolest pool party.First,people need to know there's a party.Second,they need to know the cool kids are coming to the party.Third,they need to know that other people are getting in the pool.Finally,ultimately you need to push them in the pool.Over the next few episodes,we'll go through the fun part of this,getting people to show up edging people slightly and slightly closer to the edge of the pool.And ultimately,pushing people in.If you want to throw the coolest pool party in town,your new title is Chief Pool Party Officer.Your job as the Chief Pool Party Officer involves organization and communication.Where the pool party analogy breaks down is that investors can't actually see each other around the pool.So you need to be the proxy for this by communicating where you are in the fundraising process with everybody at the party.I'm sure you've been asked by investors about the round.How much are you raising?How much has committed?Who else is in?Do you have a lead.All of this is an investor gauging round dynamics.But it's also gauging how much time they have before they need to make a decision.Or,how slow they can move in their process.Your job is to succinctly communicate these points to potential investors.Here's an example."We're just getting our fundraise started.We're in active discussions with over a dozen firms right now."Or,"We're raising$2million with$1million committed,no active lead,but we're in multiple negotiations with lead investors.We have another million of interest.So I think this round will come together quickly.In reality,you'll have both of those discussions during your fundraise.The lesson here is that you need to keep coming back around to the other investors to tell them that the party is heating up.The people that are committed,they're already in the pool.They're having fun.They're splashing around.They're your advocates.Everyone else is still milling about trying to figure out if they're going to jump in,or if they're going to look stupid if they jump in now.As soon as you get an investor's commitment to the round,get their commitment to use their name to other investors.The only way that the folks that are milling around will know that there are other people in the pool is if you tell them.Assume that investors are talking to each other anyway.The people that you want talking to your potential investors are the people in the pool,the people that are already committed,the people that are having fun.Now I'm not trying to be mean to my fellow investors.I'm not immune to this by any means.Just like you just like everybody else in the world.Investors have limited time too.And probably more work on their plate than they have time for,just like you.So one of the hacks investors use for prioritizing their workload is figuring out,how fast do I need to move on this investment?The more,the party heats up,then the faster that they need to move.This is where your communication is absolutely critical to make sure that you show that your round,your pool party,is heating up.It's getting hotter and hotter,and if they want to party they're going to have to jump in.One note of caution.It's incredibly important.You do not overstate the commitments in your round.If you state that you have a million committed,there better be a million dollars worth of capital in that pool,ready to party.This is not the place for fake it till you make it.There's no faster way to kill your pool party than to lie.When you misrepresent relationships or commitments and an investor uncovers that,you've ruined that relationship.They've left the party and not only are they not coming back,but any time,your name and your company comes up,they're warning others.Don't overplay your hand here.If you really want to test somebody's commitment,ask them to use their name.If they're hesitant on that,then they're not committed.You will do better by showing that your funding round is coming together check by check,person by person,than overstating this too quickly.Let's talk about the SHITS.Ah,nothing like a little potty humor to get your attention.And all seriousness SHITS is an acronym I heard along the way that perfectly describes the VC slow roll.It stands for Show High Interest Then Stall.This is a legitimate venture capital strategy.Well,it's less effective in these current fast,close environment.But it still happens with great frequency throughout the country.The rationale behind this,from the VC perspective,is that before I write a check time is my ally.As soon as I write a check,time is my enemy.As long as I'm on the sidelines,I'm gathering more information about you,your company,your competitors,your traction,your team,the market,everything.The more that I sit.The more that I can wait.And the more that I can gather.An investor may be genuinely interested,but if there's no need to commit to around,they're going to sit on the sidelines and wait.And watch.When an investor has true conviction,they will give you a firm.Yes.Or affirm.No.Or maybe even a conditional yes.Such as,as long as we can hit our ownership percentage we're in,whenever you get a lead.Unfortunately the most likely scenario and the one you're probably most accustomed to getting is the SHITS.This is not necessarily the mark of a bad investor.It's just one that lacks conviction about your company right now.It's amazing how a few weeks can make a difference in the startup environment.When I recorded that clip about the shits,it was the beginning of may.Yeah.The stock market had fallen.We were all expecting,it was going to be a little tough.Here we are at the end of may.I'm recording this as a follow-up because it's incredible how much has changed since then.Fear is rampant.Founders.Expect that over the next few months,you are going to get a lot of the SHITS from investors.Investors still have capital to deploy,lots of it,in fact,more than ever.But given the fear in the market right now,they're going to be holding off.There will still be investments made.You can still raise money.It's just going to take more to break through and get conviction from the investors that you're targeting.You're going to have to throw a cooler pool party.An investor that lacks conviction is not driven to action.You can't force conviction,but you can drive action.As much as I joke about pushing people into the pool,the fact is that you can't do that.Not even figuratively.You can't force conviction.What you can do is continually drive action until you get a decision.Even if that decision is a no.At SpringTime we always say"no is the second best answer."How do you drive action?There are three steps.Number one,work within that investor's system.Number two,work your system.Number three,add a deadline at the end.Getting investors to reach conviction,to jump in the pool,is the ultimate goal but you don't need to go for the close on every call.You should be working towards that close with every single communication and remember,remember that this is a pool party.They need to know that there are people in the pool splashing around having fun.You need to turn them from FOLS to FOMO.Just keep scooting those investors closer and closer to the edge of the pool with every call and with every communication First up,working within an investor's system means getting through their process.In an ideal world,every investor has a clearly defined process for making an investment decision.At SpringTime for example,we do a30-minute call.A1-hour call and then a final1-hour call.In between each we're doing different levels of due diligence escalating towards the very end.But you know where you stand because that's our process and we can tell you where you are in it.But not every fund can articulate their process,or maybe even wants to.Ask an investor,what their next step is and you're going to get some form of,"uh,well,you know,we gotta get back to our team and talk about it and dance,dance,dance,dance,dance,dance."Here's where you need to start digging in and asking clarifying questions about their process.Specific questions like who else do I need to meet from your team?What materials do you need from me right now?What will you need from me in the future?What does the meeting with the investment committee entail?What is between here and meeting with the investment committee?You can also play back what you heard and follow up with specific questions such as:Okay,it sounds like the next step is to review it with your teammate.After you review it,does it make sense to follow up with a30minute meeting or a one hour meeting?Should I follow up with you on Friday or next Monday?Which do you prefer?How do you take next steps once you've reviewed it with your partner?You can also ask hard questions like.What did you hear today that has you concerned?Or is there anything that you heard today that would preclude you from making an investment?Don't be afraid to dig in and ask these questions.Make sure you leave time for this at the end,or start with this at the beginning,do it in the middle,just to make sure that you ask clarifying questions about their process.You need to know what their investment process is because you need to know how you can get them to take action.To take that next step with you.That's a wrap for the first week of VC minute.I hope you enjoyed the kickoff We're going to pick this back up next week on Monday.You get an episode a day.I got plenty left to drop and we're going to keep rolling with the pool party.Before we head off,I want to give a shout out to Startup of the Year.The VC Minute was originally a segment on the Startup of the Year podcast.I'm a huge fan of Startup of the Year.I've been a part of their community and various aspects since2015.Most recently I was part of the team for four years,and I just left this March to work on SpringTime full-time.Startup of the Year's not a sponsor,they're not paying me to say this,this is a real genuine endorsement that all founders should join their free community.They have a long history of supporting founders,no matter who they are or where they're based.Check them out at startupoftheyear.com.Hey,let's talk about SpringTime Ventures.I'm a Managing Partner here,we're based in Colorado.We invest in seed stage startups in FinTech,InsurTech,Logistics and Supply Chain,Healthcare and Marketplace businesses.If you're in one of those focus areas for us,come on over,let us know.We'd love to hear from you.SpringTimeVentures.com.But most importantly,Thank you.Time is our most precious asset and we have a limited amount of it.I'm grateful that you would spend some of it with me.Let me know what you thought.I'm Stoneybaby at the Twitters or follow me on LinkedIn.And stay tuned for more fun at the pool party.Founders,put your email in your pitch deck.Please.That is all.Everybody have a fantastic Juneteenth weekend!I hope that you have some fun and get some rest.And if you're a dad,happy father's day.See you next week!Next up,you need to start working your system My friend Jameela said the other day,"the magic is in the follow-up,"and I love this.The magic is in the follow-up.You need to follow up with investors on a regular basis.Do you have an investor update list?Are you using a CRM?You should be doing both.How will people know that you are throwing the coolest pool party around,if you don't tell them?I said this earlier and it's worth repeating:your job as the Chief Pool Party Officer involves organization and communication.You need a CRM for both of these.Your fundraise CRM should have investors grouped by stage with notes about the last meeting,their check size,what their next steps are,who you spoke to,who they can refer you to.You can do all of this for free in Excel or Airtable.Airtable even has a fundraising template that you can use.Whatever it is,you need to be organized.Organization,in your fundraise,brings focus.You need to treat your fundraise like a sales process.At its core,selling and fundraising are very similar.In both cases,you're exchanging money for something of value.In both cases,you're competing for a limited pool of money from people with a limited amount of time that have a wide selection of choices available to them.The difference is that with fundraising,you need to close everyone all at once.Hence,Pool Party.Treating your fundraise like a sales process doesn't mean that you need to be a sales person.It means that you should be organized because organization gives you focus.When you know how many investors you have at a particular stage,say for example,First Meeting,then you know where your bottlenecks are.And you know who you need to go back to,to edge them closer and closer to the pool.But more importantly,you know how much potential investment you have at each stage.When you aggregate all of those potential checks together that number becomes powerful.That number starts to show how cool your pool party is.It shows how many other people are around the edge of the pool.This is critical and if you're not tracking it,you can't report back on it.You can't communicate it back to investors.I'm going to reiterate this.You need to know how much potential capital you have at each stage.And here's why.When you know how much capital is potentially around the table then you can tell this to investors.Do you remember earlier when I gave you a hypothetical example of that$2million round with a$1million committed in another$1million of interest?Did you catch that$1million of interest?That$1million of interest is the aggregate of all of those investors that you're in communication with that you have a reasonable chance of closing.You get to let investors know that there are other investors around the pool.The implication is that if they want in,they're going to have to move.This is how you use your system to move through investors systems.In the Techstars playbook,this is called Soft Circle and there is magic to Soft Circled money.Where do you draw the line on the capital that you should be talking about as Interested or Soft Circled?These should be investors that are far enough along in their process that you think you can reasonably bring them to a close when the round comes together.Maybe you can bring half of them to a close.This is not the"First Call"folks.This is also different than Committed capital and that's okay.In fact,that's the point.The only way that investors will know that there are other people at the pool party is by you telling them.And this is how you tell them:you have$2million committed and another million of interest.The last piece in your toolkit for driving action is deadlines.When you've got enough capital around the table,it's time to pull it in.And nothing drives action like a deadline.Now,fair word of warning,similar to overstating commitments,if you set a deadline and then move it,and then set a new deadline and move that,investors will lose faith in your ability to bring this round to a close.And it makes me wonder if there's something else going on,like,say for example,you don't really have$2million committed.You may have investors start to back out,and the round could spiral out of control.However,you'll know when you're ready.Ideally you'll have a lead investor in place and between you and the lead,you can set that deadline.You can also do this without a lead.If you have enough capital at the table,run a SAFE note.Pull all of that capital together,set a deadline and get those last few folks in the pool.After you set that deadline,you go back to those last few investors that were milling about at the edge of the pool,that were given you the SHITS,and show them how everybody's in the pool having a great time,splashing around,and if they want in,they need to jump in now.Your lead investor needs to be the one having the most fun at the pool party.Let's face it,they're the first one in the pool.You and your lead investor,locked arms and jumped in together.They're the one that's in there having a great time,trying to convince everybody else to jump in.They have a vested interest in the success of your fundraise.A great lead investor knows this and they will be out in front talking with other investors.Talking up why others should invest in you.Giving them all the good reasons.Playing into confirmation bias.Letting them know that the party is heating up and they got to get in the pool.As you're interviewing potential lead investors this is something you should be asking them,"how can you help me bring this round together?How have you done this before?"Because when you've got that lead investor,the round is going to come together.The pool's going to fill up.And then you can get back to building your business.Let's talk about the VC Treadmill.One of the frameworks I have for thinking about venture capital I call the VC Treadmill,because raising venture capital is a treadmill.One that only gets faster and only gets steeper.If you choose to step on the treadmill,know that the expectation is that you will go on to raise increasingly larger rounds at successively higher valuations.You use the money that you raise at each round to hit growth milestones to show the next level of investors that you're a great investment for them.And then you raise more money,spend more money,hit,higher milestones and so on,and so on.It's a treadmill.I'm going to be coming back to this analogy quite a bit in coming episodes,but it's important to remember that venture capital is focused on one thing and one thing only:growth.The path of a successful venture backed startup is one of constant growth fueled by capital.I'm not disparaging it.In fact,this is not a value judgment.I'm just making sure you know,what you're getting into before you step onto the treadmill.Raise spend grow,raise,spend,grow.It's the VC Treadmill.Before we ever collected a single investment at SpringTime Ventures,our partner,Rick Patch with decades of venture capital experience said,"our only job as seed investors is to get our portfolio companies to a Series A."When I first heard that I'm nodded appreciatively,but I didn't really get it.Now,five years into seed investing,I see how spot on that is:seed investors are just one step on the VC Treadmill.Founders part of your job in a pitch is to convince potential investors that you will get to the next level on the treadmill.And to do that,you need to three things:Here,There and Capital.You must show that you can get from Here,where your businesses is now.To There,the milestones for the next round of fundraising.With the Capital from this round.You can draw that line from Here to There with even the slightest bit of traction.Show what you were able to achieve with limited resources.Describe your plans to scale,how you're going to hit the milestones that will get you that next round of funding.The less traction that you have,the more that you have to sell the vision.You have to show the path from Here to There with the Capital that you raise.This should not be at the cost of selling The big10year vision.Rather you're demonstrating that,you know the immediate goals that you need to hit in order to level up on the treadmill.There's another component to talk about on the VC treadmill.And that's runway.Runway is the amount of time that you give yourself to get from Here to There.When you set out to raise a round of capital,you'll get asked about your runway.This is important because fundraising is a waste of your time.Okay,I'm being dramatic,but fundraising isn't the point of the business.The point of the business is to create something of economic value.Fundraising is part of building a highly scalable,fast growing company,and while it brings money in the door,it only indirectly serves a business purpose.You and I both know that your time is better spent building product,acquiring customers,hiring a great team.And fundraising takes time.For most seed stage startups.This can take around three months or more.I've seen it take up to nine months.And while the time to fundraise is shortening,and that's great,it is still a significant impact on the business.If it's going to take you three months to raise a round and your runway is only12months.You realistically only have nine months to hit your numbers.In order to level up on the treadmill,can you realistically achieve significant progress in nine months?Probably not.Let me put it another way.If you had to hit a growth objective,would you want to have nine months to hit that mark or12?What about blowing it out of the water in15months?Runway is the amount of time that you give your company to hit your metrics to level up on the treadmill.As an investor,I need to be sure that you have enough runway to hit those goals to level up,and still have enough time to raise that next round.So you need to raise enough money to level up on the treadmill.But what is the right amount that you should raise?There's really no specific answer that I can give to you,and I'm not dancing here.You have to make that calculation based off the information that we've already talked about.Here their runway,hitting your metrics,leveling up all of that.Here's the catch.The amount you're telling investors that you want to raise is too high.This is completely counterintuitive,but you actually want to set your fundraising target slightly lower than what you want to hit.I need to pause here and give homage to the Jedi Master of fundraising advice.David Cohen.I heard David talk about fundraising six or seven years ago,and it blew my mind.Setting a lower fundraising target is straight from his playbook,and I think it's still relevant today.Here's why.If you told me you were raising2million and had750K committed.You have37%of the way there.You still have1.25to raise and with small checks that could take awhile.I've got plenty of time to sit at the edge of the pool and watch the party build.But if you told me you're raising1.5million have750K committed.Wow.You're halfway there.I'm engaged in leaning in.You may fill out that round.And if I want to hit my target check size,I need to move.That pool might fill up and I need to make sure I'm in there.This whole process of seed stage fundraising is about getting investors to take action.And one way to get investors to take action.Is to create scarcity.You can create scarcity by threading the needle between the right amount of runway,hitting the right metrics and having the right slightly lower target raise amount.And then.Oversubscribe it.Let's talk about finding investors to target.I said earlier that fundraising needs to be treated like a sales process.You need to know who you're going after,why them,and how to approach them.But it starts with knowing who you're targeting.So here's my list of VC lists that you can search,all free.Signal.nfx.com is where I send most startups.It's a free online platform for VCs to list themselves and for startups to find them.And while you're at it,you should visit another NFX site,The Company Brief and make a company brief that you can forward along.These are all free resources and great products.Visible.vc is an investor relationship hub,so it's only fitting that they have a searchable database.Head over to connect.visible.vc to search for free.OmniValley.co is a great resource,and again,a searchable database,but this one is focused on investors outside of the bay area.You will find bay area investors in there,but this was built specifically for the startups between the coasts.And next up lastly,OpenVC.app.This is an up and coming platform,pretty heavily focused on the European market,but still has plenty of US-based investors.They offer great resources for founders as well,including pitch,deck examples,and other great blog posts.Generally speaking,you want to cast a wide net,and start with the smaller investors first.If you go to your big name target investors too early,you haven't honed in your pitch and you don't know the questions you're going to get because most investors,including myself,tend to ask the same questions.So dial that in before you go to those big name investors.However,if you wait too long and you wait until the pool's nearly filled.That big investor may not be able to get their ownership that they need,and so you boxed them out before they can even go and look at it.I heard it an investor on the20minute VC talking about this,how she had to pass on a couple of rounds because they had already nearly filled out their round,and then they came to her because they wanted to bring all of this interest to her.Like all things in life,it's nuanced,practice your pitch,then get out into the market and get after those investors.When you feel like you've got your pitch dialed in,then you go after those big name investors that you're targeting.Now that you've built your list of targeted investors.It's time to take it to your network and ask for referrals.The wrong way to do this is to say,"please introduce me to investors."There's not a lot I can do with that.Which ones?Why would I intro you?What do I send them?Make it easy for your network to make referrals for you.First,you should have a target list of introductions that you would like,researched in advance.We've already talked about how to find the investors and where to put them:Excel,Sheets,Airtable,et cetera.Identify your key targets,the funds that you think would be absolutely perfect for you.Dig through LinkedIn and see how you're connected to somebody in that fund,and then go make an ask of your network.That ask should be ready to be forwarded directly,and it should include why you're targeting that fund,an intro about your startup and a pitch deck,with your email in the pitch deck.Make it clear,concise,and super easy for your network.The other thing to keep in mind,is it most seed stage funds have some way to contact them through their website.Take advantage of this.For most funds,this is part of opening their doors to undiscovered and underestimated founders.Your network might not overlap at all with that fund,but if they have a"send us your pitch"on their website,They want you to send them your pitch.So do it!Get out there find those connections and get your pitch in front of those investors.There's a famous startup maxim:"lines not dots."Mark Suster wrote this on his blog in November of2010,and it's as true today as it was a dozen years ago.When you and I meet,I have one data point.A dot.The next time we meet.I get an update.I have two dots and I can now draw a line.Mark's post,which I'll link in the show notes,plots this on a simple graph with performance over time.The more dots.The more confident I feel in the direction of the line.As you meet with potential investors,your goal with the first meeting isn't to close the deal.It's for both you and the investor to get data points on each other.This is a really important point so I'm going to reiterate it.The goal in an initial meeting with an investor isn't to get an investment,it's to start building your relationship with them.We've already talked about asking for good next steps,and now that you each have one data point on each other,you can continue to put your data points on their chart through a regular investor update.Keep it simple,but also keep it consistent.I find weekly a bit much unless you're coming into the final stages of your funding round and you've got a lot moving.Bi-weekly works great.Monthly is fine too.The email should be short and straightforward.Start with your intro blurb,assume the investor already forgot what you do.Then have sections for Good,Bad,Thank You's and an Ask.The last two are great hacks.The Thank Yous are a great way,not only to publicly acknowledge folks that are helping you,but it's also a little bit of gamification.I can't help,but read those Thank you's and think,"oh man,if I respond to the Asks in this email,well,I get a Thank You in the next email?"And then I'm actually really incentivized to respond to the Asks.It's also the right thing to do on both sides.If you're sending regular email updates.A potential investor has multiple dots to start drawing a line.When you have your next meeting,then they can confidently draw that line up and in a positive direction.Even better,you may not get an investment from that fund in this round,but with the lengthening of the Seed Phase,you may be back around for a Seed2and now they've got a lot of dots and they can draw great solid line about how wonderful your business is.It may seem to you that after spending the last30to60minutes pitching your business to a venture fund that you obviously want them to invest in you.But it may not be obvious.Believe it or not,I heard of a case the other day when a startup nearly missed out on getting a lead because the fund didn't think the startup was keen on working with them.I'll share a story with you I heard somewhere along the way in my sales career.A local guy was running for a local political office.He ran a good campaign,but he lost.Afterwards,he's talking to his neighbor and as he's bemoaning the loss,he says,well,at least you voted for me."And the neighbor looks down sheepishly and says,"well,the other candidate,she asked me to vote for her and you never asked me to vote for you."How are you going to get the sale if you don't ask for the close?How are you going to get the investment if you don't ask for it?Tie it in with why they're a good fit for you.Why you're a good fit for their fund.It can be as simple as,we think you're a great fit for our business because of your investment in XYZ,and your expertise in our industry.We'd love to have you involved and welcome your investment.What are the next steps in your process?"My grandmother,who was an amazing woman.She always said,"you never know,unless you ask."You never know if you'll get the investment unless you ask.You can thank my Grandma for that one.Happy Friday,everyone.Here's a little bonus episode for this short week.If you're reaching out to a small fund,don't email,every single person in the fund.And especially if you're sending it from your thousand person mail merge list,which is a waste of time and money.If you're already in touch with one person at a fund,when you get connected to another person,bring everyone into the thread right away.By looping in separate connections from the same fund you show you're on top of your investor pipeline,and you're assuming they run a collaborative process.I can't say whether or not that applies for mega funds with dozens of investors on staff,but considering that most seed funds are small,connect the dots right away.Otherwise,when we find out amongst each other that you're running parallel conversations,it reflects poorly on you.And if you don't know,just ask.If you want to learn more about SpringTime Ventures,head over to springtimeventures.com.We hold open office hours every week,and we have an open form that you can use to share your startup with us.We seed high growth startups in Healthcare,FinTech,Logistics,and Marketplace businesses.We look for founders with domain expertise,forging a path with truly transformative technology.We only invest in software based businesses in the USA.And our initial check size is400to600K.So come on over and check us out.Finally,time is our most precious asset.And once again,I'm grateful that you'd spend of some of yours with me.Thank you.We'll catch you next week as we dig in to pitch decks.