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There is one topic among entrepreneurs that I’ve found never seems to get old despite countless articles, interviews, and talks given on it. That topic is fundraising. As someone who’s collectively raised somewhere between $40 million and $50 million across different projects in the past few years, and with years of experience in venture capital myself, I hope that you find some value in it
after recently announcing the $20 million seed round for Morph, an Ethereum layer 2 using a hybrid optimistic/zero-knowledge rollup and decentralized sequencer, I’ve had countless entrepreneurs reaching out to me asking how I did it. And so I thought it made sense to summarize some key understandings I have about fundraising itself in a more scalable way. Below are some common themes to understand when looking to fundraise that may help you, regardless of the kind of market you’re in.
The first thing you need to learn is what a venture capitalist does. It’s actually pretty boring. VCs invest money their limited partners (LPs) give them and look to make sizable financial returns. LPs are individuals or entities who provide capital to VCs in the form of an investment.
In other words, a VC’s job is to take the money they’re given and turn it into more money for their LPs. In a literal sense, VCs are just middlemen for much richer individuals or organizations looking to allocate funds to a riskier part of their portfolios for higher returns.
Now that we have established that a VC is just a money broker for wealthier people or organizations, you need to start to craft a narrative to achieve a similar outcome. A shared story takes you from facing the VC on opposite sides of the table to metaphorically sitting with them collaboratively trying to create a shared outcome together.
What is it about the thing you’re building that holds so much promise? Sure, a VC will want to hear about why what you’re proposing is a technically sound idea, but for the most part, VCs aren’t technical people. Many come from more traditional finance, banking, or consulting-related jobs.
In other words, VCs are people looking to hear a compelling narrative about why it is that your company will be able to succeed in the sea of other companies saying they can do the same. Your ideas for Go-To-Market (GTM) really need to be fleshed out because that is what they’re going to grill you on.
It’s really all about storytelling. Steve Jobs once famously said the most powerful person in the world is the storyteller. He was right to tell that story. If you’re not able to articulate this then you need to go back to the drawing board because you’re likely not ready to raise funds.
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If you are in a position to articulate this then it’s time to put together a simple pitch deck. In reality, most VCs spend a few minutes, at most, reading this document, oftentimes never reading it because they expect you to go through it when you pitch to them. Because this is the case you need to be able to keep it concise.
The deck in total should be no more than 10-15 slides. In those few pages you need to introduce your idea, why you’re building it, how big the market is, who would want to pay for it and why is it that you’re on the team to do it. Again, if you can’t succinctly do this then you’re not ready to raise money.
Once you’re in a position to raise money you need to understand which VC funds are even the ones that invest in ideas like yours. Different funds specialize in different verticals. Do your research. Don’t be the person who goes to a fund that invests in consumer products trying to pitch them an artificial intelligence company.
The next part of this is how exactly do you get in front of VCs? Well, it’s easier said than done, but still can get done. After all, it is the job of a VC to speak to startups, but you still need to take into account how human interactions work with trusted networks. Legitimacy is the scarcest resource so find a way to create legitimacy.
The first principle to take into account here is to understand that warm introductions are almost the only way you’re going to have a VC take you seriously. Unless you’re in a position where you have a product that’s doing excellent in the market already, your objective is to find a way to get warm intros.
Reach out to people you’ve researched asking to tell them about your idea and ask if you can get an introduction. At the end of the day, the best introduction to a VC will either be another VC or the founder of a company they have already invested in.
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One last interesting caveat in this process is that you’re likely never going to get outright rejected by most VCs if you’ve done the above steps correctly. What you’ll often hear them say is that they will pass for now, but they’d like to hear what kind of progress you’ve got a few months down the line. That’s because they know they are playing a relationship game to always get access to deals. Because maybe tomorrow your company will be the talk of the town.
Just understand that raising money takes time, and your follow-up game is of the utmost importance.