What’s The Best Advice You Can Get About Fundraising?
I
remember talking with my Dad about the absolute necessity of having
Tier 1 investors for my company. I was an EIR (Entrepreneur in Residence
) at a San Francisco based VC fund at the time, and I had just formed
my company.
In
fact, we hadn’t even started raising money. Yet here I was, droning on
and on about how important it was for us to have Tier 1 investors.
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My
Dad had a certain look and voice tone that used to scare me to death.
It was as if his eyes could just penetrate into my brain. He started
giving me that look, and then he said:
“Everyone’s money is green.”
There it was. It so obvious. It was so true. Of course, everyone money is the same.
My
Dad wasn’t saying you should ignore whether your investors were going
to supportive. My Dad wasn’t saying you should ignore whether your
investors are going to be able to provide useful guidance.
My
Dad was saying that your primary goal if you’re raising money is
raising money. Once you've got the money raised, then you should worry
about the other value your potential investors bring to the table.
Having Tier 1 investors may not help your company succeed.
So,
off we went to raise our initial funding. We struck gold almost
immediately when Gill’s fund agreed to give us $5.5M of the $11M we were
trying to raise.
I
don’t know whether Gill’s fund was considered a Tier 1 VC fund or not.
It’s not like there’s a rating label on a fund that says the fund is
Tier 1. But I did know that Gill had a great reputation, so I was happy
to work with him.
It
took some time (the Great Recession kind of held up our fundraising for
over one year), but we landed “Donald Ventures” as our second investor.
Donald Ventures I believed qualified as a Tier 1 investor.
If
you did a search of Tier 1 investors, Donald Ventures would likely be
on the list. Yet Donald Ventures was the last choice on our list of
possible investors.
You
see, we knew that Donald Ventures has a reputation of not supporting
their portfolio companies. If they believe your company is not going to
be a unicorn, then they will do everything in their power to force you
to sell your company.
But we were desperate. 63 investors had already passed, so it was likely Donald Ventures or no one.
Honestly,
I never believed that anyone would go to the steps that Donald Ventures
did to block our funding. We had term sheets lined up that would have
allowed us to keep going forward without any of their money. Yet Donald
Ventures blocked every term sheet.
It
wasn’t until we asked Silicon Valley Bank (we had a loan with them) to
intercede on our behalf did Donald Ventures back down and allow the
round to go through.
You need to beyond the labels when you’re looking for investors.
That’s
the point my Dad was trying to drill into my thick head. It’s not about
the investor that has made it onto some mythic list. It is about the
investor that’s right for you.
For
example, I remember telling Gill I wanted to get a loan from SVB
because it would extend our runway before we raised our next round of
funding. Gill didn’t like the idea, but he said, “I will support you.”
That’s
what you want. Supportive investors. You want investors that aren’t
likely going to run for the exits at the first sign of trouble. You want
investors that are going to disagree with you and still support your
decisions like Gill did with me.
Everybody’s
money is green. Finding supportive investors, regardless of whether
they are considered Tier 1 or not, gives you the best chance of your
startup succeeding.
For more, read: What Are Four Decisions You Need To Make Before Raising Money?
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