10 cheatcodes for raising money from VC’s, straight from a VC



While I was in Berlin for the Startup Camp, I took the opportunity to take some notes at some of the talks. One of them was by Sitar Teli, a VC at Connect Ventures and an early investor in Soundcloud.

She’s been a VC for seven years, and her investments are all over the map – literally: she invested in companies in Berlin, Silicon Valley and London. She also remarked that when she invested in Soudcloud in 2009, Berlin wasn’t “overhyped yet, like it is today, because it is overhyped.”

Here are her ten hot tips for raising money – or as she calls it “playing the VC game”:

1. Raising VC money is like a game

“Most entrepreneurs love to game, but they don’t like to raise money. But I find that there are a lot of common concepts between the two activities. First, though, I have to say: this is a talk about raising money, and not all companies need to raise money. I see a lot of companies that shouldn’t raise money.”

2. Raising money is a game of skill AND luck

Like poker, there’s a lot of debate about whether you need to be skilled at the game of raising money, or just luck. Said Teli: you need both. “You definitely need a lot of luck. You can’t control some of the stuff that happens – if Facebook announces something that is beneficial for your startup, that might get you funded overnight. On the other hand, if a competitor raises a large round, it may scare investors off. You can’t control your luck. But you can work on your strategy.”

3. Fundraising is a social game

“Similar to social games, raising money can look like a waste of time. But the lesson is: similar to a social game, the larger your network is, the better. The larger you network of vc’s, entrepreneurs and corporates, the bigger your chance is to get access.”

And you need a warm introduction, said Teli. “Even last year, as a new firm, we saw 800 deals. Bigger firms see even more. So we use filters – where did you go to school? What company did you use to work at? But more commonly we use the filter: who referred you? The larger your network, the more your network likes what you are doing, the more likely they are to introduce you.”

“Also, some people in my network send great companies, some send awful companies my way, so I apply a filter even when someone is referred. But I take ALL of the referrals a lot more seriously than a blind e-mail. Because sending a blind e-mail tells me that you didn’t try very hard. It’s not hard to see who I’m friends with. You can see who talks to whom in the ecosystem. This is true of most VC’s in the European scene.”

“Startups are really fucking hard. If you don’t even try very hard to get introduced to me, how much effort can I expect you to put into your company?”

4. How is your viral loop?

“In gaming, there’s something called a viral loop. You play a game, do well, publish your high score. Others see this and they install the game and start playing too. This is a viral loop.”

“VC’s work the same way. You’re a startup and no one has heard of you. You get mentioned on a tech blog – now you’re heard of. Then someone mentions you to a VC. Now you’ve been on a blog and you’ve had some buzz from a person. That’s a viral loop. You might not like this, but if everyone talks about something, people want to find out more. If you’re not doing anything to create buzz, you’re not getting a chance at raising. This doesn’t mean that you should pitch tech blogs all the time. But you should try to get noticed. It’s less difficult than it seems.”

5. Check your heads up display (HUD)

“Before you need a VC, check your HUD. If you haven’t launched, it’s less relevant. But if you launched: know your numbers. If you’re product focused and you don’t know your numbers, you’re not a CEO. You should know your KPI, your active numbers, the growth per day, know the most viral loops in your product, how long it takes to convert.”

“If you don’t yet have these numbers, talk to a pre-seed VC. If you have the numbers but don’t know them, don’t even bother talking to a VC, because they will pass.”

6. Know your gamer

“VC’s have different areas of expertise. Myself, I do consumer and social. If you’re an infrastructure company, I can sit and talk to you for 3 hours, and not understand what you’re saying. I’m the wrong VC for you, but that won’t stop me from taking the meeting. It’s not the VC’s job to say “I’m not the right person”. It’s your job to know who to speak to. There’s a lot of competition between VC’s in firms – approach the right partner to start with.”

7. Practice, practice, practice

“When you play the game a lot, you get better. It’s the same for VC’s. I’m not saying you should go to 30 VC’s. You should go to people who have no idea what you do, and explain your company in 30 seconds, 3 minutes or 30 minutes. If you can’t compress your business in a few sentences, you’ll need a meeting and that’s tough to get. So make sure you can pitch your business in various lengths and in various angles: the product, the business, the marketing, how all the core functions fit together. Then get a meeting.”

8. BOSS FIGHT!

“Then comes the hard part. If a partner is interested in investing in you, he will get you a meeting with all the partners at the firm. That’s the boss fight. It’s pretty terrifying, it’s very difficult, and the death rate is high. You have one champion who wants to defend you, but there’s a lot of people around that table with various degrees of understanding about what you do – but that doesn’t matter: they will all judge you.”

“So: talk to your champion, who wants to see you succeed. Make sure he or she reviews your pitch. Get to know the personalities around the table: who asks the toughest questions? Who can you ignore? What kind of investments are they interested in? Talk to the other entrepreneurs that got funding – or didn’t – from this VC. It’s not hard to find out, and you will know someone who’s been in that same boss fight before. It always amazes me how ill prepared entrepreneurs come to these meetings. ”

9. Don’t play the game, play the player

“The bottom line is: the more no’s you get, the less likely you are to raise money. Soundcloud had been raising for months, but we said yes to them because we liked the team. But don’t just go around taking meetings. Find out who you want as a VC. If you’re a gamer, there’s Lifeline in Finland – the people who did Rovio and Supercell. In e-commerce, there are other VC’s.”

“Target a VC that’s on the way up, who is still hungry to get a deal done. Some VC’s are old and bitter because they lost a lot of money and might not be willing to take a chance on you.”

10. Use the cheat codes

“A lot of games have cheat codes. In fundraising, that’s research. Go to venturehacks and read about the pitfalls of raising money. Give yourself the best possible chance to do well. Educate yourself. Know that you will probably fail. It’s very, very hard to raise money. But the worst you can do is not try again. When you die in a game, you don’t stop playing. You play again. That’s what, for me, changed the most in Europe. Seven years ago, when a company didn’t do well, people went back to being a consultant. Now, I see entrepreneurs who are on their third or fourth startup. They start with a failure, they follow up with a small exit and a decent exit – and the fourth time they are looking to hit it big. The worst you can do is not learn from your failure.”

Powered by Facebook Comments

About the author

Raf Weverbergh

Editor of whiteboard. Raf Weverbergh was a magazine journalist whose work appeared in magazines like Rolling Stone, Playboy, Mail on Sunday, Publico and South China Morning Post. He is the co-founder of FINN, a corporate communications agency where he advises startups and multinationals on their PR and Mustr, the easiest media database for PR professionals. You can contact him on Twitter, Linkedin or Skype (rafweverbergh).

Related Posts