20 Fundraising Rules for Rookie Entrepreneurs

Guest post by Naithan Jones, founder and CEO of AgLocal. The views expressed here are solely those of the author, and do not reflect the views of Food+Tech Connect.

1. Gear Your Mind

Understand that it will be a pretty intense process that will require more meetings than you’d like and more emails than you’d like. This is not going to be different for anyone. Raising a round is a full time job in and of itself. Get yourself prepared for exactly that and treat it like a side job that is correlated with your company.

2. Understand The Game

Getting to your first term sheet is your one goal (leverage). That first term sheet is your building block for what comes after it. Ignore the ten or twenty no’s and get as fast as you can to your first yes.

3. Know Why You Are Raising

Know and communicate clearly how much you are raising, at what valuation or valuation cap, and what that money will go towards (completing x part of the product that will help the product scale to Y, hiring X awesome sales person in your network that has Y relationships). Make sure that your goal of raising is not simply to spend money operationally, but for using money to create more. This seems like an obvious point, but I have had quite a few entrepreneurs come to me to discuss their round and explain that their round was about real estate, team morale spending, and marketing events. I can only imagine the investors they told this to cringing in their seats. Raise early to spend cash on making cash. The cash is always for something that will scale your reach and user acquisition and as such is a better path to a yes.

4. Approach Cleanly

Never approach investors directly, unless you already know them very very well. Use your network and the network of your friends and advisors in order to be mentioned to investors as deal flow, then have your startup mentioned to them casually by people they trust, as a good deal with lots of interest from investors. When you do approach, don’t ask initially for money. Ask for advice. The old adage is, ask for money you’ll get advice, ask for advice and you’ll get money.

5. Understand Their Process

You must know how slow or fast an investor’s diligence process is from day one so that your expectations are not out of line, and so that you don’t expect to close while they are not ready to, as one investor can pause or worse, jeopardize, the commitments of the rest of the syndicate of investors.

6. Avoid Being VC Research

Not all the investors are created equal. The guy you meet at the tech conference that works for the local big time VC according to their fancy card may not actually be an investor. Ask if they are a partner or at least a senior associate able to intro deals to the partnership at the firm with their own vote. Speak to, spend time with, but don’t waste an inordinate amount of time in lengthy meetings with junior associates, hoping they will invest, as they usually have no such power and have little to no voice in deal review. If a senior associate tells you they are able to make investments (as can be true at times but rarely) test this by asking what investments they led and which boards they sit on. If possible ask other entrepreneurs they have invested in to confirm they have this input into deal flow and can indeed lead deals. I have met many associates that are extremely helpful and continue to be. If not for two in particular my latest round would not have happened. This advice isn’t to say that you should be dismissive to them, but to temper your expectations of their ability.

7. Investing Is Social Science

Investors invest in people just as much as ideas. Avoid, at all costs, your first meeting with an investor being a phone meeting, even if that means the meeting won’t happen for a few weeks later. Avoid this at all costs for your first meeting, because although I have had these meetings go well, they are by order of magnitude harder in every way when they are the first one and they are by phone. If at all possible have them at your office, if you have one, or on neutral ground, but if you have to do it at their office.

8. When Convertible Debt?

If you are raising without a market engaged product, and with light or no user or customer traction, raise with convertible notes. This will delay the valuation conversation, which invariably will not be good at such at an early stage

9. Your Deck Will Speak In Your Absence

If someone doesn’t understand your business. That is your fault and not theirs. Make your deck simple, because it will likely be in front of more people than you will. You should model your deck after the simplicity of a children’s story book. Very little words, very obvious plan to win, very beautiful and enjoyable to read. It should be able to talk for you in the case that you aren’t there to explain your business. Trust me, it will be sent around, and in the race against time, can save your energy by rounding up investors for you that have seen it.

10. Make It Easy To Invest

Send interested investors due diligence before they even ask and have a full packet ready to send, typically you should send this immediately following the first meeting (deal term structure, advisor references, customer references, industry references, financial projections spreadsheet, investor deck, cap table, press clippings, access to a product demo, access to the code base, username and password to your google analytics/kiss metrics/etc.).

11. Create The Investment Window

Set an opening date and closing date for your round and state it openly with all of the investors you contact. I recommend eight weeks for rookie entrepreneurs (six if you are aggressive, three if you are a former entrepreneur that has already succeeded).

12. Get Off The Blocks Well

Have as many meetings as you can within close proximity of each other during your opening week, with the goal of coming out of them with #2 above (one or more term sheets).

13. Avoid The “Homework Hole”

If an investor hasn’t committed firmly to investing if a stated criteria is met, then do not go on wild goose chases and hours of homework, only to be told they need you to do more once that assignment is done. If you are going to do work, find out what for and what the rules of the game are. A failure to do this will more often than not end up in frustration. If the rules of the game are set, then it is great news, and you should, with all the energy you can muster, go through the process they set for you. If those rules aren’t set up up front, look out, you could be in for fruitless homework.

14. Get An Answer!

If you can’t get a fast yes, get the next best thing, a fast no (this is a game of time, and attrition).

15. Who Do You Talk To?

Know who you are raising from before you even start. Every partner at a VC firm is different from each other, so it isn’t as simple as raising from XYZ Ventures just because they do deals in your space. It is knowing the exact partner, how active they are, how many boards they are on (bandwidth to do new deals) and as such is the same dynamic as meeting angel investors. You must also understand the stage that each investor is set up to invest in from seed to early to growth. The worst thing you can do is spin you wheels talking to investors that don’t invest in your space, stage, or are overdrawn and can no longer do your deal.

16. Good Pass vs Bad Pass

Do not take a no personally. Some may find your idea to not be a fit with their ability or desire to fund but may have valuable advice and connections to share nonetheless. Some may not be valuable at all, and may, in fact, be rude and down right dismissive. It is best to identify the difference between a good pass and a bad pass, and to ignore the rude ones and engage the good ones.

17. Coffee Meeting? The Death Of Time

Is the investor you are talking to actively investing? This seems like a ridiculous thing to have to ask. They want to meet with you and they are an investor right? You would assume they intend to invest if they like what they hear, but, you should ask if that’s really true. There are some that like to meet just to meet with no intention of investing and/or no cash free to invest. You do not need that waste of time.

18. The Numbers Game

Understand the ratios before getting discouraged. The rough math I use says that you will have to meet with at least five different investors for every $100k that you raise, and this is the best case scenario. In each of my rounds that I have raised more than $1m, I ended up meeting with at least and more than 50 different investors by count, and in over 100 total meetings. (AngelList and FundersClub are tools that can alleviate some of this sort of inefficiency)

19. Avoid Being Competitive Scoop

Look at the portfolio of the firm, the Twitter and Linkedin of the angel, to find out if they have invested in a competitor. It may very well be that they want to meet you in order to get educated for their next board meeting, and to advise their company on how to outflank you or steal pieces of your model. Or it could mean that they love the space intensely and have no intent of harming you, but you must at least be aware that there is conflict if this is the case.

20. Watch Your Health

Starting a company is already hard enough. Add to it raising a round, and you essentially have almost physically impossible demands. Lessen your alcohol intake, tighten your schedule to ensure proper sleep and exercise, and find healthy hobbies to take your mind off of your startup. There are few things that I have done as an adult that have been more physically and mentally stressful than trying to run the company and raise a round. Both times I gained a few more grey hairs and ten pounds of excess weight that I had to end up working off afterwards.

This article originally appeared on Fits and Starts on October 9, 2013.