Don’t take fundraising advice from someone whose never raised money.
Since 2011 I’ve pitched about 150 VCs, including most of the household names and some you’ve never heard of. I’ve been up and down Sandhill Road. I’ve pitched while having lunch on University Avenue. And I’ve frozen my ass off in the middle of a few east coast winter pitches as well.
Every 40(ish) times we heard “no”, we also heard 1 “yes”, which was enough to raise $125M over 4 rounds at my previous company, Bigcommerce.
We built a great board, met a lot of amazing people and truth be told, I loved every minute of it. When I reflect on what I liked the most, it was that:
- We raised money from investors we genuinely liked
- We only accepted term sheets from investors with heavy, heavy previous operating experience (including Steve Case, the founder of AOL)
- If we couldn’t understand the term sheet without a lawyer, we didn’t proceed to negotiations or contract
- We found investors who were location-agnostic. We were originally founded in Sydney, Australia and have since moved to Austin, Texas and San Francisco, but back in 2011 we didn’t want the land down under to be seen as a negative thing to any potential investors.
- We found investors who would (and did) back the CEO every time
- We found investors who loved to drink and eat nice sashimi as much as we did (OK, I kid, I kid — a bit)
So here’s a list I put together based on my experience with our investors. They make up the “good investors” list. The second list, “bad investors”, is full of things I witnessed during our pitches and negotiations with other investors who we walked away from. Again, some household names and some you’ve never heard of.
Good Investors Will:
- Support you when you miss your number for the quarter
- Back you no matter what, because you’re the founder
- Reserve capital to re-up in future funding rounds
- Say it to your face, even if it’s hard for you to hear
- Support a pivot or change of strategy if it makes sense
- Give advice only when you ask for it
- Have years of operating experience
- Treat you the same pre and post closing
- Agree to fair and equitable change-of-control provisions for your team
- Be happy with 1x, non-participating
- Have simple, vanilla term sheets and contracts
Bad Investors Will:
- Scream at you for missing your number for the quarter
- Try to replace you if they don’t agree with your strategy
- Waive their pro-rata rights and spread their capital thinly
- Talk smack behind your back to their partners
- Argue that a change in strategy is a mistake, just to argue
- Always give you advice, no matter what
- Have zero operating experience and come from a finance background
- Be nice pre-closing and an asshole post-closing
- Outright reject any decent change-of-control provisions for your team
- Want 2x participating at a minimum (“hey, we’re taking a risk!”)
- Confuse you with lengthy term sheets and contracts full of lawyer-speak
If you’re in the middle of pitching and any investors seem like bad investors, then turn around and get the fuck out of their board room.
Today more than ever, capital is cheap — and it’s everywhere. Investors are like partners in that you pretty much end up married to them for 5–10 years.
If you don’t like them now, imagine what it’ll be like a few years down the track. Not only will you resent the company you created, you’ll also resent yourself for making such a bad decision bringing them on board.
As for me? Well, I’m still deciding if I’ll raise money for my new company,PeopleSpark (check it out if you’re a CEO that cares about your people and culture). But if I do, I know I’ll be on the hunt for a good investor first and foremost with strong operating experience, empathy and a proven track record backing founders that want to disrupt the incumbents.
Are you a leader at a fast-growing company? It’s probably time to stop relying on slow quarterly and annual surveys to understand how your people are feeling and where they need help.
[This article originally appeared here. Follow @mitchellharper for more articles like this.”. Featured image via Flickr]