Mike here. Let’s talk about building relationships (for the sake of fundraising).
“Every battle is won before it’s ever fought” –Sun Tzu, The Art of War
To an extent, this is true of raising a round. By the time you start communicating to investors that you’re fundraising, you should already have high certainty that you’ll be able to close it. As an entrepreneur, it’s your job to reduce the risk that your round will not come together.
Entrepreneurs are not huge risk takers. They’re actually risk averse and experts at reducing risk.— Michael Karnjanaprakorn (@mikekarnj) October 1, 2019
So how do you reduce risk when thinking about fundraising so that you know you’ll be successful before you begin? The answer: build genuine, strong relationships with investors and successful founders well before you’re fundraising.
This advice is not that novel, but the trouble founders commonly run into is they aren’t genuine enough when building relationships ahead of their fundraise. Either they’re trying to build a relationship when they’re already fundraising (in which case its obvious that the founders is really trying to get money), or they don’t have a good reason to initiate a relationship (“I would love to get your feedback on my startup” is way too vague).
So how do you genuinely build relationships with people who will help you in your fundraise, and how do you activate those relationships when the time comes?
Here are some tips:
1. Consistently spent ~10% of your time building relationships. When you’re not fundraising, you should still spend time building relationships with investors. Try to do this consistently, as this will allow for the strength of your relationships and network will compound over time, whereas if you do this every once in a while, it’s hard for that value to compound.
2. Build relationships with later stage founders, not just investors. While investors can provide a lot of expertise and value even when you’re not fundraising, later stage founders have already built very strong networks, can help you operationally, and can introduce you to investors they know when the time comes. They’re also usually more receptive to give back and share mistakes that they’ve made.
3. Look for people who can materially help your business with their experience or network (not their money). There should be something specific in their background that you want to learn more about, and you should be fully prepared to listen and act on their advice. For example, rather than “can I pick your brain,” say something like,”you figured out distribution with grocery, and I’m currently trying to figure out if that’s a viable go-to-market for us. I’d love to unpack why it worked for your product and get your advice on how we might approach GTM with grocery.”
4. If an experienced founder or investor invests their time, network, or expertise into helping you, show them the return on investment. If you took their advice and it helped your business, tell them. This will make them feel good, show them that you’re a good recipient of their support, and show them that there’s a return on their investment. If they believe that, then when you do fundraise, they might as well write you a check to get some of the upside from something they’re already “invested” in.
5. Before you officially start fundraising, give the closest relationships an opportunity to give early access to your deal to investors they know. When I’m helping a founder whose startup I have high conviction in, I love the opportunity to share the under-the-radar deal that no one knows about to investors I know. This makes me look good. Know that every founder and investor thrives on the ability to show that they have access to compelling deals before others do. Give your close relationships the opportunity to look good by giving them advanced notice about your upcoming fundraise, before you begin. You messaging should go something like, “hey – things are going pretty well, and it’s looking like we might open up a round in the coming months. You’ve been really helpful, so I wanted to see if there were any investors in your network you like who we should start early conversations with before we start a formal fundraise. Please keep this between us for now and let me know if there’s anyone you want to share this with.”
6. Supporter updates are for preventing a relationship from dying; personal emails are for building/maintaining a relationship. Don’t think that because you add someone to your supporter update, you’re maintaining the relationship. Maintaining and growing a relationship requires personal emails. Even if it’s just a short personal message followed by the same bullet points everyone else gets, personal emails go much further than the supporter updates list that hundreds of people could be subscribed to.
If you invest time in building relationships with founders and investors who can help you, not only will you end up with really smart people in your corner making you a better operator, but you’ll be stacking the deck in your favor so that your fundraise will have an 80% chance of succeeding before it even begins.
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