As part of our Founders + Funders NYC 2019 summit, held on November 8th and co-organized with Seneca VC and SheWorx, we brought together an exciting group of startup founders and investors for a day of learning, networking and growth.

One of the big topics we hit throughout the day was that of fundraising. And what better way for founders to learn how to raise capital from investors then hearing it directly from them?

In a conversation led by Galina Ozgur, Venture Scout for Aera VC, Jessica Peltz, Partner at MDC Ventures, Ita Ekpoudum, Partner at Gingerbread Capital, and Lisa Cuesta, Principal at NextGen Venture Partners shared their own insights gathered from the thousands of collective pitches they’ve seen.

About the firms:

Gingerbread Capital:  I’m Ita Ekpoudom, Partner at GingerBread Capital. We’re still relatively new, started by Linnea Roberts in 2016 after her almost 30-year career on Wall Street. We back high-growth female-founded companies, Series A and beyond. Our average check size is about $0.5M and will go up to about a $1M, and we’re pretty industry agnostic.

NextGen Venture Partners: My name is Lisa Cuesta. I’m a principal at NextGen Venture Partners, an early-stage venture fund. We lead or co-lead seed rounds with $1-2M checks, and we help and support our portfolio companies with a network of venture partners that’s grown to over 1,200 around the country. Those folks are all full-time building companies, but they spend a bit of their time with us helping to make connections for our portfolio companies and give advice in their areas of expertise.

MDC Ventures: My name is Jessica Peltz. I’m a partner at MDC Ventures. We’re a corporate VC of a global advertising holding company, so we invest in early-stage digital media and marketing tech companies that we believe are addressing the needs of what we call the modern CMO. We just changed our strategy, and our checks now are around $1M, and we look to take about a 10% ownership stake. Separately, I, with Sutian Dong, who some of you probably may know, co-founded the Global Women in VC directory, which we’ve now scaled to over 2,100 women investors from over 1,300 funds, 46 countries, and over 130 cities globally. I always love championing the mission of getting more inclusion and diversity in this industry.

When you ask many VCs, “How do I get to you? How do I reach you? How do I pitch you my business?” VCs often say, “Well, get yourself a warm intro.” When a founder gets that warm intro, puts the introducer into the BCC line and says, “Hi, Ita. Hi, Lisa. Hi, Jess. Blah, blah, blah.” What makes you take a deeper look?

Ita: All of us get inbound a lot. I get a lot of inbound emails, and I oftentimes don’t necessarily have the ability to reply to them all. So one point of contact is great, but I can give a prime example. This week, two women in our portfolios sent me the same person separately. When I got that email, I stopped, I replied and I made sure that meeting happens because if it’s coming from one person, yeah, but if it’s two people that you’ve already backed, and they’re reaching out about the same person, I’ll always make time for that to make sure that happens.

The other thing that stands out is in being in rooms like this. We met CourtBuddy at a SheWorx event, and they are now in our portfolio company. Showing up matters, and showing up in places where women are, it’s very helpful.

Jessica: Say I know why you want to talk to that particular investor. You have to look at fundraising like an enterprise sales cycle.

For example, just this morning, I got a wishlist email from a founder that I’m friendly with. He’s said, ” Hey, for my new business, can you introduce me to all these friends?” I’m thinking to myself that he basically just wrote down the who’s who of venture capital firms. I was like, “Half of these don’t even invest at your stage. Half of these don’t even invest in your sector.” Know which funds you want to target, and really think about why you’re relevant to their fund. Are they investing in that category? Are they investing in that stage? Have they blogged about it recently? Have they tweeted about it recently?

I agree the warm intro is always good, but whenever I get an email that says, “Dear Sir,” – which, by the way, definitely happens, which is ridiculous – “We’re a growth-stage biotech company….” All he had to do is go to our website or check out some of the blog posts I’ve written to know I am clearly not his target. So be really intentional about your outreach. You can say, “I’ve recognized that you’ve invested in X competitor or in X category,” or, “I really like your insight into Y, and this is something that I’m struggling in my business I’d love to get your guidance on.”

So think about your fundraising approach like a sales cycle to know who’s relevant to you based on your stage and sector. Do they have domain expertise that could be helpful to you and your business?

Like they always say, “Ask a VC for money, you’ll get advice. Ask them for advice, you’ll get money.” Be mindful of that as you’re going through the process and always follow up. It’s crazy how many people are like, “Hey, I’ll get you that stuff,” and it’s a pause. Be mindful of every interaction as a data point.

Unpack that a little bit. The email has been sent, you have a captive audience, and you have to respond. What’s in the body of that email? What’s the attachment? What makes you as an investor feel like this founder knows what they’re talking about, and it’s worth a conversation?

Lisa: Make it as easy as possible for the person that’s making the connection to speak on your behalf. If you can get someone that’s worked with you before, who can say you’re an all-star, that’s much better than, “I happened to have met this person once,” or, “Sure I’ll make the introduction, but I don’t really know anything about the business or this person.” Think about going to people who can vouch for you, whether it’s in terms of your professional experience, your community involvement, using your products.

If there’s someone that’s your target customer who can say, “You have to check this out. My company’s using it, and we love it, and here are the results that we’ve been seeing so far, ” that’s pretty powerful. If you have people vouching for your product or for you, I will definitely look at that introduction.

To the point about making it easy for your introduction to happen, send the blurb. Include what you’re doing, who the team is, what makes you credible, what early traction points you have, what momentum you have, and what kind of round you’re raising. Don’t make it five pages long, make it a paragraph. Be very selective about the words that you’re choosing, but hit on all those important points so that it comes with context, making sure again it’s an appropriate introduction at the right time. You don’t want to waste your cycles on a conversation that’s not going to go anywhere. It’s just not beneficial for you or for the person that you’re getting introduced to. And also include the deck. The executive summary can be fine, but why not include 10-slide version of the deck if you have it?

Jess: Literally 10 to 15 slides.

Ita: Yeah, no more than 15. Nobody wants to read a beautiful 36 slide deck. I will not read it.

Lisa: We’re trying to sift through our inboxes, and the easier you make it for us, the happier we’ll be. So just get to the point, show us what’s going on. Don’t hide any information because we’re going to get to it anyway. You can have an extended version or an appendix when you know the conversation will continue.

To make it easier for the investor to do due diligence, what else should you be included? For example if you’re raising, should you be giving ranges of how much you’re raising? Should you be giving one strong number? Should you be talking about fundraising? Or should you just be focusing on, “Hey, I want to get a meeting. I would love to get your opinion”? How fluid is that conversation? Essentially, what’s the ask in that first intro email?

Ita: You know if you’re raising or not. You should be very clear, especially if you’re approaching a VC, if you’re raising. I know the whole “build a relationship before”, but if you’re at the point where you know you are actually raising capital, don’t beat around the bush.

Lead with traction. Lead with the things that show why you believe that you’re at a stage where you need this amount of money, and you understand the ranges of what the VC tends to invest. Why is it that you have the check size or product that I want to take a look at? You can say, “I saw that you invested in XYZ, and I loved–” Maybe you found that founder, and you found out things that we may have done for them.

The last panel talked about adding value beyond the check,  and that’s literally what we say. We say that we’re not seed stage investors because we don’t believe we’re going to spot the idea at the beginning.

Jess: Know how much you want to raise and why you need that amount to get your next business goals.

A pet peeve of mine is when a founders says, “We’re going to raise, I don’t know, between $1M and $3M.” No. What do you need? Show me your operating budget. Let’s talk through what your goals are and what milestones you need to hit for the next 18 months that this capital infusion is going to help you to do. Getting $1M versus getting $1M, that’s a very different plan. Be intentional because it shows that you’re buttoned up as a founder. It shows that you have control of your business. It shows that you know the levers that you’re going to need to pull and you’ve calculated the risks, and you leave a little bit of a buffer.

Save Ita the need to say, “You should’ve done your research because that’s not where we invest.”

Let’s say an investor bites and wants another meeting, maybe an in-person meeting. How many meetings, should they go successfully, does it take to get to term sheet?

Jess: Totally depends on the fund. Every VC is going to tell you something different, and is going to have a different process. That’s okay, because every fund is going to have their own bag and their own requirements and their own way of doing things.

What’s most important for you as an entrepreneur is to put the VC on the spot a little bit. VCs notoriously think, “We don’t really like to say no. We like to just wait it out and see what happens.” So I appreciate when a founder has a little bit of chutzpah and at the end of the meeting is like, “Do you think this is a fit for you? What do you think? What are your concerns about my business that maybe I’m not thinking about?” You can get more context and clarity around where that VC might stand, and it’s a great follow up for you to address.

But some VCs might not do a lot of due diligence and just fall in love with that person and have to back them. Some of them, depending on the check size and the fund, if it’s a micro-VC with high net worth versus institutions, just has different processes and different needs. It’s up to the founder to say, “What is your process? Can you walk me through what I should expect to get to yes? Should I expect that to be two weeks? Should expect that to be four months?” Corporates are notoriously slow. So just know what you’re getting into. It’s a totally fair question to say, “Can you walk me through your process on how this is going to go,” assuming you want to consider the conversation, and again at the end of the meeting, “What do you think about my business? What are your hesitations? Where do you think there’s challenges?”

Lisa:  Fundraising is a really good exercise to get your ducks in a row and your team organized. Before you formally start your process, make sure you have the materials you think an investor would ask for, like your financial model, your product roadmap, a sense of your competitive landscape, and your differentiation.

I’ve seen founders – with each rejection or each piece of feedback from an investor – go back and add to a lengthy document of FAQs, and they have that as a resource. Once they get really deep in diligence with someone, they can share that if they think it’s appropriate. The response is then, “Wow. You’ve really done your homework. You’ve listened to all the feedback that you’ve gone through the process, all the reasons why someone might pass.” It might actually help you direct your team or focus your efforts and energy better just to have all of that clarity.

Through the investment process, a lot of founders actually get more excited about the business and get more conviction about what they’re doing because everyone’s poked holes in what they’re doing and it makes them aware of all of the challenges that they might have to overcome.

Ita:  Jennifer Hyman has spoken about how they did it at Rent the Runway. They made an excel list of all the investors they wanted to talk to, and then ranked them from the ones they cared the least about to the most. They saw the ones they cared least about first, got the rejections, put it into the thinking. By the time they got to Bain, who was their lead investor, they ended up with a $15M Series A round because they had used all the rejection before and got to the one that they wanted, and they crushed it. And it took 100+ meetings right?

Don’t think that you walk into the meeting, and they’re going to invest in you that day. No. I’ll tell you that right now. I will not invest in you in one conversation. I might like you in one conversation and want to talk to you more, but it’s not going to happen from Gingerbread’s perspective. We do not leap.

It’s important who your lead is, especially if you’re going after institutional investors in the growth rounds. You want to signal to the market that you’re prepared, that you’re here, and that we can fill in the gap, and we can give you the $1M.

What we say is we’re both ex-investment bankers, and Linnea was the head of the Technology Investment Banking division at Goldman. We can get you to IPO and beyond. You want us when you’re getting later stage, when you get seated and somebody says, “I want to give you an acquisition offer,” we can call Goldman, we can call Morgan Stanley, who will tell you if this BS or not. We’ll be the guide behind you to give you that confidence going into those kinds of negotiations.

Jess: I would also say be mindful of this mental checklist that VCs are probably going through when you’re talking to them versus them liking you. Is there a chemistry fit? Is this somebody that I’m going to want to take a call from at 10:00 on a Sunday night when shit hits the fan?

The thought process from the investor becomes, “Okay. I like you. I believe that this is a problem you’re solving. How big is this opportunity?” Then it keeps going, “Okay. I like you. I believe this is a problem, but is this really a pain point for customers? Is this a vitamin versus a painkiller? How big can this market opportunity really be? Will customers pay for it? Have you demonstrated it?”

As soon as you tick those boxes, then, “Okay, but then why you? So I like you. I believe this is a problem. I see a big opportunity, but why are you the right team to execute on this?” You’re going through the flow – be thinking through getting VCs over that hump because it’s just going to set you up for success.

NextGen leads rounds. Talk a little bit about the role of the lead investor in this process. Why are they different? Why are they so important?

They’re the ones who are going to set the terms and allow you to catalyze the round and get everyone else who wants to get involved but isn’t writing the terms to take action and decide whether or not the deal is a good fit for them.

Their diligence process is probably going to be a little bit lengthier. They might want to talk to your customers or do founder references. They’re the ones who are going to be helping you to put together a data room to share information with other people that might want to get involved in the round. They’re going to be the ones making introductions to other co-investors to fill out the round, to fill out the syndicate.

After they make an investment, if you want to raise a Series A, they’re the ones on the hook if you’re going from Seed to Series A. That means they will take responsibility and be what we call the VP of the Series A, when you’re getting to that point and help you think about what milestones – what milestones you have to meet, who you should be talking to, how foreign investors should be talking to them, what materials you should have in your data room for the series A, and actually go as far as to create those materials themselves sometimes.

That’s how we think about it. In addition to that, it’s all the standard stuff that you would want from your investors: introductions to customers, to partners, to potential hires, telling you when there’s gaps on your team, and helping you think about how to fill them from a recruiting perspective, and potentially making those introductions or sitting in interviews with them.

Jess: The FOMO is real. Once you get a term sheet, it’s so much easier for you to get your ducks in a row and have everybody topple because there are some funds that other microfunds like to follow. Everybody wants to bring their buddy into the deal.

If anything, focus on finding your lead investor first before you worry about some of these other meetings, and also be really careful about who you choose. That’s something that entrepreneurs don’t always think about. They’re excited they got a term sheet and funding. That’s awesome, but you can’t fire your investors and they very well may be taking a board seat. Be really mindful that you’re interviewing them as much as they’re interviewing you.

You want somebody that you can be really open with and transparent with and have a connection with them and have mutual respect for. Ask to talk to founders that are active and have succeeded, and ask to talk to founders that failed. We all have them. It’s inevitable. You really learn more about the character of the investor talking to some of their founders that didn’t have that outcome they were hoping for to really know who you’re getting in bed with.

Lisa: Even cold outreach. Just look at their portfolio page, and just start pinging founders, and founders should be happy to talk to you about their experience.