We Want to Meet You Six Months Ago
Strategic Startup Financing
You’re trying to put together a financing round at the moment and you have about half committed so you would like to meet “for coffee…”
While some poke fun at the idea of meeting for coffee, I don’t—with the slight exception that upon occasion coffee gets used as a euphemism for a meeting about a financing when a person doesn’t quite know how to broach the subject. So let me be clear: it’s totally okay to meet up to talk about your startup’s financing needs. 100%. And coffee’s a fine way to do it. Wine and beer, too. When, though, is very important.
Something that can be quite counterintuitive for startup founders is the idea of not only seeking but strategically planning for future financings. Financings are often seen as a distraction to running the business. While there’s a bit of truth to that, imagine the distraction of a financing that’s taking longer than imagined while staring at a burn rate leading to a hard stop just around the corner. On balance, it’s much more efficient to plan financing stages and regularly allocate care and feeding to relationships that will make those milestones smoother.
Understanding where you need to be for a Series Seed and how to grow your company to a Series A and beyond, as examples, are not only demonstrative of your understanding of the way of things, but also of how you’re thinking about planning for growth and its capital requirements. An element of the counterintuitive portion of this is that it might feel like you appear to be getting ahead of yourself. In fact, if you augment this with reasonable time horizons and milestones associated with these financing stages, this is a very good thing. Sub-plot: The vision is big and this founder is thinking about a real path forward toward the bright, beautiful future. Repeat entrepreneurs have learned this; for first-time entrepreneurs it’s a differentiator. In both cases it’s perceived as de-risking.
To really plan for that growth you want partners that can help to facilitate that from the earliest stages—partners who know you and know where you are. This starts with introductions well in advance of a financing round. Ideally at least six months.
So you’re working on something and you’re meeting a potential investor for coffee. Cool.
What are they looking for? I can’t speak for anyone else, but I want to understand what it is you’re attempting to achieve that is difficult but huge if you succeed, why now is the right time, your take on how to get it done including immediate, near-term, and mid-term goals, and updates on progress toward those goals. That last part takes time.
While it’s pretty widely accepted that raising funds is one of the core roles of the CEO of a startup, I would venture a guess that it’s less commonly viewed as an ongoing relationship development role. I would propose that you identify a number of potentially great fits in the venture capital space and reach out for a coffee when you definitely are not raising funds. To make a sound judgment and be the best steward of their LPs’ capital, VCs must understand as much as possible and that takes observation over a horizon. So when I say that I would like updates on progress toward your goals, this implies that we’ve met before and we remain in contact. This takes time and it takes organization.
Organization + Tenacity are two very powerful qualities with which to communicate your capability of achieving your company’s goals. Seeing those characteristics over a time horizon while showing company progress—these are things VCs are looking for. In myriad contexts you’ll have to demonstrate these qualities on the journey toward making your start-up company a huge success. One great way to practice that is by developing an ongoing conversation with someone that might be a really good fit as an investor in your company. Refresh old conversations the next time you meet, beginning with where you last left off. Take notes. Demonstrate a developmental arc. This is a great skill to have in general but in this context it really underscores how organized and tenacious you are. That’s de-risking for an investment in a meaningful way. The only way to do this is over time, which is why I titled this article the way I did: We want to meet you six months ago.
I’ll go a little further with this. People relate strongly to story arcs. Think: sub-plot. The overall exposition, climax, and resolution is your entire company story. Within that story, though, are many sub-plots building toward the overall theme—each with its own set of struggles to overcome. The right actors, to prod the metaphor to the point of overkill, feel naturally cast into the story. We’re talking co-founders and investors, but feel free to apply the metaphor as you see fit for various roles in your sphere of influence.
So imagine your burn rate takes you to a hard stop in less than 60 days and you’ve just sat down to coffee with an investor you do not know. Perhaps more importantly in this scenario, they do not know you. For all they know you’ve already pitched 100 others, and if you don’t have your round together yet there must be a reason. This may well feel like a situation inclined to adverse selection marked by an informational asymmetry decidedly not in the investor’s favor. Good investors will be aware of this. You should be, too. You want to know this person already.
I’m not suggesting you waste your time. You have to become skilled at telling the difference between someone interested in a potential developing investment opportunity and someone who is asking questions to get market information—or for some other reason. Critically, you need to know if the investor is right for you. If you think they are and there’s mutual interest—ask them if they see possible fit for their investment thesis and portfolio—develop the relationship. When there’s real value there, this is a time expense that’s worth it.
Christopher Calicott is managing director at Trammell Venture Partners—a venture capital firm investing in seed & early stage machine intelligence, blockchain, and cybersecurity companies. He loves to meet smart people doing amazing things… usually over coffee. Email him!
