How I Raised Seed Capital from a Sand Hill Road VC in 24 Hours

4/16/14Follow @jerryjao

Much to many entrepreneurs’ chagrin, having an idea is not enough to start a company. Being able to fundraise is just as important as the big idea.

I’ve been very frank in sharing how one of my startup companies failed because I did not have sufficient funding to compete, so I know how long and arduous the fundraising process can be. Most of my entrepreneur friends and I agree that we do not find pitching to investors particularly enjoyable, and at times, it can be wasted effort. But, it remains a necessary evil.

I have only raised seed capital to date and my experiences are unique to what we are building at my company, Retention Science. But after four years, three companies and countless rejections, I did have one swift experience that taught me many valuable lessons about fundraising. I managed to get a “yes” in 24 hours from Mohr Davidow Ventures. Here are five tips for tactics that led to my success this time around.

1) Narrow Your Meeting Hit List

Contrary to popular belief, it’s not wise to pitch to anybody that will take a meeting (though I understand it is hard to say no to meetings early in the process). Your time is just as important as the VC’s and you should only meet with VCs that specialize in your field.

It is also critical to identify the right partner to pitch to within a VC. Every partner has different investment interests, styles and seniority within the firm. Start by targeting the one who is most likely to be interested in your company, as opposed to sending a blanket pitch.

For Retention Science, we listed ourselves on Angel List and received around 25 intro requests, but only took meetings with a select few that made sense for our business. I met with Mohr Davidow Ventures because they have been successful with B2B enterprise companies (InfusionSoft, Rocket Fuel, etc.) and have a known venture partner, Geoffrey Moore, who authored Crossing the Chasm, a respected publication on selling and marketing high-tech products.

2) Don’t Be Contrived

Once you get a meeting, the key to having it go in your favor is to be yourself, which is often easier said than done. You need to relax so you can demonstrate just how knowledgeable you are about the problem you are solving and how excited you are about your solutions.

Investors are trained to see through an entrepreneur’s “smoke and mirrors” and they are good judges of character. This can be intimidating and throw you off. An advisor once recommended I pitch differently in an investor meeting because I look young and my enthusiasm makes me seem desperate. I tried to switch it up a bit and it didn’t feel genuine. During that time, I realized that I only want to partner with an investor who takes me as I am.

When I met Katherine Barr at Mohr Davidow Ventures for the first time, we got along well. I was thorough (and a bit nerdy) about covering the details, and passionate about the company. But I was also quite nervous. I tried to focus on having a genuine conversation instead of giving her a lot of “fluff” in order to impress her. She seemed to appreciate that.

Katherine emailed that night at 10:30 pm asking me to come back the next day to meet the rest of the partners.

3) Carefully Research Potential Investors

Pitching investors is about making a connection and telling a story they can relate to from their own investment experiences. It is not only about the idea; it is about helping the investors to see your vision, size up the market, and, most importantly, foresee a profitable business model. Assuming you already know everything there is about your industry, make sure you thoroughly research everyone you will be speaking to so you can identify ways to connect on a personal level.

After I received an email from Katherine, and subsequently confirmed our meeting time within five minutes (I always wondered if that earned me brownie points or seemed like I was desperately waiting by the phone), I spent the rest of the night researching all of the partners because I did not know exactly which ones I would be meeting. I was up until 3 am reading all of the articles I could find about them, familiarizing myself with their investments, their philosophies, their LinkedIn profiles, and drafting notes and questions.

I ended up meeting four partners total, and since I had done my homework, I modified my pitch a bit to reflect those partners’ investments and professional experiences. It worked.

4) Release Your Control on Timing

Timing is everything in life, and it is the same for fundraising. If you happen to meet with a VC who just had a successful investment with a company that is similar to yours, then you are in luck. But if they just got out of a crappy board meeting, you might not have their full attention and you will see it on their faces. Do a little casual probing before you sit down with them to gauge their mind frame before you launch into your pitch, and adjust as needed.

Also, VCs are very busy and it is difficult to get all of them into one room to agree on making an investment and, often times, that is a main reason decision-making is delayed. I felt incredibly lucky that all of the partners that needed to weigh in on the decision were available to meet with me on such short notice the next day. This is a rare event, and it’s more likely that you’ll have to sit on your hands and wait for the partners to find time to meet and get back to you. Avoid obsessively calling or emailing to check the status. Persistence is good, but it quickly morphs into annoyance.

After I met with all of the partners, Katherine invited me to wait. I expected her to provide feedback and let me know about next steps. Instead, she returned in 20 minutes and told me “they are in.” That is the best feeling a startup founder can ever experience.

5) Follow Up Diligently—You Are Not Done Yet!

This is not rocket science, yet many entrepreneurs drop the ball during closing. Just because a partner verbally committed that they will invest, nothing is final until the papers are signed and money is in the bank.

Make sure you diligently and directly answer all of the requests that might come your way—investors take everything into account. And I bet that they are taking notes on how you are responding to their additional requests, and handling the final steps of the fundraising process. Expect to receive numerous follow-up requests of all types, and respond to them thoroughly, timely and professionally.

Final Thoughts 

As cliché as it sounds, I agree with the analogy that raising money is like getting married. Fundraising is not about just raising funds—it is about raising funds from the right partners. Katherine and I share a similar outlook on work and life, and her immediate support told me that she was the right partner to help me build my company over the long term.

The result? Well, for me, I will always remember the next time I saw Katherine after we officially closed our funding round. I awkwardly extended my hand to give her a handshake, and she said “come on dude, give me a hug.” Now that is a true partnership.

Jerry Jao is the co-founder and CEO of Retention Science in Santa Monica, CA. Follow @jerryjao

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  • Sheila Lamont

    Great tips that also translate when pitching to angel investors!

    • http://www.retentionscience.com/ Jerry Jao

      Thanks Sheila, glad you found them useful. Best of luck.