5 Tips to Raise a $6M Venture Capital Round

  • April 12th, 2011
  • Brock Blake

raise venture capitalAs many of you know, we were fortunate to land two incredible venture capital partners in Highway 12 Ventures and GSA Venture Partners. The story and path to closing the deal was an adventure and experience in and of itself. Since closing, many people have asked about details and so I figured that I’d share the “cliff notes” version for everyone to read:

1. Build a Great Business

First thing is first. I don’t care how strong your pitch is, if you don’t have a solid business to pitch, you aren’t going to raise venture capital. My advice to other entrepreneurs looking to raise capital is to build a great business first, then go find the investors – not the other way around. Here are a few attributes of a great business:

  • Huge market with lots of pain
  • Solid team (no matter how big or small) that can execute
  • Prove that there is customer demand
  • Strong knowledge of key business model metrics and how to scale those metrics
  • Scalable model and/or technology

2. Pitch Everyone

Raising money is similar to a sales funnel. There is no secret sauce (although there are certainly shortcuts) and you can’t be bashful. During our fundraising process, we pitched groups from all over the United States, including Utah, Idaho, Northern California, Southern California, New York, Chicago, and Boston. Here is a typical “sales funnel” approach to raising money. You’ll need to:

  • Pitch 100 VCs to …
  • Land 50 meetings to …
  • Get 25 VCs to do a deep dive to …
  • Get 10 VCs in due diligence to …
  • Get 5 interested in doing the deal to …
  • Land 2-3 term sheets.

3. It’s Not Closed Until it’s Closed

We had to learn this lesson the hard way. After a few weeks of pitching, we had a term sheet from an incredible VC group and were only a few weeks away from landing the deal. Everything had moved quickly and smoothly, and we were excited to finalize and move forward.

However, about two weeks prior to closing, the VC group had a “blow up” within the firm and the partner leading our deal suddenly/unexpectedly resigned from the firm. This was a huge setback to us because we were changing our strategic plans with a near term closing in mind. I’m sure you can imagine how it had a negative impact on our management team and employees and we had to figure out how to rebound and keep things moving forward. Thankfully for us, we had other VCs that were interested and we were able to pick things back up with them.

4. Leverage Your Fans

Our deal was led by Glenn Michael and the Highway 12 team; after the first term sheet blow-up, they were the first to get a term sheet on the table. Once HWY12 was on board, we met almost weekly to discuss the status with other VCs. During this process, they were some of our biggest fans and were referring us to interested VCs regularly.

Thankfully, one of the VCs they introduced us to was Brian Hirsch at GSA Venture Partners. We met one morning at a conference in NYC and he invited us in to pitch his partners that afternoon. It wasn’t too long after that we had a term sheet negotiated and signed from both partners.

5. Make Sure Your Deal is ‘Clean’

I have a whole new meaning and definition of the word “clean.” If you would’ve asked me several months ago, I would have told you we were very clean and it would be an easy deal to close. Unfortunately, the attorneys had a different opinion and the “legal and closing” process took a lot longer than any of us wanted. Though I won’t go into a whole lot of detail (it’s just too painful), I’d just recommend that you work closely with your attorney to make sure that everything is setup appropriately. If you have any questions on this, feel free to reach out to me.

Looking back, the fundraising process was an incredible learning experience. While I have raised quite a bit of angel and debt capital previously, VC funding was a different ball game that forced us to refine our model. I’m stoked about having HW12 and GSA Venture Partners on board — they’ve added significant value to our company and strategy.

For those trying to raise venture capital — hopefully those 5 tips will help. Good luck!

About the Author

  • Brock Blake

Comments

  1. great article! VCs can be a tough beast. I’ve only gone through private investors to keep our heads above water in case we need to go through a VC round. But great insights!

  2. Our problem seems to be the attorney is the one muddying the waters. He keeps inserting loopholes, telling us its in our best interest and he is only doing his job, but then the other side finds them and closes them up. It seems like a game to keep the contract going back and forth like a tennis match.

    • @James: I know what you are saying. Sometimes the process makes you question whether the attorneys are working for or against a closing. This only underscores the need to make sure that you have a talented/knowledgable attorney on your side that you trust that has your best interests in mind. If you would like me to refer you to 1 or 2 that I have worked with, let me know.

  3. Hi there,

    I’m just curious, did Lendio take a business loan prior to raising money?

    Can you speak to the different approaches of starting an online startup? For instance, for my company we took out a microloan to get it off the ground. Now, we’re hoping to raise more capital, but I often find myself wondering if it would be worth the risk to simply take out a $200K line of credit instead and keep boostrapping. More risk, more reward?

    What are your thoughts?

    Thanks!

    Anonymous

    • @Anonymous, yes, we have taken out several loans prior to raising capital. We have had venture debt lines, business credit cards, lines of credit, and bridge loans in various points of our career. I’d do everything that I could to bootstrap the business first… but, wouldn’t be afraid to start with business loans.

      Check out our most recent blog post from Barbara Corcoran (ABC’s tv show Shark Tank) as she talk about this topic in detail. Good luck!

  4. Great Article,

    But how does someone who has a great idea, who has interested clients but does have a completed product get access to funding? We have been trying through angle networks, online applications and while we get viewing we never get feedback and in most cases not even a rejection notification. We have invested every penny we have to prove a demand and excitement for our solution. We have are plan, our pitch, but can not seem to break through the walls of silents to get in front of serious VC’s. The link below presents our project if your interested.

    http://www.youtube.com/watch?v=_lbpZa4ZQkw

  5. Great work Brock, I am very proud of you and your team and the example you are giving to Utah companies.

    Here at http://www.launchleads.com, we are always watching and learning from others experience and it is great to see a success story so close to home. Keep it up brother.

  6. Thanks for the tips my friend the information is valuable. My partner and I are finding some of the same challenges Charles Davis. As we get more experience in are first round of seeking prospect investor we are finding out it’s better to get an introduction to an investor from someone the investor already knows or made deals with he/she in the past. We are spending a lot of money through third party services that honestly are not turning up good results. We get a ton of great feedback about our idea but that’s about as far as it gets since the start of our first round about 4 months ago. Do you have any suggestions on finding the right people who are real and down to do business, not these people we have been dealing with that say give me 10,000 up front for my due diligence. We have a solid and clean plan and great idea we just need to find that right person/persons which has been are challenge. Thanks for your help in advance.

  7. Great article,
    I’m indeed of business loan to boost my business of microfinance and entrepreneurship programs in Africa. Is the are anyone who can assist? .You can see our work on this link if your interested http://www.govas.wordpress.com
    Thanks

  8. Hi all,

    Can someone tell me how do all these vc or angel
    Investments apply to a business that offers
    Professional services as supose to a single product.
    -I am a designer who has been organizing a small
    Practice for sometime now.

    Can anyone advise?

    Thank you

  9. I think this article is as generic as the other article out there.. meaning.. where is the meat and potatoes.. Assuming someone who have small level of intelligence this article only confirms what they already know at best.. But this article did not or could not help anyone who has the courage to contact any angel investor and have any sense of what to do or expect..This article is a filler like most articles that can’t or won’t tell you what the investors are looking for, how to prepare for those questions and/or what you should know before meeting with the sharks…

  10. @Brock – nice post. good insights.
    @Kay Lewis: here you go: http://tydanco.com/2010/12/02/why-im-psyched-to-be-investing-in-cardmunch/
    That is a breakdown from one of the most prolific angel investors on the east coast on exactly how and why he invests in a company.

    My challenge to you:
    start following and reading more investor’s blogs, get in the angel community and read and network. Within a few short months you’ll have the answers you seek, but it does take work.

  11. This is good information. Hey Brock, I’m not looking for a VC. But a lot of my clients are. Can you please contact me directly? Thanks, Milton