As 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!