I just finished fundraising for @sendwithloops ahead of YC’s demo day.
— Chris Frantz (@frantzfries) April 11, 2022
Here are the unfiltered lessons I learned about raising money for an early stage startup.
This is a series of notes and observations from dozens of calls with some of the best investors in the world.
Stagger your cap. This is a bit of a secret. I talked to a handful founders fundraising right now that didn’t even know this was an option.
— Chris Frantz (@frantzfries) April 11, 2022
Here’s how it works:
1. Start fundraising for a preseed/seed round at a certain cap, 10m-15m is pretty common with web2 B2B SaaS
2. You get a few awesome angels to buy in at that cap (more on that below)
— Chris Frantz (@frantzfries) April 11, 2022
3. Then you complete your “angel round” and move on to raising funds from traditional VC’s but at a higher cap.
By “staggering the cap”, we were able to take a similar amount of dilution, but raise more.
The best part? VC’s are used to this and expect it.
— Chris Frantz (@frantzfries) April 11, 2022
It also helps your Angels, the ones that initially invested, feel better about being the first check in.
If nobody told you about this before now, then…
Find a deal Sherpa.
— Chris Frantz (@frantzfries) April 11, 2022
I stole this term from @zsims and I wished I had followed this advice more.
You want someone that will give you unbiased advice, make intros and be honest about how you’re coming off to investors.
Aside from @zsims advice, @JonDishotsky was a huge help.
Make sure to brag about yourself.
— Chris Frantz (@frantzfries) April 11, 2022
I would wonder why people passed on us. I would say "don't they know I've done x with y before?"
Then realize I hadn't mentioned it in the pitch.
You need to share your accomplishments with the Angel/VC, it's not up to them to read your mind.
Everyone is a partner.
— Chris Frantz (@frantzfries) April 11, 2022
You will talk to partners at VC firms, but things typically won’t move forward unless you speak with a General Partner. So here’s the general cadence of investments that I saw:
When a GP is on the first call, investment happened in 20 minutes.
However…
If there is no GP on the first call, you need to convince the partner, then have a second meeting with a GP to actually get the investment.
— Chris Frantz (@frantzfries) April 11, 2022
GP’s on the first call were usually interested or had domain expertise in the space. That was almost always a good sign for investment.
Don’t get upset when people pass.
— Chris Frantz (@frantzfries) April 11, 2022
The first person that passed on me wrote a very kind, 5 paragraph rationale on why they passed.
I wrote a 12 paragraph point-by-point rebuttal 20 minutes later at 1am from my iphone in the bathroom.
Thank them for their time and move on.
Watch out for smaller angels that don’t have a lot of experience investing.
— Chris Frantz (@frantzfries) April 11, 2022
I consistently got the worst advice and feedback from well-known Twitter “growth gurus”.
Just because they know the space doesn’t make them good investors.
On the flip side, not every great investor is a founder.
— Chris Frantz (@frantzfries) April 11, 2022
I received hands-down the best advice from @grosen and am looking forward to running fundraising questions past him in the future.
Dude is underrated.
There's a structure of lower-level "partners" at firms that are just spent.
— Chris Frantz (@frantzfries) April 11, 2022
They’re tense, their eyes are bloodshot and they're usually guzzling an energy drink.
Their entire job is scrolling through linkedin/accelerator lists and booking 12 intro calls a day with founders.
They act as the front gate to the actual GP's at a firm, and you need to get past them to get in.
— Chris Frantz (@frantzfries) April 11, 2022
Answer questions quickly, while trying to act like a human as much as possible. Jokes are a plus. Smile, be confident and have fun.
If you see them relaxing, it’s a good sign.
Find your super spreader. You want one or two people, ideally Angels, early on that will back you and introduce you to VC’s.
— Chris Frantz (@frantzfries) April 11, 2022
We got lucky and ended up with 3:
- @SahilBloom
- @Austen
- @jaltma
(thank you!)
Here’s a bunch of things you don’t need in a preseed fundraising round:
— Chris Frantz (@frantzfries) April 11, 2022
- connections
- 12 months of traction
- a deck
- an “investment memo”
- a “data room”
Here’s what you do need:
- confidence
- relevant founder backgrounds
- some type of traction
- answers to every question
so make some intros for me please https://t.co/ADxzpQtmHl
— Paramendra Kumar Bhagat (@paramendra) April 11, 2022
Nail your answers. You want to see nodding and eyebrows raising.
— Chris Frantz (@frantzfries) April 11, 2022
VC’s have a checklist. Don’t let them drop an X on any box of that checklist.
You need to pass all the basic questions before you can move forward.
Here are the typical questions I was asked.
-What’s your key insight in this space?
— Chris Frantz (@frantzfries) April 11, 2022
-What does the next x years look like for you?
-What will you do with the money?
-What is your go to market strategy aka how will you get users?
-What is blocking you right now?
-How much are you raising?
-How much revenue do you have?
Have answers for every one of these questions.
— Chris Frantz (@frantzfries) April 11, 2022
Tell the truth, but never say you don’t know.
Saying you don’t know the answer to a question causes the entire meeting flow to stop in its tracks.
Have an answer for everything.
Just because a “Tier One” VC books a call doesn’t mean they want to invest. In many cases, they will make a connection to invest in an A round.
— Chris Frantz (@frantzfries) April 11, 2022
If they want to invest in your seed, watch out for their ownership targets. Big checks come with big dilution.
And have to plug the tools we used.@clerkyinc - handled sending the SAFE’s (better DocuSign for startup paperwork)@pulley - beautiful + intuitive cap table management (better, purpose-built excel)
— Chris Frantz (@frantzfries) April 11, 2022
Ok, hope that was helpful! I wish I had known this info before I started.
— Chris Frantz (@frantzfries) April 11, 2022
If you want to follow the next couple years of growth as we head towards a Series A, give @frantzfries or @sendwithloops a follow ✌️
Great insights for founders! Excited to support you.
— Sahil Bloom (@SahilBloom) April 11, 2022
support me too! it's a good cause https://t.co/ADxzpQtmHl
— Paramendra Kumar Bhagat (@paramendra) April 11, 2022
Thanks Sahil 🙏
— Chris Frantz (@frantzfries) April 11, 2022
— Paramendra Kumar Bhagat (@paramendra) April 11, 2022
