Raising Your Institutional Round: Intro & Chapter 1
This is the first chapter of my upcoming book, “Move the Needle Anyway(s): Raising Your Institutional Round.” There are a total of 16 chapters. The book is currently with the publishers, however, I wanted to start sharing the content in a form of a series of blog posts so the startup ecosystem can benefit immediately. I hope you enjoy :)
Introduction: Read This First
Why This Book Matters
The focus of this book is to help you raise more venture capital with a proven strategic fundraising process. Using the playbook outlined in this book, I have assisted startup founders in raising more than $500MM in early-stage venture capital over the past five years— many of which were considered impossible in light of a series economic shock events such as Covid-19, various wars, election drama, and aggressive quantitative tightening. My clients are backed by notable institutions such as: Menlo, Sequoia, Goodwater, Tiger Global, Softbank, a16z, Lightspeed, Accel, and Founders Fund, to name a few.
Today, I continue to work closely with founders to run a proven playbook to raise more capital within the tight operating constraints of their business. As a performance coach for early-stage startup founders, I have been fortunate to work with (and learn from) some of the most brilliant entrepreneurial minds in the business.
However, rarely have I met a startup founder approach fundraising as a recreational activity— because it is not. More often than not, founders relate to fundraising as a mind-numbing, necessary evil.
At best, it gives you more time and resources to face the other just-as-daunting aspects of company-building — hiring, accountability, and achieving growth targets, for example.
At worst, it presents an existential risk to your company especially if you have no other lines of financing available.
I believe VC fundraising (especially in the US), while mind-numbing, is also a unique gift to the innovation ecosystem and a privilege to all involved. In addition to getting funded, the skills gained from developing fundraising mastery are transferable to many other critical company-building functions such as sales, hiring, business development, branding, partnerships, and life. Therefore, I would love to share three key things in this book:
An actionable, fundraising playbook you can use to raise your institutional round of capital with greater speed and control. In subsequent books of this series, I will also show you how to repurpose the DNA of this playbook to augment other important aspects of company-building.
The psychology needed to succeed in fundraising and how this psychology will serve as an amplifier to many other aspects of company-building such as partnerships, business development, upmarket sales, and hiring, for example.
The business choreography required to go from first meetings to being funded. Fundraising is a full-time commitment— I have yet to see it go perfectly for anyone — new priorities will emerge in other areas of your business that you will have to deal with.
How to Use this Book
Consider this book a guide that is a compound of both tactics and performance coaching. When you confront unnecessary drag— mental, tactical, and/or material— use this book to reorient for greater speed. Here is how I suggest you use this book:
Read it over once so you understand how all the principles and playbooks connect at a high-level. Some founders find this to be sufficient for them to adapt into their own process for success— they can go from theory to execution very quickly. Other founders will find this illuminating as it will explain why other fundraising attempts have felt unnecessarily long, confusing, and momentumless.
Complete the suggested tasks with key team members. This will help you (and your leadership) prepare the process, assets, and plan so you can raise the money you need while moving the needle on your other company-building goals.
Adjust for context. Though what we share is a repeatable process— you will need to know when to ignore the guide by assessing your specific situation. For example, fundraising just after the 2020 Covid lockdown was different to fundraising just after the Federal Reserve aggressively hiked interest rates to correct for inflation in 2022/2023. It is up to you and your team to exercise sound judgment through your network of information. Allow this book to be a scaffold so you can manage against unexpected challenges and raise your institutional round.
Chapter 1: Elevate Status & Activate Networks
Founders generally fall into one of three camps in terms of their approach to fundraising their first institutional round:
Strong index on meritocracy and rationale. These founders typically come from less-than-privileged backgrounds where there was limited access to resources, money, and influential individuals. As a result, they cultivate the doctrine of meritocracy. They believe that if they build a good product and have strong metrics (revenue, retention, growth), they can successfully present and defend their pitch with rock-solid intellect. This is rarely enough to lead to a successful fundraise— though there have been exceptions.
Strong index on the importance of social status and connections. These founders subscribe to the ethos that “who you know is more important than what you know.” More often than not, founders in this camp are more effective at fundraising even if their products and metrics are half-baked for their first institutional round.
A combination of the above. This is typically the most effective camp to be in when it comes to fundraising— ticking the box on strong business fundamentals, and elevating the social status (including your own) of those you interact with. If you are a competent player of status games— that is a form of merit/skill in and of itself. I find that more mature, seasoned entrepreneurs have this approach well-cultivated. It is also what I help founders cultivate as early as they can in their company-building journey.
Regardless of what camp you fall-in, I cast no ethical judgment as I don’t consider the ethical debate to be useful when it comes to moving the needle on your fundraise. Rather, you will need to appreciate and apply the basics of network science to successfully raise your first institutional round— people do business with people they know, like, trust and respect. This means being intentional and tactical about presenting a strong social image and activating your network and connections so you maximize your probability of success.
For the purposes of this book, I don’t expect you to read comprehensive texts on this subject matter— simply internalize the following principles as they will be the psychological foundation for executing the fundraising playbook effectively:
Status Games Are Natural and Necessary: Whether you admit it or not, every human being at some level is driven by these four questions when it comes to decision-making:
Does this make me look good or does this make me look bad?
How can I look good?
How can I avoid looking bad?
To be competent at status games, you must understand what elevates and diminishes your (and others’) status as it applies to a specific ecosystem. I will be focusing on the Silicon Valley (SV) venture ecosystem since it is my principal place of operation, and it is also the birthplace of modern startup VC which has now spread to numerous hubs in the US and worldwide. The levers in our ecosystem are:
Prior Startup Success. If you have built and sold a startup company of meaningful scale before— this is considered noteworthy.
College Pedigree. Founders from Stanford and Berkeley graduates will generally be prioritized over community college students, in most cases.
Geography. If you register and operate your business out of Hawaii, you will generally be deprioritized compared to founders who operate their businesses out of San Francisco or New York. That is not to say Hawaii does not possess strong entrepreneurial talent— but you must respect how this is perceived.
Social Associations. If you are highly recommended by reputable people such as a “celebrity” founder or investor, others will be more amenable to meeting you and hearing about your company.
Key Takeaways:
Be as high up on the social chain as you can, truthfully.
Help others raise their social status too.
Herd Mentality: we are primarily social creatures— not creators of reason or truth-seekers. That means even the most important decisions of consequence (such as investing millions of dollars into a company) are colored by social agreements of the group. This is not a bad thing— this is how human beings survived many years of hardships as a species. If you moved against the herd, more often than not, you perished. This legacy dynamic is still at play when it comes to institutional fundraising. Investors will look for positive signals from their peers too— if other funds are willing to move then it must be a good thing. VCs are often unfairly criticized for this. However, this same thinking is also what enables a huge influx of capital to find itself in our private venture markets to fund high-risk innovations through the Limited Partner (LP) ecosystem— it also encourages and enables peer-level evaluations and learnings that have led to the behemoth venture ecosystem we have today.
Key Takeaway:
To maximize the chance of getting one investor to move, you have to try to get as many investors as you can to move. The process I outline in the subsequent chapters will show you how to gain momentum by activating whatever networks you have available to strengthen your chances of a successful round.
Small-World Networks: Duncan Watts and Mark Granovetter popularized the concept that most nodes in a network can be reached from each other by a small number of steps. That means, regardless of how strong you perceive your network to be— don’t be discouraged. You are only a few degrees away from reaching people with strong decision-making power. My experience also suggests you shouldn’t limit who in your network can help you based on their job titles and professional history, for example. Human beings are much more than their profession— their other interests, family ties, and chance interactions of their past— this means they likely know more helpful people than you can currently imagine. For one, I’ve met Carlos Santana and the entire band through my martial arts instructor, for example. These connections aren’t always obvious.
Key Takeaway:
You can eventually connect and meet with anyone by starting exactly where you are. This can take more time than you would like, however it also pays more dividends over time. Unless you lived in an isolated cave with no human interaction for 90% of your life till this day, you must have an existing social network you can activate and build from.
Networks Form Clusters: Social networks are not equally distributed. They form clusters of tightly knit groups who have strong links to one another— this is referred to as network density. The same principle applies to VC investors and startup company builders— you will find clusters in the network. You might even recognize this through terms such as the “Paypal Mafia.” You want to be connected to the individual(s) of these clusters as just one connection can open up a floodgate to many more connections. You might have had this experience in business yourself— one customer or channel partner is bringing in 80% of your new business through referrals. Or, just one person in your network seems to be able to introduce you to almost everybody in the startup ecosystem. In network science, this person is called a super node or super connector.
Key Takeaway:Find and nurture your relationship with super node(s) and connectors.