Raising Your Institutional Round: Chapter 12
This is the 12th 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 :)
Chapter 12: Second Meetings
The second meetings are deeper dives into your business. Depending on your confidence in key leaders and your involvement in their functions, I suggest inviting key team members to these meetings where they can lead or co-lead the meeting with you. By doing this, the investor gets to learn more about your business and meet key leadership team members simultaneously. For example, having your VP of Finance present for discussions about the business model and financial projections, or having your CTO or VP of Product walk the investor through your product. These second meetings are part of the process of answering the following questions:
Why is now a good time to invest and not later?
How do we get other partners and key decision makers in the firm on board?
This sounds simple but it is incredibly nuanced. Because everything you present about your company—typically your GTM, product, and Team—has to answer the question, “Why now and not later?” This should be the organizing frame for what is likely going to be 60-minute long meetings with key leaders. Here are some tips to consider for choreographing these meetings:
Always connect detailed answers and explanations to the metrics that matter—what does this mean for growth, revenue, and company value? For example, you might walk them through specific product features that are valuable to customers—great. However, how does this increase business value? For example, does it enhance virality of your product and therefore reduce cost of acquisition while accelerating growth? Great—then your talk track is about exponential growth and growth efficiency! For another example, you might be walking them through your top-performing channels and top-of-funnel—great. However, if your top-of-funnel is larger than your current sales workforce can handle, don’t forget to explicitly say something to the effect of: “The market is pulling faster and harder for our product than we can handle. If we increase our AE headcount by 3 in the next quarter, we can at least match the pace of demand. This means $ ARR and % Growth in the next quarter alone.”
Be transparent about key problems you are facing and what you are doing about them. Experienced investors know that startups are full of weaknesses and holes as they grow—they would be skeptical if everything was perfect. And frankly, if everything was, you probably wouldn’t need to sell your company to VCs. The right investor will be looking at how they (and their team) can add value and support you. For example, if your enterprise sales motion is strong but slow, their networks might be able to help you move deals along faster. Or, if you already have success with enterprise clients but struggle to make key partnerships moving, that might be an area where they can add value. If sourcing top engineering talent is a block to moving your product roadmap forward, share what you are doing about it and how you want your partners to help.
Present opportunity cost of waiting by showing what your company is likely to look like in the next quarters or years. For example, if you are more than sufficiently capitalized for the next 18–24 months, and your financial forecast shows that with additional capital you will likely triple your growth in the next 12 months—great. That means the VC investor has to evaluate whether they can (or would like to) get involved with your company later at a higher price, or whether they should get in now. Or, if other VC firms are moving through the process faster and asking similar questions, let them know that their peers have been asking you the same thing and that you are more than glad to answer. This validates their line of thinking while letting them know they are also slightly behind their peers. Or, if you are already a profitable company and have the luxury to choose how fast and hard you grow—great. Show that additional capital isn’t an existential need but an opportunistic one.
You will have to train your key leaders to recognize that these meetings aren’t just about demonstrating their subject matter expertise—it is about selling the opportunity to invest in your company. Therefore, they will have to be well-versed in the metrics that matter for your business and how all their key initiatives priorities help move the needle and make you a more valuable company.
Generally speaking, engineering and finance leaders will over index on detail. Great! You don’t want someone in the role who isn’t detail-oriented. Therefore, more often than not, you will have to help them explain how those details impact the bigger picture.
Answering detailed questions about the business can be a trap—never assume that answering more of their questions means they're getting closer to investment conviction. You don’t want to spend forever answering questions without reminding them of why those answers matter in the first place—“investing now is a good decision.”
Answering detailed technical questions might be great for demonstrating technical competence. However, that’s not enough. You must connect engineering efforts to a few things:
How this helps the business scale quickly and efficiently.
How expensive and painful it will be for any incumbent to catch up.
How this creates defensibility in the market.
Product features can wow the audience and have them feel compelled by what you have built. But be sure to make the connection between how the product makes it easier and faster to sell to key customers and at an incredibly lucrative price, for example. Or, how the current product becomes the foundation for new revenue streams in the form of new modules; be explicit about how that can 2x, 3x, or even 4x revenue from existing customers in the coming years.
Remember the goal of these second meetings: Get investors to want to dig in deeper in the form of a data room (next phase of the process). This means they will be committing more resources to evaluating your company. It is harder to back out of something you have committed a lot of time and resources to.
If other parties have stalled after the first meeting and you want to give them a chance to move to second meetings, you can give them simple updates such as:
Their peers are moving into deeper diligence; you are booking up time on your calendar, and want to make sure they are in the mix assuming they want to move forward.
Updating them on any significant business growth or progress. If you are doing the right thing, there should be positive momentum in your business even while you are fundraising.