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Let’s face it: Fundraising has never been easy, especially for early-stage entrepreneurs or new fund managers.
On one side of the table sits millions of dollars. On the other, an unproven idea. Your job is to convince the people with the millions that your idea is worth the investment. It’s daunting, to say the least.
Then COVID-19 hit, which made fundraising even harder. Now you’re doing the same unnerving pitches through the shaky lens of a video camera.
Even worse, the percentage of capital going to early-stage companies — with fundraising size of $5 million and below — has been dwindling over the past decade. And last year, only about 160 venture capital funds were raised in the U.S. by emerging managers, the lowest amount in the past eight years.
To successfully raise money in this environment, you have to take a long-term view of the process.
Fundraising is not a one-time event. It doesn’t start the day you put your deck together and end when the money is safely in your bank account. It starts long before you need an investment, and it never ends as long as you stay in the game. So, even when you’re not explicitly fundraising, what you do each day has an impact on your ability to raise money.
With that in mind, here are some tips that might help. These are distilled from my experience of raising hundreds of millions of dollars for our funds, startups and an NGO.
1. Everybody has a track record
Investors will look not only at your direct experiences, like the number of companies you’ve founded or funds you’ve managed, but also at your educational background, leadership activities and other indirect experience.
Put simply, everything you’ve done is part of your track record.
That might sound unnerving, but it actually means you can take steps to leverage your track record to do something new. For example, if you have no experience as a CEO, you may have people who invest in your first company based solely on your track record as a good friend. But with that investment, you start a business and begin building your track record as a CEO.
When I raised our first fund, many investors supported it because they believed that my experience as an entrepreneur and researcher would help me evaluate early-stage deep-tech companies. That gave me a precious chance to build my track record as a venture capitalist.
More recently, a new limited partner in my fund found out they knew someone I went to graduate school with two decades ago. And to no surprise, the LP called them to learn more about my reputation back then before committing to the investment.
Give your best effort to whatever you’re doing right now. Because like it or not, it will be part of your track record.
2. Prepare to meet investors anywhere, anytime
Consistently expand your network and take note of people who may be interested in your next round.
Go to events and tell your story. Be open to randomness. You might find an investor at a class reunion, a trade show, or a local community meetup. In 2007, while I was working on my startup, I got dragged to a party I wasn’t really interested in. While I was there, I happened to chat with a guy I’d never met before. We wound up talking for half the party. A few days later, he called me and offered to be an angel investor, also helping me raise my next round in the middle of the financial crisis. We’ve been close friends for over a decade now, and we’re both LPs in each other’s venture funds.
The moral? There are always investors looking for deals in your industry or the stage your company is in. Be prepared to tell your story; and don’t close yourself off to opportunities to meet people.
3. Ask for warm introductions
Investing requires an enormous amount of trust. The stakes are simply too high for an investor to hand over millions of dollars to someone they barely know.
Warm introductions are about establishing trust. Think of them as a form of validation for the investor. They may not know you at all, but if someone the investor trusts vouches for you — or simply introduces you — it creates a bridge that otherwise would never have existed. “This person is worth talking to” is a simple endorsement, but it’s extremely effective.
It’s not impossible to raise money without warm introductions, just much more difficult.
Keep in mind, many investors say “no” to 99 out of 100 pitches that come their way, even with warm intros. With huge amounts of supply and so much risk involved, it’s hard for investors to justify selecting a complete stranger.
4. Build continuous momentum
The decision to invest in a startup or fund usually doesn’t happen over the course of a weekend. This is a lengthy process that includes a ton of due diligence, research, reference-checking and other miscellaneous legwork.
That can be nerve-wracking if you’re the one asking for money, but it also presents opportunities to show investors you’re making progress and building momentum.
You can show progress in a number of ways, such as eliminating a technical risk or launching a new product, but it all comes down to executing your business plan. Let’s say you told me (your investor) about a big client you were hoping to land when we spoke last time. If you come back and say, “Hey, guess what? We just landed that client!” then I’m going to have an increasingly positive view of your potential. I’ll think, this person follows through and does what they say they will.
Again, it’s all about lowering barriers for your investors. Show them you can move the business forward and sustain momentum even without their investment, and their big checks will only accelerate the growth of your business. That will make their decision to invest much easier.
Pingrong “PR” Yu is a Silicon Valley-based venture capitalist who invests in early-stage deep-tech startups in a variety of industries. He has invested in more than 80 companies and served on the boards of more than a dozen of them. Prior to his investment careerYuPR also has extensive experience in R&D, with more than 30 highly cited peer-reviewed papers and patents to his name.
Yu’s education transformed his life, and he has devoted much of his nonprofit work to helping others receive the same transformative benefits from their education. He has chaired a zero-energy-consumption building competition for thousands of college students from 13 countries, and is a longtime mentor for Schwartzman College, helping guide a new generation of leaders from many different cultures and backgrounds. He also serves on the advisory board of research and innovation at the University of Colorado at Boulder. He obtained his Ph.D. from the University of Colorado at Boulder and his B.S. from Peking University.
