If you’re an entrepreneur, you wear a lot of hats. Chief financial officer, marketer, hiring manager–to name a few. But the one hat that both my co-founder, Adam Jackson, and I loathe the most is the “fundraiser” hat.
Eight companies later and more than $155 million dollars raised between us, we still hate the idea of asking for money, but we’ve gotten pretty good at it.
That’s why we decided to use this article to open-source the most valuable lessons we’ve picked up along the way. Some of these lessons come from our own successes (and failures) and others come from leading fundraisers and investors we’ve been privileged enough to learn from over the years.
We’ll give you a play-by-play of how we found the right investors and raised $20 million in the middle of a pandemic. Then when you’re ready, we’ll show you the framework we followed to build a winning pitch deck.
Whether you’re a seasoned entrepreneur or just entering the fundraising stage, our hope is that this article will transform the way you talk about who you are, what you do, and the unique value you can bring to the marketplace.
The goal of fundraising is just to get fully funded, right? Not exactly.
While securing funding is a part of every founder’s journey, the truth is, money can only get you so far. Instead, you should focus on finding the right investors. The right investor can give you immediate access to the insight, knowledge, and network you need to fast-track your growth–things that would normally take you years to accumulate on your own.
So how do you know which investors are best for you?
To figure that out, Adam and I listed out the top strategic values we thought would help us the most in the next stage of our business.
For us, our investors needed to be:
Chances are, you don’t just need funding to get your business off the ground. You need key partners, mentors, and advisors who can help you realize your full potential.
Don’t set those priorities aside when you start fundraising. Use them to help guide you to the right investors. This tactic won’t just help simplify your search. In a sea of founders asking for money, it will help you stand out from the crowd by showing investors that you’re being more strategic in your approach.
Getting access to the funding you need is all about timing and if you wait until you actually need the money, you might be in for a rude awakening.
Adam and I raised $20 million in the middle of a pandemic and it wasn’t because we were broke. By the time we were on a Zoom call with investors, we still had more than half of our seed capital sitting in the bank, over 30 months of runway, and a path to breakeven by the following year. We were in a strong position.
So why were we fundraising?
It was simple. Momentum, milestones, and market knowledge. Here’s what we mean by that.
Imagine two founders walk into a room.
Founder one is out of money and needs to secure their next round of funding as soon as possible. They’re exhausted from the grind of fundraising and the most recent rounds of rejections and critique took a toll on their mental health. Their team is starting to get nervous and some are getting ready to jump ship. It’s do-or-die.
Founder two walks into the room with confidence. They have plenty of money in the bank and their team is still riding high from some of their recent wins. As a result, they’re able to pitch a compelling narrative to the room full of investors, knowing that if they say “no”, they still have plenty of time to ask others. And because they’re not just chasing quick money, they’re able to have a more meaningful conversation with investors. In other words, they get to interview prospective investors just as much as the investors are interviewing them.
Which founder would you rather be?
It’s not a trick-question but most founders end up being like the first one. That’s because they make the mistake of thinking that need is the most important qualifier for raising money and as a result, they miss out on millions of dollars in funding each year.
When it comes to fundraising, momentum–not need–is the most important qualifier.
Before our most recent round of funding, Adam and I felt good for a few reasons:
While others may have celebrated this momentum and turned on auto-pilot, we went out and used it to raise another $26 million in funding.
Every founder’s idea is grounded in a belief.
For Adam and me, our belief was that the traditional web 2.0 networks that thrived off of huge fees while concentrating ownership to investors would soon be a thing of the past. In their place would come new web 3.0 networks that were user-owned, thereby allowing them to grow faster and become more valuable.
That’s when we came up with the idea for Braintrust, the world’s first user-owned network that connected leading enterprises with top tech talent. Since this was a new concept, we needed to figure out which hypotheses we wanted to test first and then identify the milestones we would need to reach in order to know whether or not we were on the right rack. Once our milestones were established, we put our idea to the test.
Here is the first round of requirements we came up with:
Here’s how we ended up doing by March 2020:
Our metrics showed our hypotheses were correct and when we passed each one of our milestones, we knew we had the momentum we needed. Now, it was time to go out and get the additional resources we needed to turn the flywheel even faster.
Over the next 18 months, we developed the right go-to-market plan and a clear view of the product and team we needed to build in order to succeed. At that time, we had accomplished everything to-date with just seven full-time employees (and an enormous talent network). As we entered the expansion phase, we knew we needed to build out our core team and hire key executives to help take us to the next level.
While we planned to double the core team, the premise of building a user owned network is that many of the essential functions to run and maintain the network are done by the community vs. inhouse teams. The software plus the Braintrust token incentives gave us everything we needed to grow with a very lean core team and a giant community.
Once it was clear that we met all three criteria, there was no time to lose.
Adam and I set an ambitious six-week target for wrapping up this next round of funding. Traditionally, August and September are the worst months to fundraise as most investors are on vacation but due to COVID-19, they were all at home–eager to get back to work.
It was a sprint, but we made it happen.
And by pushing ourselves, we were able to wrap up the process in six weeks and avoid a long, drawn-out round of fundraising.
Now, I want to dive a little bit deeper into a few of the key elements outlined above, specifically how we created our deck and narrative.
The most common reason investors walk away has nothing to do with the quality of the idea being presented. It might be brilliant. But if the founder fails to communicate a compelling and coherent narrative, they’re going to lose every time. If you want to raise money, you need to capture the imagination of the investor, and there’s no better way to do that than through a compelling story.
I won’t go into the details of every slide you need in your deck. Instead, I’ll focus on the two most important slides. If you get these right, you’re going to get the attention of investors. If you get them wrong, nothing else will matter.
The first slide is your most important and it’s where you identify the problem you’re trying to solve. This is your chance to lay out the problem in the marketplace from the customer’s point of view. Ideally, you want to describe the problem in the context of a broader trend (or confluence of trends) that will make your company inevitably huge. Just remember that without a problem, there’s no narrative. (For more on this, check out The Secret Structure of Great Talks by Nancy Duarte.)
The second slide is when you introduce the solution (e.g. your product). The best way to do this is to use the first slide to tell the story of the world as it is today. Then use the second slide to tell the story as it can be, with your product. This juxtaposition is the key element to any winning presentation, whether it’s your first or your hundredth. If you can convince investors that your product solves the problem in a meaningful way, you’re off to a great start. (To understand how most investors see your pitch, check out The Ladder of Proof by James Currier.)
Once you establish the problem and solution, here’s how I suggest laying out the rest of your slides:
(To learn more about presentation structure, check out the 10/20/30 Rule of PowerPoint by Guy Kawasaki.)
If you find the process of preparing your presentation overwhelming, don’t worry–you’re in good company. Adam and I spend dozens of hours preparing and rehearsing for each hour of presentation. You need to write out each word and know who is going to say what. To make sure that you’re ready for EVERY question, list out the 20 most difficult questions about your business and then come up with great answers for each one of them. Pitch to your existing investors, advisors, and trusted friends. Get their feedback. Push them to tell you what’s broken in the pitch and what you need to fix. Then do it all over again.
Valuation is always the touchiest part of fundraising. It can also be the most arbitrary since it’s driven solely by supply and demand.
We knew that going into it which is why we chose not to provide any guidance on valuation. Instead, we asked the insiders who wanted to lead the round what they thought was a fair step up in valuation given the progress we’d made since the seed round.
Rather than optimizing for the highest valuation, we optimized for those we thought would be the best partners at this stage of the project. And to ensure that we would never have to raise another private round of capital for Braintrust (remember, we hate fundraising), we raised more money than we thought we’d ever need.
Fundraising isn’t for the faint of heart. It’s always hard but for different reasons each time.
Adam and I faced the unique challenge of creating a new business model from the ground up. There were no playbooks to follow. No blueprints. And definitely no examples of how our idea is currently operating at scale.
We are incredibly grateful for our early investors IDEO CoLab, TrueVentures, and Homebrew–that believed in us and our vision for a user-owned economy. And to our new investors at Blockchange and ACME, we are so excited to have you on board for this next stage of growth. Last but certainly not least, we want to thank our amazing community of talent on Braintrust. Without you, we wouldn't be here today.
And for you–our advice is simple. Go in from a position of strength. Stay true to your values. Be patient. And if you persist, you’ll find the partners and capital you need to get your ideas off the ground.
Simple as these tips are, though, they’re powerful. Once you master them, you’ll never fundraise the same way again. You’ll begin to win over new investors, and with each new pitch, you’ll become more confident.
Our hope is that by sharing this with you, we can help create the world we know is possible.
Sincerely,
Gabe Luna-Ostaseski, Co-Founder & CRO
Adam Jackson, Co-Founder & CEO