A Product Market Fit Show | Startup Podcast for Founders
00:00:00 · Pablo Srugo
[00:00:00] S0: When a founder comes to me with no pressure, no timeline, no momentum, they just wanna chat, I have all the power, and that's great for me, but not for you. You need to spend all your time building your business, not fundraising, which means you need to fundraise as fast as possible. And the most proven way to do that is by generating a lot of FOMO. That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market I mean, the name of the show is product market fit. Do you think the product market fit show has product market fit? Because if you do, then there's something you just have to do. You have to take up your phone. You have to leave the show five stars. It lets us reach more founders, and it lets us get better guests. Thank you. I'm Pablo. I'm a founder turned VC and partner at Mistral, and I've interviewed over 200 of the world's best founders on the product market fit show. I'm gonna give you the exact four steps they use to fundraise fast. But before I do that, I do wanna say one thing. 80% of fundraising is the business. It's the team. It's the traction. It's the market. 20% is the process. This is just about that 20%, but it's the easiest 20% because it's the only 20% you can fully control. Step one is you have to build a list of qualified VCs, at least 50 names. And the reason it's gotta be 50, it's not just an arbitrary number. If I look at the data, like, historically from our firm, ultimately, if you're gonna run a competitive process, you're going to wanna end up with three legitimate term sheets because then you'll have options, and then you'll also be able to work them off each other to make sure you get the appropriate terms. So if you want three term sheets, you're gonna need to get 10 firms to that final stage where all partners review the opportunity so that 30% of those actually get you a term sheet. Now if you want 10 partner meetings, that means you're gonna have to have 20 VCs that actually take the opportunity seriously and do a real deep dive on it. Because of those 20, only about 10 are gonna say, you know what? Yes. Let me bring this to all the partners.
00:01:57 · Pablo Srugo
Now if you want 20 VCs to actually take your opportunity seriously, you're gonna need at least forty first meetings, because at least half of the people that you meet will tell you it's not a fit for them. And if you want forty first meetings, you need to reach out at least to 50 VCs, because most VCs, to be clear, are going to take that first meeting just to be able to say that they met you, especially if, as we'll talk about, it comes from a referred source. But there's always gonna be ten, twenty, 30% that pass right on the email, or maybe they're on vacation, or for whatever reason, they'll reply. And that's the minimum. The more the merrier. If you have a 100, you just doubled your odds. Where you don't wanna end up, obviously, was with zero term sheets, but even just one term sheet is not an ideal place to end up because you effectively have to take what you have in front of you. And you can play hardball and negotiate, but you know that if this VC says no, you've got nothing left. Two is not bad, but three is really that number where all of a sudden you have the power. Now when it comes to actually building this list of VCs, the beautiful thing is these days, it's it's quite a joke, frankly, to find this list of firms. Every single VC has a website. We're all doing content marketing. We're all trying to get out there with AI, with PitchBook, with Crunchbase. Getting the list is the easiest part of this entire process. The hard part though of that is that it's not just getting a list of names, it's really the curation part that I'm not gonna say it's hard. It's not hard, but it does take time. It does take effort. And frankly, a lot of the steps, when we go through this process, you'll see they take work. But the difference always you got to think about is, I either spend a few hours now or I spend literally weeks later trying to reel VCs and trying to get them to invest in my company. By spending the time now, you're going to manufacture FOMO and momentum. It's gonna make everything else go way faster. When it comes down to curation, the things you gotta think about, stage, sector, and geography. Does this VC actually invest at the stage that I'm at? Step two is sector. If you've got a direct to consumer app and you're gonna go after a VC that mainly invests in AI for the enterprise, it's just not gonna be a fit. And then the last part is geo.
00:04:03 · Pablo Srugo
A lot of investors are geographically constrained. So for example, we only invest in The US and Canada. Do they actually have investments in the country where I'm based? And the final thing, actually, and many founders forget to do this, what's really important, is double check that those VCs don't have competitive investments. Some VCs play this game, and they shouldn't, but they do, which is you might get a meeting and think you're having a genuine conversation with a VC that knows and gets your space, only to later find out that that same VC invested in another company that's a competitor, was never gonna invest in your company, and all they did was learn about your company so they can call the founder of your competitor, sound smart on the phone, and give them intel. Step two is you have to engineer the intros. This is where things start getting a little harder. So the first part is, of this list of, let's say, 50 VCs, for every single VC, you're gonna map who is gonna make the intro to that firm. It could be you directly if you already know a partner of that firm. And where you don't, you've gotta go through your network, frankly, probably through LinkedIn, and figure out who do you know that is connected to that VC and can make the intro. The reason is you can go cold, but you are not building FOMO if you're starting off on cold outreach. If you wanna build FOMO, one of the keys is you have to have trusted and referred sources vouch for you by making the intros. So the first question is, like, who should you be thinking about in terms of making these intros for you? And there's actually a hierarchy. The best intro source is another founder. When I have another founder that I think is a solid founder reach out to me and tell me that I need to meet a third founder that they know, I'm already coming into that call with high expectations. That's exactly what you want. The second best is some sort of ecosystem player. It could be some operator, some executive, maybe even the lawyer, these kinds of people that are in the ecosystem for whatever reason. Angel investors actually fall into this category as well. They're pretty good intro sources. And then the intro source that you do not want and sometimes founders will ask me sometimes I'll pass on a founder, and they'll say to me, okay. I know you passed, but you have other VCs you could intro me to.
00:06:08 · Pablo Srugo
If I, as a VC, make an intro to another VC, the first question they're gonna ask me is, are you investing? And if I say no, I've just deflated that balloon completely. So the last person that you want to intro you to other VCs is a VC. Now here's where you hit the first problem. Most first time founders, especially, this is where they get stuck. You go through that list and you fill it out and you realize you've got intros to maybe five or 10 VCs on that list of 50. What do you do? If you have no network, you really only have two choices. Choice one is you go and raise anyways and you raise without a network. Now, if you do this, what you're doing is you're giving up on that 20% alpha that we talked about earlier. That process is effectively gone. You're going to raise fully on the fundamentals, on the team, the market, the traction, and it's just going be that much harder to drive FOMO, but it's a choice. The other choice is you're going to have to find a way to build a network, and you're going to have to do it fast. There's really three hacks that I think you can use as a first time founder to build a network quickly. The first one, the most obvious one, is get into YC. Get into 500 startups. Get into some accelerator that's actually recognized and branded. If you can do that as soon as you get in, you've got a network and you've got a brand. The second hack, which, to be honest, is, like, my least favorite, but it definitely can work, is you go to the events, you go to the meetups, you do, like, classic network one zero one, and you meet a lot of founders and ecosystem players. That way it worked for us. I mean, we went to a conference, and that's where we met one of the founders of 500 Startups. He liked us, and he led us into the program. So things can happen. It's just you're gonna spend a lot of time going to some events, and three hours later, you got no value out of it. And that's just part of the game. The third one that I think is the most effective and most efficient way to build a network as a first time founder is look at your own city, your own geography. So let's say, like, I'm in Ottawa. I would look at Ottawa, and I would find who are some early stage founders that have already raised, like, a seed round, maybe a series a round, that are just one notch above where I am. And then you just reach out cold. You just say, hey.
00:08:13 · Pablo Srugo
I saw that you raised $2,000,000 for your startup. I'm actually a founder. I also live in Ottawa, and I'd love to meet up and get advice on whatever. Most founders are more than happy to help other local founders because they see themselves in those shoes. You can do that. You can have twenty, thirty high value coffee meetings where, a, you're gonna build, like, a solid network. You're gonna learn a lot in those meetings, and those are founders who raise. So by definition, they're connected to VCs. So now once you've got all those 50 intro paths mapped out, the next thing is you have to engineer not just who says it, but what they say and when. There's really three steps to this intro process. The first one, you found that somebody's connected to some VC on LinkedIn. You've gotta reach out to them ahead of time and ask them, do you know VC x y z well enough to make an intro? I'm thinking of raising around in the future and would love to connect. Because a lot of people are connected to people on LinkedIn they don't actually know. So that's the first thing, and you can do that well ahead of time, well before you're actually gonna go and press go. The second piece is you're gonna find that time. You're gonna say, okay. For example, Monday, March 15, that's the day that I'm gonna kick start my process. So a few days earlier, let's say Friday, March 12, you reach out to these people that you've already verified before, and you tell them, hey. On Monday, I'm gonna go out, and we're gonna start a process. Are you okay to send a blurb for me? And you get that confirmation. Now everybody's, like, locked in and ready to go. And the final thing, and this is something that very few, even the best fundraisers do, is you want to engineer the exact introduction that these founders will make for you. There's a huge difference between a founder saying to me as a VC, sending me an email and saying, hey. I know John, and John is raising $3,000,000 Do you wanna meet with John? I might very well take that meeting, but I have no reason to believe that that's going to 50 VCs. I've got no reason to believe that there's any foam or momentum behind it. So that's the way I'm taking that meeting. What Marty from Pylon had in his blurb was he had founders reach out to VCs and say something like, hey. Have you met Pylon yet? I know Marty. He's a great founder. They're in y c now.
00:10:19 · Pablo Srugo
If you haven't met them yet, let me know, and I can try to get you in. If I'm getting that as a VC, there's all of these assumptions that I have to make. First of all, that this founder is not just making an intro, but actually thinks that this other founder, Marty, is really good. Second of all, I just heard they're in YC, which I know already is gonna drive momentum. And third of all, this person's making it sound like if I haven't met them yet, I'm already late to the game, which means I'm gonna book that meeting faster than an average meeting. I'm also gonna go into that meeting assuming that there are many other people looking at this deal, and that's exactly what you want. Step three is you have to compress the timeline. This is such a common mistake. What happens is a lot of founders, they'll just be like, Okay, I'm going to fundraise. They maybe got some VCs they know, and they just kind of go. They just start setting up some meetings, some are this week, some are the week after, and they're kind of testing the market, all this sort of weird stuff. What happens is everything is serial, and you never have people in the same phase of the process. You never get to build real momentum. So the way that you manufacture momentum is that you reach out to these 50 VCs through your intros on the same day. And when you reach out, naturally, because you reached out on the same day, many are gonna answer within one, two, three, four days. You're gonna get almost 80 or 90% of your responses in that time frame. And then when that happens, you're gonna book those first meetings as much as humanly possible over the same two weeks. The only thing that can happen is sometimes VCs will tell you, for example, oh, I can't meet until three weeks from now, four weeks from now. The right answer to that is totally fine. If you can't meet me for another three weeks, let's set it up then. But just so you know, I'm doing most of my first meetings over the next week or two, so if by any chance you can meet earlier, that'd be great. What you just did there is two things. Number one is you just upped your chances of that VC actually moving the meeting and talking too faster, which helps you compress that timeline.