A Product Market Fit Show | Startup Podcast for Founders
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.
00:12:16 · Pablo Srugo
The second thing is you just effectively told that VC that they're not even close to being alone, that you're running a process, that you've got a lot of meetings coming up, and they're already on their back heels, which is exactly where you want them. Now as you have those meetings, you're going to have to continue to effectively delay the ones moving too fast and speed up the ones moving too slow. And you can only do this up to a certain point, but another strategy to do this is as you have these first meetings and VCs start to get interested, naturally, they're gonna ask you for a data room. So you've got two options. One is you say, okay. Cool. Here's the data room. You give them the link. The elite option is actually to say to them, we have a data room, but we're only letting investors in on this date. For example, if you're running these intro meetings over two weeks, then maybe at some point during that second week is the time that you let investors in. So when investors ask for the data room, you tell them, the data room is ready, but we're only letting investors in next Wednesday. I'll give you the link as soon as it's live. Again, you just told this VC that they're not alone. There's gonna be many other people looking at the data room. And just to be clear, that doesn't mean they're just gonna invest just because there's FOMO. What it does mean is you're gonna get them to act on your timeline. You're gonna get them to act fast. Because once they get this data room, if they like it, they know they can't sit on it. They know they have to decide, and that's exactly what you want. Another huge mistake that I see founders make, this is a rookie mistake. Do not do this under any circumstances. Do not set fake deadlines. A lot of people misinterpret this and say, okay. If I wanna drive FOMO, I need momentum. I need timelines. So I'm gonna go in, I'm gonna meet VCs, I'm gonna tell them, oh, I'm closing the round by March. It is so silly. There's only two outcomes. Outcome one is you hit that timeline. Great. The outcome two is that that timeline comes and passes. And all of a sudden, it's April 1, and you're still fundraising. And now I know that you had nothing behind that, that all the power that you suggested you had was completely made up. Don't catch yourself in that scenario. You don't need to do that. You just state facts. You just compress people.
00:14:22 · Pablo Srugo
You put them together, and everything else will take care of themselves, and you'll get all of that momentum without having to make up fake deadlines. I'll give you an example of what this looks like in real life. There's this first time founder, Andrew. He's the founder of Taxwire. I met him on the show. He wanted to raise just 1,500,000. He ended up raising 3,000,000 in five weeks by leveraging this exact process. At peak, he was doing 12 investor meetings a day. That's what this looks like in real life. He actually had 5,000,000 of demand for his one and a half million dollar round. Step four is run the process. At this point, you've done everything you could. You've compressed the timelines. Now you're in the game. I'm gonna give you three hacks and three rules you should use to make this go as smoothly as possible. Hack number one is the inflection hack. I've seen many different founders do this. You know your business better than anybody else. You know when things are about to hit. For example, maybe you've got a pilot that's about to convert. Maybe you've got a customer that's about to sign. Maybe you've got a lot more pipeline than you had last month. Wait until these situations are happening because the best case scenario is regardless of the size of your ARR, it might be 30 ks, 50 ks, 500 ks, it doesn't really matter. What matters is that growth curve, that inflection. If you're having that inflection in other words, if growth is picking up just as you start fundraising, it drives insane momentum, and you can manufacture that for you. I don't mean manufacture the numbers. The numbers are what they are, but you can certainly pick the time when you go out to fundraise to match the time when your business is accelerating. Hack number two is the you're not alone hack, which is a way to reinforce to VCs that they don't have all the time in the world. They are not alone in this process. You are talking to many VCs, and the best way to do this is through subtle messages. Here's an example. You get into a first meeting and naturally say, hey. How's it going? VC's like, oh, good. How are doing? The answer is, I'm good, but I'm tired, man. I've just been back to back to investors all day. You're just answering a question. You're doing it naturally. You're not bragging. Nothing weird going on, but you just told me you've got VC meetings all day.
00:16:27 · Pablo Srugo
So now, again, I've gotta adjust to that and say, okay. Again, do I like this or do I not? But if I do like it, if I do like this opportunity, I'm gonna have to move fast because this person is talking to a lot of VCs. They're clearly running a process. There's many other little lines you can use like that. Again, if you're compressing the timeline, another thing you might get lucky is somebody might want to book you on a meeting or a partner meeting, and you've got another partner meeting with another VC then. Make sure you're divulging this information. Right? So, oh, I can't do that time? No. Instead, say, I'm sorry. I have another partner meeting at that time, so it's not gonna work. You let them know that you're in a process with other VCs, you keep doing that as much as the opportunity arises. Because every time you do that, you're just pressing the FOMO button, and that is what's gonna make things move fast. The last hack is the small round hack. I actually did this by accident in my first startup. So I went out to raise, my co founder and I, we thought we only needed $250,000 We went out and said, Okay, we're raising $250,000 We started closing some investors. All of a sudden, we were 50%, 80% subscribed. Then we realized, actually, we need more money. We need half 1,000,000. So now we're raising half 1,000,000, but we're not starting from zero because we've already got like 200 ks, so we're starting off 40% subscribed. And as we got close to that half 1,000,000, we realized we needed a million. And so we kept doing this until we got to about $2,000,000 And the difference between going out and saying, I'm gonna raise $2,000,000, and then you get a 100 k or 200 k, you're only five or 10% subscribed. No momentum. No FOMO. Versus if you're raising $2.50 k and you get a 100 k or 200 k, you're 80% subscribed. Huge FOMO. So if you're raising especially this is true for your first round because there is some danger to it. If you're going to VCs and you're telling them you only need $2.50 k, a lot of them are gonna pass because their check size is too big. A lot of them are gonna pass because two fifty k is just not enough to get your business going. So you have to have a balance here. Depends if you're talking to angels or VCs.
00:18:26 · Pablo Srugo
But something to think about, if you go back to the Taxwire example, is he ended up raising 3,000,000, but originally only set out to raise 1 and a half million, which means he got to 50% or more committed faster, and he was able to say he was oversubscribed, which is another term that, for whatever reason, is like catnip to VCs. And then the three rules that you really wanna keep mindful, these are basically the opposite of common mistakes. This is like what not to do. The first one is never set a valuation. The only exception here is if you're raising an angel round and you know for sure there's not gonna be a lead. But if you're talking to VCs and you're raising $2,000,000 and the VC says, what valuation? Do not answer that question. It's a trick question. Just tell them, we're gonna let the market decide. Why? First of all, because you are gonna let the market decide. The fact of the matter is you might have whatever valuation you think you wanna get, and then you're going to get whatever comes in those term sheets. You're going to accept it, or you're going to reject it, you're going to negotiate it, but ultimately, the market will decide. If you give a number, all you're doing is transferring power to the VC, Because if your number's way too high, the VC's gonna maybe just pass because what you want is not market or just doesn't make any sense. Now where you would've gotten an offer, you had zero offers. And two, if it's too low, well, guess what? They're never gonna bid higher than that, so you just lowered your own valuation. So rule number one is never give a valuation to VCs. Rule number two, don't give them a range. A range of fundraising shows lack of confidence and a low understanding of your capital needs. If you think you might need 3 to 4,000,000, just pick a number. Just say you're raising 3,000,000, and then if anything happens, you can always oversubscribe. But don't go in there, and especially and I've seen this before. This is such a bad idea. People go in there and say, I'm gonna raise a $5,000,000 seed. That's plan a. But if I can't, I also could raise 2,000,000 and just run a more conservative play. You're communicating to me that you don't have confidence in your plan a. Don't do that. Figure out what is the right plan and deliver it with full confidence that that is the thing that you're going after. Reality is what reality is.