A Product Market Fit Show | Startup Podcast for Founders
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.
00:20:31 · Pablo Srugo
You might end up with a little bit more, a little bit less, and of course you'll adjust, but have a concrete number that you're trying to raise. The last rule, this is really important, be as aggressive as you can credibly be. I mean that with everything, with your next year forecast, with your market size, with the opportunity. If you don't believe something great can happen, why would a VC ever believe it? Oftentimes, founders think, well, I'm just being conservative. The fact of the matter is, no matter what you tell me, I'm gonna then take that. I'm gonna assume that's best case scenario, I'm gonna do my own analysis on how big I think this really could be, on how fast you really could grow. Whatever you give me is the absolute best case. That's how I have to take it. So if you're being conservative, you're just lowering that ceiling because I can't take what you say and then go back to my partners and say, you this know, founder thinks they're gonna grow to 2,000,000 next year, as an example, but I think they're gonna grow to four. The answer is gonna be, well, if they only think they can do two, why would you think they could do more? It doesn't make any sense. So whatever you say to people, understand that whatever a founder is telling them is the best credible scenario, and that is what you have to present.