I’ve raised capital several times in my long Silicon Valley career, and I cringe now when I think back on how naive I was in some of my early fundraising meetings. Since my job now is to be a cautionary tale for others, here’s my list of things I wish I knew earlier.
- Research your audience in advance of a meeting. Don’t say something stupid in a pitch meeting like “I’m not sure how much you know about AI technology…” and then find out afterwords that this woman has a PhD in AI, holds 12 patents, and has made investments in several leading-edge AI startups. Yes, I actually did that.
- Practice your pitch with a bad cop. I once pitched a guy who hated every slide I showed him, and told me all the ways that I was wrong. At the end he stood up, shook my hand, and said “Well, I’d like to invest”. That’s when I realized that he was just testing me to see how well I responded.
- Don’t raise more money than you need. I once was looking for $500K to build an initial version of the product and ended up being talked into $5M instead. I went on a hiring spree, built a bad product because we were moving too fast, and then had to lay off all those people I’d hired. In retrospect, the amount I had originally planned to raise was the right amount.
- Understand dilution and liquidation preferences. I once founded a company, raised several million dollars, had to raise a couple more rounds, and when the company was sold five years later my final distribution check was $86.73. It was a painful way to learn to read term sheets carefully.
- Alignment of interests matters. In the example above, it was in the investors’ best interest to sell the company, but not mine. As CEO, you have a fiduciary responsibility to make decisions that are in the interests of all the shareholders, not just you. The way a financing is structured can dramatically affect alignment of interests.
Those are just some of my learnings (believe me, I’ve stepped on several other land mines in my career). The good news is that in 2021 there are more sources and structures of capital available than ever before.
So take your time, do your research, and avoid my mistakes! :-)