Magazine Article | August 1, 2018

Small (But Critical) Equity And Funding Tips

Source: Software Executive magazine

By You Mon Tsang

A serial entrepreneur – and founder of four software companies – shares his best tips for securing investor dollars that you won’t find in a Google search about fundraising.

When it comes to attracting funding for a startup, a quick Google search will turn up plenty of advice on everything from term sheets to pitch deck templates. This article isn’t going to be a repeat of that. From someone who has raised funds for multiple businesses during the course of his career through various methods, including bootstrapped, angel-funded, VC-funded, acquisitions, IPO, and private equity – I want to share less obvious tips to be effective at the process. These small but valuable tips I’ve learned along the way are still ones I rely on when I raise money.

The process of attracting funding really boils down to selling. I’ve found that pitching to potential investors is not much different from selling your software to customers, so you should treat it like a sales process and be prepared to work very hard. Just like with sales, it takes a certain number of meetings to close a deal. You might get lucky, but most likely you are going to need to grind through a regular cadence of introductions and meetings with potential institutions and investors.

MARKET SIZING IS ANNOYING (JUST DEAL WITH IT)

Before you start scheduling these investor meetings, you are going to want to do the research about your market size. It’s obvious that VCs are looking for opportunities where there’s a large market. The interesting thing here, though, is that oftentimes VCs already have their mind made up about market size, and it’s difficult to influence their perceptions. Market size is based on numbers and facts, but it really is more like a belief. You either buy into the market potential, or you don’t. Market sizing is a place where a lot of investments will get stuck, and VCs will often use it as a reason not to invest. So, if there’s not alignment from the get-go with a potential investor on the market size, just move on.

LAND THE PLANES AT THE SAME TIME

If you’ve gotten past the first meetings — great. You should also be thinking about how to create the strongest hand in this process. The best way to get strong terms from an investor is with real or perceived competition. And the only way to do that is to land your planes at the same time by getting the term sheets in at the same time. If your offers are staggered, you will lose that competitive edge. But the truth of the matter here is: You only need one. People get stressed about stacking up their offers, but you only need one to say yes.

IT AIN’T OVER ’TIL IT’S OVER

I need to emphasize this point: The process isn’t over until the money is actually in your bank account. Once you think you’re good to go with an investor and have a verbal yes from them, there is still work to do. You still have to review the term sheet, they have to do their due diligence, there are legal docs to be drafted and signed, and then finally the money is wired. Don’t do the dance until that money is actually in your bank account.

"When it comes to pitching, you’re either doing so with lines (numeric proof that shows lines moving up and to the right) or hands (where you are gesturing wildly with your hands preaching an amazing future)."

PITCH WITH HANDS OR LINES (AND OWN IT)

When it comes to pitching, you’re either doing so with lines (numeric proof that shows lines moving up and to the right) or hands (where you are gesturing wildly with your hands preaching an amazing future). Depending on your business maturity, sometimes all you’ve got is a vision. Whatever stage you’re at, embrace your pitch and go all in.

PRACTICE, PRACTICE, PRACTICE

In order to feel comfortable embracing your pitch, you will need to practice. But really nothing beats actually pitching. By your eighth pitch meeting, you will have your presentation delivery down, and you will have heard all the questions that will be thrown your way. With that in mind, you’ll want to get a few “practice rounds” out of the way. Start by ranking your VC options in terms of your ideal fit.

  • You’ll want to pitch your way to the top by first starting with practicing on your colleagues and informed friends/family.
  • Then work your way up to tier C, B, and then finally tier A investors.
  • You don’t want to start with the firm that you think is the best fit — that pitch simply will not be good enough.

BRING A COLLEAGUE

In order to improve your pitching skills, you’ll always want to be sure to bring at least one other person with you. When you are pitching, you’re in the moment, and you are most likely not as in tune with what is going on with everyone in the meeting. Having a trusted partner there with you will be key in gauging the reaction of the investors and will be helpful for note-taking and adding color.

HAVE DIFFERENT SPEEDS

You’ll also notice that no two pitch meetings go exactly the same. We tend to practice in the same hypothetical situation, but really you should be ready with multiple speeds, versions, and approaches of your pitch. For example, you might find one time there’s no projector to show your slides, or there’s one investor who constantly interrupts you, or a key attendee shows up late. Whatever the situation, you want to be prepared to roll with the punches.

CONFRONT YOUR WEAKNESS DIRECTLY

To help maintain control over the presentation, you will also want to attack your own weakness first. Every pitch has a weakness (e.g., limited team support or low market traction), and it’s best to acknowledge it up front and tell potential investors how you are overcoming it. Don’t expect them not to notice the weak spot in your pitch, because they will.

THE PRIZE: VENTURE FUNDING IS MAGIC

I try not to forget that venture funding is pretty magical. Here’s a class of money that is willing to bet alongside with you, something as early as a rickety- built productwith a handful of customers. That’s pretty cool. But remember: You are the scarce resource. This is my number-one tip — remember you, the entrepreneur, are the scarce resource.

When I was raising my very first institutional round of funding, I was very deferential to investors. And, guess what — it wasn’t working well. But then one day I realized, they just have money. A lot of people have money. I have a unique company that is generating value and has the opportunity to return many multiples. So, before every meeting, I would think, “Is this the lucky person that gets to invest in my company?!” If you go in with a humble confidence, that will go a long way in your pitch to secure funding. Getting funding is tough. Best of luck.

YOU MON TSANG is the founder and CEO of ChurnZero, which helps subscription businesses fight churn with a real-time customer success platform. Before ChurnZero, he was the CMO of Vocus (now Cision) and CEO of its marketing automation business unit, OutMarket. He is a serial entrepreneur, having founded four software companies, including ChurnZero, Biz360, and Engine140.