By Dave Schools
Scott Walchek has raised over $130 million from every kind of capital source, including public markets, private investors, and the full gamut of VCs. He’s started and successfully exited four tech startups (including Baidu) and is now seeking to transform the global insurance industry with his fifth, Trōv.
He knows how to use straight debt, convertible debt, preferred equity, warrants, options, and PIPEs (Private Investment in Public Equity) to raise capital. An entrepreneur and angel, Scott’s been on both sides of the table, investing in and advising scores of companies for over 30 years.
Here are 14 things he’s learned that every fundraising entrepreneur should know.
1. Don’t be precious about your vision.
“I was recently asked to comment on a young company’s plan. When I received their deck, the first slide displayed a sketch of the product they’d originally set out to build. Even though they’d pivoted to a promising new (and far less capital intensive) model this new direction was buried much later in their deck. Their insistence on promoting their original ‘big’ vision threatened to overshadow the attractive business they were actually running (See next point).”
2. “Every pitch is an elevator pitch…
…even when comfortably seated in a conference room for an hour. Only after you’ve piqued the interest of your potential investors with your immediate plan will you have earned the right to paint the bigger future.”
3. Rehearse your on-ramp
“Most investors will start their meetings prattling on about why their firm is different from all the others. Once their initial sales pitch is over, they’ll usually ask something like ‘we’re really interested in how [your company] started, what was the motivation?’ This is your starting gate, see it as an on-ramp for a well-rehearsed story of your company that ends with a (pithy) proposition. Dispatch it with economy.”
4. How to talk about your background
“Chances are your audience already knows your background. Don’t get stuck rationalizing outcomes or explaining strategies. If I’m asked up front, I generally offer a high-level answer about tech startups for 30 years… and the rest is on LinkedIn. What’s magical, however, is when you can reference how previous experiences have shaped your new venture’s strategy, model, hiring, etc.”
5. Investors are listening for a laser focus.
6. The best meetings are usually deckless.
“Most early stage investors will bet on the founder rather than on the business — the skill of pivoting is more important than the ability to predict a linear outcome. Experienced VCs know that few companies end up where they intended from the start. If you rely too heavily on your props, you’ll miss the opportunity to sell yourself.”
7. Wait to be asked about the details.
8. Answer the tough questions before they’re asked.
“After a few pitches you’ll find that investors will ask common questions about your proposition. Often these questions create such noise in their heads that most everything else you say during the pitch will be missed. Practice the answers and build them into your main deck.”
9. If early, “hood ornaments” can help.
“There’s nothing like customers to prove you’re creating a valuable business. But the earlier you are in your business’ maturity, the more important the credentials of your team. (In later stages, performance against KPIs is the core measure). If you don’t have customers, the next best thing is to have credible partners and domain influencers endorsing your plan (an MOU underway, an agreement to trial your product upon completion, an agreement to…).”
10. Never say no to a pitch opportunity.
“Practice on the low-value targets. One of the reasons why I’ve taken so many meetings is that with each meeting I learn more about what I don’t know. The process of identifying your most convincing narrative is sharpened by writing, pitching, revising, pitching again, and so on.”
11. Don’t (overly) sweat percentages of ownership.
“Unless there is obvious egregious overreach by a potential investor, I usually reassure founders that most decisions (i.e., control) can be determined within the organization docs and voting agreements, and not correlated with the share ownership. Statistically, most CEO/Founders of VC-backed tech companies will end up with between 8 and 15 percent of their company’s shares by the time of a meaningful exit.”
12. Build-in a couple of tranches.
“In my experience, the swell of investor interest piques close to the closing date. With short time frames, some good (albeit late) investors may be forced to pass. So I generally write two closings into the terms: the second closing happens usually 75–90 days following the first. This gives me some optionality in timing and choosing the right sources.”
13. Make it easy for your hearers to sell your idea to their investment committee.
“In many cases, you’ll be meeting with associates whose job it is to sift the extraordinary from the good. I almost always ask who’s on the Investment Committee right up front so I know whom I’m talking with. Remember, your pitch will be presented by someone in the firm who’s putting their reputation behind your proposition. Make it really easy for them. For example, I use the three states of matter (solid, liquid, gas) to help my audience associate and recall our product lines.”
14. Resilience persists when optimism runs out.
“It’s likely your inner resources will be depleted long before you reach term sheet nirvana. Don’t fret, this is normal. Gather the learnings from every encounter and knead those into your pitch. Resilience is the inseparable companion of optimism — the latter wanes under the strain of disappointment, the former finds reserves of confidence and resolves to try again. Churchill (and equally so, Lincoln) is quoted as saying, ‘Success is the ability to go from one failure to another with no loss of enthusiasm.’ Onward!”
Thanks for reading.