In Fundraising, As In Politics, “It’s The People, Stupid!”

People will sometimes stop and ask me, “How did you become an investor?” To which I usually reply, “I’m not a real investor — I just play one online.” It’s partly a joke, but there’s some truth to it — it’s easy to write a few small checks into a company, it’s much harder to compete for larger allocations, to lead rounds, and to win, to have founders pick YOU when you are telling them you want to commit to them. I believe only a small handful of investors truly lead deals, as in they take their role in deal leadership seriously and can do it repeatedly. One of those few firms is Homebrew. Even though I am close with them, keep a desk there, and have been friends for years, I will say that from the founder community all the way to LPs who have audited firms and conducted brand reviews, in a very short time Homebrew has created a brand. That is really hard to do, and it’s not an accident.

One of the ways they’re able to do it is by writing publicly and sharing insights that are typically not measured or distributed. Recently, one of their GPs, Satya Patel, wrote a post about their annual meeting and a review of their 2015 activity. To post this, it’s my idea, and emailed Satya to ask permission because I think he writes some things that would be useful for (future) founders to understand, in part because Satya is a straight-shooter and some of this stuff isn’t discuss more broadly because people are afraid of sounding politically incorrect.

You can read Satya’s entire post here, and here’s what I’d draw attention to:

1/ Raising a round does and should take time. So often people treat the interactions as a sales process executed from a Google Spreadsheet, but consider firms that lead, like Homebrew, may make up to 10 core investments per year. With two GPs, that’s only five per year, or a bit over one a quarter. Patel writes: “Our approach is to be the investor of record in the round. To us that means being the lead or co-lead investor (writing one of the larger checks, from $500k to ~$1m) for only 8-10 companies each year, typically taking a board seat and then working closely with the founders to help them build the company that they envision.” When they make a move, they not only see opportunity (in the person, space, or both), but they’re also making a commitment to spend time with them. It’s common logic that they’d likely prefer someone who takes care in how they present themselves and communicate. It’s a pretty intense relationship, but in a culture of so much money around like ATMs, it’s easy to just move on. Turn out, relationships matter in fundraising, and they compound over time.

2/ It’s not a bad strategy to be so good that investors contact you. There’s a hunting element driving some investors, and while they sniff out a goose chase quickly, being difficult to find and having mojo on your side is noticed. Patel writes: “We do spend a lot of time thinking about markets or trends we liked to invest in. We then take those interest areas and try to identify and contact companies or entrepreneurs doing innovative work in line with our theses. Not coincidentally, 3 of the investments we made in 2015 were the result of outbound efforts.” There’s something to be said for doing your thing and letting the investors find you based on their interests, or even at a time when you’re not fundraising.

3/ Cold hands with a warm touch. Very few investors will publicly admit to ignoring cold or bad emails, because no one wants to say that. Behind closed doors, we all know the truth — people want filtered information, references, recommendations, especially in a noisier world. Patel offers some tactical advice for cold communications: “We get a lot of cold inbound emails from founders asking us to invest. The form emails that are clearly being sent to a large number of investors get rejected quickly. But on occasion, a truly thoughtful, personalized email appears in our inboxes and grabs our attention. The sender has clearly done his or her homework on our investment approach and areas of interest. And the email contains data or a demo that tells a compelling story.” Building off the point that relationships matter, most relationships also begin via email, yet so many people don’t treat it as a personal communication — it’s more tactical. But, to get the attention of a lead investor, their business is personal because they’re not making many commitments. Warm touches are so rare that they stand out and they’re harder to fake.

4/ Differentiation cuts through the noise. It’s hard to stop for a minute and ask, “What differentiates me?” Oftentimes, it can paralyze a person. I know myself going through the LP fundraising process for Haystack, I got stuck on that slide forever and still am not happy with it. Patel writes on the subject: “We tend to be less interested when there is a market where a dozen companies are doing effectively the same thing. Unless we see a very clearly differentiated approach that has long lasting differentiation, we’re likely to pass.”

The thread running through Patel’s post and the parts I’ve drawn out is the importance of relationships, communications, and differentiations. Nearly ever month, I meet someone who wants to meet Homebrew or some other great lead investor but hasn’t gone past the “why” portion of the request, and I just sit there and wait. Unless I have my own reason to recommend, I know busy investors won’t just take any intros. Sure, some of them do “as a cost of doing business” to keep their deal sources humming along, but if you’re a founder and you get a meeting with a great investor who shows little to no interest, it’s because they’re taking the meeting out of obligation.

On the other hand, building up some genuine, personal communication momentum paired with building a relationship helps soften the transactional edges of raising money, as it ends up being a people-business. Marking your differentiation confidently also helps. It might be hard to get the meeting without doing these, but that’s also kind of the point, so thanks to Satya for writing it out so clearly.

Haystack is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2017 Semil Shah.

“I write this not for the many, but for you; each of us is enough of an audience for the other.”— Epicurus