Struggling to Raise Venture Capital? The step you may be missing.

Most founders I meet have a missing step in their plan for raising capital.  The result is frustration and isolation. There’s a better way.

When I started my last company, I didn’t know any venture capitalists (VC’s). I didn’t even know anyone who had raised money from VC’s. I felt like a total outsider to the Silicon Valley club. Based in Los Angeles, I had no idea how I might crack my way in.

Over the ensuing years, I learned through trial and error about these key pieces to connecting with VC’s:

1. Warm intros (no filling out the form on the VC’s website allowed)

2. Backchannels

Warm intros are simply getting someone whom the investor trusts to make the introduction between you and the investor. Most (good) investors are inundated with inbound requests for capital. They don’t have enough hours in the day to evaluate each cold email or form completed on their website. They thus prioritize introductions that come from people they trust. Could be a friend, an LP (an investor in their fund), or a founder they trust or have invested in.

Backchannel communication refers to communication between you and the investor by way of a third party. It could be the same person who made the introduction (probably easiest) or someone else involved in or close to your deal. Backchannel communication is helpful when there are sticking points in the process, when you’re trying to build a sense of scarcity into your process (so the investor makes a decision instead of kicking the can), or during negotiations.

When we were starting out, I found myself asking how the hell I was going to get warm intros to VC’s given I knew no VC’s nor anyone who’d raised VC. Even if I could find someone who would take pity on me and introduce me to some VC’s, I had no idea how to turn that person into an effective backchannel. Or even what it meant to have an effective backchannel.

So how do you get warm intros and develop effective backchannels? This is the straightforward step that most founders miss.

The most direct route I’ve seen is to build your network of influencers 6-12 months (ideally) before you raise. What are influencers? Influencers are people with whom you build relationship and trust who can provide effective introductions and backchannels during fundraising.

I like to rely on experienced founders as influencers for a number of reasons:

1. Founders will generally take your call/email. Don’t reach out to founders who are way ahead of you (don’t cold email Bezos). Instead, email founders who are 1-2 stages ahead. Most founders relied on others to help them get started and are willing to return the favor.
2. Investors will take calls/emails from experienced founders. It’s part of the ecosystem. Investors are reliant on a relatively small network of experienced founders. Because they often work together over a period of years, a high degree of trust if often present between investors and experienced founders.
3. If you solve for high-integrity, low-ego founders (please do), you will find them incredible partners in your journey through fundraising and beyond.

You don’t need to befriend 50 experienced founders. I’d suggested focusing on 5-7 key relationships. Ideally, you have 6-12 months to foster these relationships in advance of fundraising, but if you have less time then do your best with what you’ve got.

You’re looking to build reach across the 30-50 firms (or angel investors) that you’d like to target for your fundraising. You might build a list of 30 funds to start then look at the portfolios of those funds. Because most companies raise from more than one fund, you’ll likely find that there is overlap of companies in the portfolios. For example, it might be that you only need to target 5 founders to get reach across all 30 funds. Those founders are your target influencers. You want to meet the founder in each target company who handled the fundraising for her company (usually the CEO but not always).

This is where a little hustle comes in.

Cold email, reach out on LinkedIn, get an intro from a friend, whatever you need to do to get 15 minutes with that founder. You’re not going to show up on day one and ask her for help with fundraising on day one. Your goal is to develop a relationship. Share that you admire her work, that you’re a couple stages behind in building your own company, and ask if it would be ok to reach out with a question once in awhile on your journey. Come armed to the first meeting with a specific immediate ask, some kind of advice, not an introduction. You don’t want to ask said founder to leverage their network on your behalf. There isn’t any trust built yet. Trust takes time.

Your ideal case here is over a period of 3-6 months you’ve built authentic friendships with these founders.  You may not be besties, but they know you and are becoming believers in your cause and that of your company. During that time, include them in regular updates on your company. Look for opportunities to be helpful to them before you ask much for yourself. Each time you connect, be sure to ask if there is any specific way you can be helpful to them. If they say yes, follow through. Over time, through regular communication, efforts to help, and by being your cheerful self, you’ll built trust.

You’ll build relationship.

If you’ve done this right, when you’re ready to fundraise, you are only one degree removed from every investor you are looking to meet. And you have allies who can make those intros and also be helpful in advice given and backchannel communication throughout the process.

It may sound like a lot of work to build these relationships, but it’s a lot easier to build authentic relationships with a half dozen fellow founders than it is with 30 investors. I see a lot of founders hustling at ‘networking’ dinners with investors trying to build direct relationships with dozens of investors.

If you’re into that, go for it, but I find it exhausting.

It’s also possible this route sounds transactional. Like you’re only using these fellow founders for intros. I’d argue if that’s all you’re looking for in these relationships you’re really missing out on one of the most beautiful parts of building a company. Build these relationships for a dozen other reasons as well. To be known, to be helpful, to support fellow creators, to be a part of a community larger than your own company.

Investor intros aren’t the reason to be in community with more experienced founders. Assistance in fundraising is simply a fringe benefit. But in terms of fundraising, it’s great strategy. And one that most of your competitors will likely miss.