Serial tech entrepreneur and investor Scott Walchek
Scott Walchek has raised over $130 million from every kind of capital source, including public markets, private investors, and the full gamut of VCs. Heâs started and successfully exited four tech startups (including Baidu) and is now seeking to transform the global insurance industry with his fifth, TrĆv.
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, Scottâs been on both sides of the table, investing in and advising scores of companies for over 30 years.
Here are 14 things heâs learned that every fundraising entrepreneur should know.
1. Donât be precious about your vision.
cred:Â Joshua Earle
âI was recently asked to comment on a young companyâs plan. When I received their deck, the first slide displayed a sketch of the product theyâd originally set out to build. Even though theyâd 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 âbigâ vision threatened to overshadow the attractive business they were actually running (See next point).â
2. âEvery pitch is an elevator pitchâŠ
cred:Â Bench Accounting
âŠeven when comfortably seated in a conference room for an hour. Only after youâve piqued the interest of your potential investors with your immediate plan will you have earned the right to paint the bigger future.â
3. Rehearse your on-ramps.
cred:Â Brooke Cagle
âMost investors will start their meetings prattling on about why their firm is different from all the others. Once their initial sales pitch is over, theyâll usually ask something like âweâre really interested in how [your company] started, what was the motivation?â 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.â
4. How to talk about your background
cred:Â Nik MacMillan
âChances are your audience already knows your background. Donât get stuck rationalizing outcomes or explaining strategies. If Iâm asked up front, I generally offer a high-level answer about tech startups for 30 years⊠and the rest is on LinkedIn. Whatâs magical, however, is when you can reference how previous experiences have shaped your new ventureâs strategy, model, hiring, etc.â
5. Investors are listening for a laser focus.
cred:Â rawpixel.com
âI open with the immediate focus: âTrĆv has launched on-demand insurance for single-items. We enable people to protect whatever they want, whenever they want, for whatever duration they need.â This sharp focus took me about two years (and literally hundreds of meetings and calls) to develop.â
6. The best meetings are usually deckless.
cred:Â rawpixel.com
âMost early stage investors will bet on the founder rather than on the business â 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, youâll miss the opportunity to sell yourself.â
7. Wait to be asked about the details.
cred:Â Tim Gouw
âToo many details can be rabbit-holes that distract from the core of your story. Of course, you must know your stuff but wait for your audience to inquire about the minutia; whatâs a thorny area for one may be transparently obvious or altogether uninteresting to another. (See next point).â
8. Answer the tough questions before theyâre asked.
cred:Â Headway
âAfter a few pitches youâll 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.â
9. If early, âhood ornamentsâ can help.
cred:Â John Schnobrich
âThereâs nothing like customers to prove youâre creating a valuable business. But the earlier you are in your businessâ maturity, the more important the credentials of your team. (In later stages, performance against KPIs is the core measure). If you donât 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 toâŠ).â
10. Never say no to a pitch opportunity.
cred:Â Ryan Riggins
âPractice on the low-value targets. One of the reasons why Iâve taken so many meetings is that with each meeting I learn more about what I donât know. The process of identifying your most convincing narrative is sharpened by writing, pitching, revising, pitching again, and so on.â
11. Donât (overly) sweat percentages of ownership.
cred:Â Alexander Redl
âUnless 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 companyâs shares by the time of a meaningful exit.â
12. Build-in a couple of tranches.
cred:Â AgĂȘ Barros
âIn 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 75â90 days following the first. This gives me some optionality in timing and choosing the right sources.â
13. Make it easy for your hearers to sell your idea to their investment committee.
cred:Â Andrew Neel
âIn many cases, youâll be meeting with associates whose job it is to sift the extraordinary from the good. I almost always ask whoâs on the Investment Committee right up front so I know whom Iâm talking with. Remember, your pitch will be presented by someone in the firm whoâs 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.â
14. Resilience persists when optimism runs out.
cred:Â Ben White
âItâs likely your inner resources will be depleted long before you reach term sheet nirvana. Donât fret, this is normal. Gather the learnings from every encounter and knead those into your pitch. Resilience is the inseparable companion of optimism â 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, âSuccess is the ability to go from one failure to another with no loss of enthusiasm.â Onward!â
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