Preparing for the marathon of fundraising

The average founder of a climate startup will have to fight tooth and nail to raise capital - for a seed round, fundraising can take up to 12 months (sometimes longer) and between 50 and 250 investor meetings. Before you start raising, what can you do to fine-tune your pitching skills and emotionally prepare yourself for the long journey ahead? And how can you structure your process to lead to the best outcome?

Shuo Yang is a Partner at Lowercarbon Capital. We sat down with him to discuss good fundraising process, including getting your failures out of the way, prioritizing potential investors, and avoiding burnout throughout the fundraising process.

Coffee chats: a safe way to fail

As an early-stage startup, fundraising is essentially an exercise in storytelling. And like any other art, learning to tell a good story takes time. Think about stand-up comedians who tell their jokes in tiny clubs 100 times before they have their routine down and are ready for their HBO special. In the same way, you’ll need to cut your teeth in a low-stakes setting before you can even think about approaching your target investors. 

So, before you formally raise, set up casual conversations with investors and people in the industry. Practice telling your story, watch their faces closely to gauge their reaction, and ask for feedback at the end of the conversation. From these ‘coffee chats’, you’ll build a rigorous understanding of what parts of your story are resonating with people, and what you need to change. 

Finding conversation partners

Your top-of-funnel needs to be big enough so that you can fail in front of as many people as you need to without blowing your shot with your ideal investors. But since people are protective of their time, you might only get a positive response to your request for a coffee chat 10-25% of the time. 

Remember that you don’t have to limit yourself to VCs - it’s worth speaking to anyone who’ll give you brutally honest and useful feedback. This is also where other founders can play a really powerful role, and you’ll then have the added benefit of being able to ask them for introductions to investors in their network.

Moving down the list

Once you’ve learned what works and are preparing to start pitching for real, you’ll need to create a strategy for sequencing the investors you’ll approach: you don’t want to go after HBO first. 

Create three tiers of investors. Tier one is the god-tier level, where any amount of investment from them will change the trajectory of your business - there should only be one or two names on this list. Tier two investors are still very solid and can bring a huge advantage to your business, and below this rung you have tier three, which you can think of as largely commodity capital. Start here, and once you’ve done five or ten of these meetings, and made adjustments based on the investors’ feedback, move up to tier two. 

Managing your energy

Raising is a marathon, not a sprint, so you need to conserve your energy - walking into a meeting feeling haggard is a nonstarter. To keep momentum going without burning out, aim to always have between 8-12 conversations running concurrently. These need to be conversations where you truly believe you can get to a ‘yes’. Your goal is to push the ‘nos’ off your plate as soon as possible so you can make room for other options. Plus, unless you’re doing a pre-seed round, make sure you’re focusing your initial energy on people who can actually lead the round, and not having your time wasted by those who can’t.

Getting investors off the fence

To avoid spending your time on the ‘maybes’ that won’t convert to a ‘yes’, don’t be afraid to push investors for a final answer. If you haven’t heard from them in a while, or you feel there’s a lack of urgency on their part, don’t be afraid to send a break-up email. Say you assume it’s a no, and will move on unless they tell you otherwise. Or, if your instinct is that they’re going to take a bit of cajoling, your email can politely say you're sensing some hesitation and ask what you can do to mitigate that.

You can also use these emails as an opportunity to provide weekly updates to investors, showing that your business is continuing to make progress without them, so they should hop on board before it’s too late. Being proactive in this way will help you figure out where to allocate your time and energy, move things forward, and create more transparency, so that both sides can come to the right decision overall. 

Always look for feedback

If you continue to ask for feedback from the investors who tell you no, every conversation you have will better prepare you for the next one. But keep in mind that unless they’re an expert in your field, most VCs won’t know enough to pinpoint your business’s flaws - if they turn you down, it’s simply because they don’t find you exciting enough. So, rather than taking their feedback at face value, see it as notes on the parts of your story that are still hard to believe. For example, if they tell you your TAM is too small, this doesn’t actually mean you need to revisit your TAM, just that you need to talk about it in a different way.

Read the room 

Remember your deck is just supporting material, and matters less than your ability to tell a compelling story once you’re in the room. Part of doing so involves reading the reactions of the person you’re talking to - don’t tell your story the same way every time, but notice what parts grab their interest and bring them to the forefront.

Accept that you can’t do it all

Fundraising will demand all of your attention. The only way to survive is to accept that it’ll be your full-time job for the next 12 months, and delegate everything else on your plate to your co-founders or other team members. A lot of founders feel guilty that they can’t fundraise and run their business at the same time, but trying to juggle too many things at once isn’t in the best interests of your business. You need to save your energy so you can go into every single meeting firing on all cylinders.

Find people who have your back 

Fundraising is an inherently brutal process - 99 times out of 100 you will be rejected. Go into the process with that expectation, and find a hype man or woman who can help you bounce back - or better yet, have as many of them as possible sprinkled throughout your life. Whether it’s your partner, friends, co-founders, or other peers, you’ll need people who can keep you going when your confidence drops.

Shuo Yang is a Partner at Lowercarbon Capital. A serial entrepreneur and Y Combinator alum, Shuo has founded and operated companies in both the United States and China. He will always be an entrepreneur at heart, and he brings a strong founders-first mentality to every aspect of his work as an investor.