Fundraising: Push vs Pull

Fundraising can feel like an awful lot of pushing.   You push to get an introduction to investors, you push to get them to commit to a meeting, you push to convince them, you push to get them to issue a term sheet.   Push, push, push. Historically, and for most people still, “push” has been the default mode.

But as an industry, we live in interesting times, and there’s more of an opportunity for founders to be in “pull” mode, a situation where investors come to you and do the courting and convincing – obviously, a much better position to be in for founders, especially when the investor is senior enough to write the check. 

Here’s why: the venture game has changed a lot in the last few years.   Venture used to be a cottage industry where VCs had the upper hand in their relationships with founders, and could afford to have entrepreneurs come to them.  It has now become hypercompetitive and global. Some of it is related to current conditions (still a hot funding market, for now), some of it more structural (many new funds, emergence of billion dollar funds with a lot of cash to deploy).  The number of startups has exploded, proprietary deal flow has largely disappeared, rounds get pre-empted, great companies can emerge anywhere around the world and not just in Silicon Valley.  

As a result, VCs have had to step up their game and be a lot more proactive.   This is particularly true on the sourcing front – meaning identifying and connecting with potentially interesting investment targets.  Of course, sourcing was always a part of the venture business. But VCs have now built a much more systematic, data-driven approach to sourcing.  

Interestingly, this is also a time when a lot more information and data floats online about any given company.   It’s still possible to remain in stealth, but sooner or later, any startup will start producing a digital exhaust of some sort.   LinkedIn profiles.  Github stars. Glassdoor reviews.  Tweets. 

There are a lot of VCs out there, both junior and senior, reading that stuff, fishing for tidbits of information about companies and anything that may evidence accelerating traction, in an effort to identify the most promising startups.   Some VC firms have taken this to the next level, and created data science teams that crank through data to identify the most promising startups. But even if they don’t have a data science team, just about any VC firm at this stage will be doing basic sourcing activities looking at LinkedIn employee growth, or searching for a founder + “podcast” to see if there are any interviews out there.  This type of information is also increasingly being built into many tools like Specter

Why does this matter for founders?

At a minimum, you should be aware that this is happening.    

Then you can decide if you want to do anything about it.   The current market is very bifurcated, and there’s a group of startups that get disproportionate VC attention as it is.  Those founders will probably roll their eyes at some of the suggestions below, as they don’t need more inbound. Those founders could ignore them, and decide what they want to do with their current inbound (see “Always be Raising vs Heads Down”).  I’d probably still argue that, if VCs will be looking for your digital exhaust and taking it as signal, you might as well own the narrative. 

But for every company that gets hounded by VC associates, I’m seeing many more that are doing interesting work but are not on VCs’ radars, or not as much as they should, for whatever reason: not in the right circles, non-obvious geography or industry, not building something that corresponds to the “flavor of the moment”, didn’t go to YC or other prominent accelerator, didn’t have brand name angel investors in their pre-seed, etc.

For those companies, I like the idea of an “investor marketing” strategy.  The general idea is to increase your chances of “getting sourced”, and pulling investors towards you, by creating an attractive online profile for your startup, in the hope that VCs will come across it, and reach out.  Over time, hopefully an interesting investor pipeline builds up.     

From a tactical standpoint, that online profile is a combination of various digital “breadcrumbs” that altogether evidence traction, quality and/or overall excellence.  

First, there’s all the obvious stuff:  a decent website helps, and all the usual PR tactics apply.  Funding announcements will certainly get you some attention from VCs, and any favorable press, even local, is great.

Some other quick ideas: 

  • Anything providing social proof is great.  VCs will love reading about a third party (ideally a user or customer) gushing about your product, particularly if it feels credible and spontaneous.  It could be user reviews online. Or a blog post listing interesting companies (see here for an example). Or one of those many tweets that list cool products that work well together (see here and here for some random examples).  
  • Speaking of tweets, VCs love Twitter.   I’m certainly not saying founders should spend all their time tweeting (!), but some level of thoughtful and regular activity does help get on investors’ radars.  The best way to proceed is typically to engage in thoughtful discussions with other founders, industry experts and occasionally VCs (just don’t be super obvious about the latter). 
  • Blogging is always great – a blog post that goes viral (if it hits the front page of Hacker News, for example) will certainly be noticed by the investor community.  
  • Podcasting is clearly big these days, whether you create your own podcast or do the occasional interview;
  • Speaking on the occasional panel can be good as well, as long as it has a digital exhaust (at a minimum some photos or, better, a public video).
  • Note that you can do all the above even if you’re in stealth, or out of stealth but not yet shipping your product.   You can still have a website (see here for an example), and you can blog about the fact that you started a company (here). 

Of course, the above will have an impact beyond just attracting investors.  In many ways, it is regular marketing, with a bit of a twist. It will work great with potential customers and employees.

None of the above is rocket science, but I’m often surprised by how many founders (especially technical ones) are naturally reluctant to engage in this type of activity (unless they are building an open source community or the like).  Then, fast forward a few months later, and they start a fundraising process completely cold, with a lot of pushing involved. Things are so much easier when you have a good pipeline of investors who come to you, with an interest in learning more. Being somewhat deliberate about building this “pull mode” can make a big difference. This does not need to be a colossal effort.

(This is the fifth post in this fundraising mini-series: quick, simple ideas that I’ve used in various fundraising conversations over the years, that I’m sharing here, one by one) 

Thanks to my FirstMark colleague Avery Klemmer for her thoughts on this post.

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