Nailing cold investor outreach

Venture firms live for deal flow. The more founders we meet, the more opportunities we have to find the few founders we invest in each year. Last week, I commented on a post by Elizabeth Yin from Hustle Fund about what funds are still funding founders at pre-seed and seed stages and I decided to submit my information. The flood gates opened and I was immediately underwater. 

Email in this industry is almost as insane as when I worked at a Fortune 500 – I receive hundreds of emails each week with cold outreach from founders. I spend time reading and responding to each email and this can take hours and a toll on my aging eyes. 

How do you cut through the noise to get to your *dream* investor?

Research

When looking at hundreds of companies a year, investors develop a personal WHY for each company they bring to the investment committee. Do your due diligence on the fund and the person you are targeting. Find out where you fit in their wheelhouse – do you come from similar backgrounds? What is their past experience – do they specialize in specific areas of a startup like finance, marketing, or sales? What boards do they sit on and what companies have they invested in? Does your company fit their *personal* investment thesis? 

Take all of this information and use it to personalize your outreach to the team member. When you are reading a ton of email, something short recognizing that they are a human goes a long way. For example, one cold email recognized that I’ve written about community and channel partnerships and played off that information. I responded immediately because I could see that they knew their why for contacting me.

Crafting your opening statement

How you position your problem and solution statement have a large impact on how the investor receiving your email will evaluate your company and you as a founder. Many of the problem-solution statements I receive are full of jargon or are from the perspective of someone deep within the problem. Eliminate jargon and assume that the reader knows nothing about the industry, business model, or competitors in your space. A strong problem-solution statement should be understood by anyone walking down the street, even a child.

To achieve this, I suggest that you test your problem-solution statement with your friends or family who know nothing about the industry or business that you are building. Ask them to describe what you are doing back to you. If they can’t do it, you need to refine your statement. I love to tell founders to practice with their kids, ages 8+, because they will give you hard feedback on what makes sense and what doesn’t. 

Teasing with key facts

Give us the pot of gold to get the reader excited about speaking with you. Check out Troy’s video on the pot of gold. To summarize, you should show the investor that there is a huge opportunity in the area you are addressing – start with the market size but then make sure that YOUR BUSINESS will be large enough, and make sure you do a bottoms up analysis (none of the “if I just get 10% of the market…” analysis!!). Tell us about your traction today and a low risk path to achieving future results. Where will your sales be next year based on your pipeline? What partnerships do you have that help you accelerate your growth? Sell us on how where you are today will result in the pot of gold down the line. If you have some friendly investors you know, get feedback. Make it easy for us to say, YES I’d love to be a part of this opportunity.

How successful are you with cold emails to investors? What tactics have worked for you?

Let us know in the comments and make sure to follow MATH and me on twitter.

The Easiest Way to Impress Your Future Investors: The Early Stage Data Room

“How you do anything, is how you do everything.” 

We see a ton of data rooms at MATH as investors. Sometimes it’s to support our existing portfolio as a sanity check and most often it is when we evaluate new opportunities. Founders tend to overlook the importance of the data room, the place where you keep all of the critical documents for an efficient due diligence process. Nailing the pitch is the first step, the data room can be one of your most powerful “closers” when it comes to fundraising. 

I want you to have your stuff together as an investor. This tells me that you are focused on the details, care about transparency with your future partners and, most importantly, that you are running a professional process for fundraising. As an investor, there is nothing like competition on a deal to get us to move with urgency. 

Confidentiality 

First of all, you need to ensure you have an email from a potential investor that confirms they won’t share the data room with anyone outside of the investment process. No one will sign an NDA, but the fact that there is an email out there makes it less likely that folks will act out of line. Your data room will clearly have confidential information in it and it is meant for new investor eyes only. Even if the investment team is planning to share it with a 3rd party for validation, they should check with you first. 

Don’t be afraid to be explicit, there are bad actors out there and somehow they believe it is in their best interest to share your data room with their competitive investments. At the same time, do your homework and make sure there is no conflict of interest between you and your new investor. Look at their portfolio and their past investments. (Even better if you got the intro from a superfounder!)

That being said, tools that make your data room harder to download will never stop someone with bad intentions. You are basically making life harder for everyone by making your data room not available for download - stop doing this. Ensure that the data room doesn’t break (no google docs!) when offline.

The list of required documents below is LONG. It’s a huge effort to pull all of this together right when you start to fundraise. It gets significantly worse if you are just starting the process when a fund asks for one. I firmly believe that the best data rooms aren’t put together from scratch, they are maintained over time. I recommend that you create these folders in your shared folder (use box, dropbox, drive, etc…) and simply update them as you go along. Wrote an investor update? Simply save a copy in there. Made a new hire? Make sure all of their agreements are duplicated in the appropriate folder.

Make the saving part in the data room simply part of the process of doing these tasks, and simply expect that your organization meets these expectations. The best data rooms almost “build themselves”, it’s simply documenting what you already do in your startup.

Now that the best practices are out of the way, let’s take a look at what goes inside this data room.

We compiled the list below to help founders have a quick guide on what they need to include in their data rooms. We know that you are an early stage startup, so there is a good chance that you don’t have all of these items. Think of it this way: the more you have the details, the better it is for you down the road. A quick diligence process means a quick close on your round of financing. Moreover, good discipline during fundraising will make your life a whole lot easier when you are gearing up for an acquisition. When done right, and M&A data room is basically the same thing as your due diligence data room with minor updates.

There are two kinds of data rooms that you need to have ready - before and after receiving a term sheet:

Pre-Term Sheet Data Room:

These are the basic documents related to your fundraising round, think “Startup 101”. There are competing schools of thought whether you should provide access to this prior to the pitch meeting or right after as a follow up, but the general idea is that after reviewing the materials the investor should have a surface level understanding of the context of your startup. 

There are three main buckets to this stage:

Pitch Deck: This is the pot of gold - our grand vision that we want you to be a part of.

Self-explanatory, your 5-15 slide pitch deck that outlines what you do, the market you are operating in, the team that is going to execute and the amount of money you are raising. Check out this article on the various approaches for the pitch deck. Most investors will stop reading the rest of the data room if this doesn’t impress them at first glance. 

Financials: This is how we are going to execute on our vision. 

You should have historical financials and a forward-looking financial model built with Levers in mind. Even better if they are part of the same document that you regularly use to measure progress in your business. This same document will also tell the story of what you are going to do with the capital when you close your round. 

If the pitch deck is the vision, then the financial model is how you are going to make that a reality. Even without a model or detailed financials, a simple document that outlines how you have spent resources so far is extremely helpful. Moving forward, this makes your life easy for board level reporting as well. Here’s an article and a video series from our very own Troy Henikoff on how to build a financial model from scratch for your startup. 

Investor Updates: This is how we will communicate with you if you become an investor.

This is often overlooked, but perhaps the greatest leading indicator of fundability. Even if you don’t have any investors currently, you can demonstrate the clarity of your objectives and actions for your startup via transparent updates. I highly recommend these articles for written updates, or even better, video updates that are easily digestible for future investors. The clearer the objectives, challenges, and progress, the easier it is to say yes to a founder. 

Cap Table: This is our current ownership structure.

Outline the current ownership structure of the company. Even if you have been bootstrapped and own all of the equity so far, this is still critical. Bonus points if you already use a solution like Carta to professionally track all issued shares for employees, investors, and advisors with details on historical funding. You’ll need more details the more you have raised capital in the past, but a cap table is a must have. 

That’s it - those are the table stakes. Now let’s take a look at what the next phase of your data room needs.

Due Diligence Data Room

Once your meeting goes well, and you are discussing terms, the fund may ask for access to the “deep” data room. Simply ask the fund to commit to rough terms and a timeline to a term sheet prior to giving them access. The objective of the following set of documents is to confirm what the fund already is assuming to be true about your startup - due diligence shouldn’t lead to a different decision unless the founders are stretching the truth during the investment process. 

There are always exceptions to the rule, for instance, if you are selling to enterprise customers and only have a handful of contracts, your investors will want to know who they are. If you have thousands of customers, likely not. It’s OK to share pieces of this data room as context for follow up meetings, but always follow Alex Iskold’s timeless advice: Ask for a Term Sheet.

As mentioned, there are a lot more details in here. If the sections don’t apply to your startup, simply skip but have an answer to why you don’t have those details. “I didn’t have time to pull that data” is not a good excuse! The rule of thumb for the level of detail is the following - the more you are raising, the more you need to provide in the due diligence data room. 

Sales & Traction: 

This is where you demonstrate your current traction and your confidence in your future sales. Think about any documentation related to your customer acquisition strategy - this is where they live. It’s important that this mirrors what you look as an operator regularly, the goal is to build confidence in an investor for future sales. 

• Pipeline data: Any funnel information, preferably downloaded directly from your CRM system such as Salesforce.

• Current Sales data: For B2B sales, any signed agreements between you and your customers. For B2C companies, think user data, total transactions, any data that shows how much you have sold your product. 

• 12-24 month Forecast: Based on your pipeline and current sales, where you think your sales are going to be in the next two years. Give the investor confidence that things are going to grow a lot more! 

• Historical Performance Data: From day 1 of you selling your product, what have been the daily/weekly/monthly sales volume? Try to point out things like seasonality to make this easy to understand. 

• CAC/LTV calculations: What is the true cost of acquiring new customers? This section should demonstrate that your investment in new customers will be profitable over the long term and how it has trended over time.

Market Data:

You need to demonstrate with clear facts that you are going after a massive market. This market can be a new one (although creating one is always harder), but when all is said and done your startup needs to solve a massive problem in order to have a great outcome in the end. Example documents are:

• Market size: Through tops down or bottoms up data, calculate the size of your market and why it is going to grow over the time. The best versions of this document both have credible source data along with original commentary by the founding team. Here is a resource to help you do that. Try to have quantitative answers to:

  • Size of economic activity: How much are people currently spending in this space? Is it growing? You are claiming that success means your startup will service some of this demand. 

  • Size of pain: How much is the lack of a solution costing in waste dollars? This is always harder to build a business around, since your current customers haven’t made a purchasing decision around your solution. That being said, you will have less competition and have potential to create a market from scratch.

Board Updates:

Startups should have boards the day they start operating. Brad Feld and Mahendra Ramsinghani explore the reasons why here - think of this as the example you are setting on how disciplined you will be as an operator. Your board decks and memos tell you everything you need to know about the operating cadence of the company. The pros take this very seriously - the tighter the board decks, the easier it will be to have conviction about the operating team’s ability to deliver results.

Funding Documents:

This is where you keep information about the current raise and ownership structure. Again, even if you haven’t raised any funding so far, have a spreadsheet that shows the ownership breakdown between the founders and early team members. Investors hate chasing down details or finding surprises about the ownership structure before they invest.

• Cap table: Preferably from an automated system like Carta where you keep all of your shares. Seriously, if you have raised a single dollar as an investment, I highly recommend graduating to a professional service instead of an error-prone spreadsheet. 

• Term sheet: If you have a signed term sheet for the round, include it here.

• Past financing documents: If you have raised capital in the past, include all of the term sheets and signed closing documents.

HR:

Basically, all of your documentation around your current employees go here. If you are working with a payroll provider like Justworks or Rippling, you likely are in good shape. This also forces you to have discipline around having countersigned documents across the board, reducing the risk for a potential headache with a problem employee down the road. 

• Employment agreements (IP, confidentiality): These sets of documents basically demonstrate that your full time employees transfer their ownership of all of their inventions to the company, and have agreed to keep company intellectual property confidential. 

• Stock agreements: If you have awarded stock to your employees, this is where you document them. This should also confirm the details you have in your cap table. 

• Contractor agreements: If you don’t have full-time employees, you still need to document that you are above board with them and have proper documentation around their responsibilities. 

• Organizational Chart: The rule of thumb is if you have more than one manager in the organization, you should have a clear org. chart that lays out the structure. Bonus points if you incorporate your post funding hiring plan in an updated chart.

Corporate Documents:

This is where your articles of incorporation and bylaws go - all of these are likely standard and your lawyer should help you put them together. Ultimately, this is the documentation for the company which your new investors will own a piece of. The simpler the better, aim for a C Corp based in Delaware unless you have a really good reason not to. Stripe Atlas is a great tool to simplify the process for founders if you haven’t incorporated yet.

Contracts:

This is the last piece, but it’s potentially the largest folder. Any agreement that you have ever signed as a company should go here. Think licensing agreement, consulting agreement, non-disclosure agreements - basically anything that legally binds you to do a certain thing or pay a certain amount. This is critical, and the goal is to avoid surprises for your future shareholders.

That’s it! Anything missing that you noticed? Please let us know in the comments or on Twitter. If you like these kinds of resources, please follow @mhi and @math_V_P on Twitter!

Use Superfounders to Accelerate Fundraising

One of my favorite founders in the world is Jeff Kahn from Rise Science. He and his partner Leon have been steadily working on their company for years and recently executed a phenomenal raise. When I asked him about his process, I was surprised to hear his unorthodox approach.

The most important part of your fundraise is the kickoff.

The ideal kickoff involves warm introductions to multiple funds, to the most senior partners possible. To add a rough number to this, you're looking for 25-30 partner meetings. This creates a competitive dynamic, ultimately leading to an oversubscribed round with the best possible terms.

Here’s the problem: no fund is going to get interested right away, especially without incredible metrics in place. And once a round takes longer than a few months, it goes “stale”. It’s incredibly difficult to revive the excitement in the fundraising process from that point forward. 

Let’s work backwards from the top of your funnel - what activities will lead to real interest from multiple funds?

Cold outreach to a ton of funds (spray and pray) is too slow.

If you are a first time founder without a track record in leadership roles in other high-profile startups, you are wasting time cold-emailing VCs. I’ve done it hundreds of times myself, and I’m here to tell you that it just doesn’t work.

In the early stages, there’s plenty of risk in investing, regardless of the performance of the company. You might have great metrics, but not have a solid leadership team in place. You may address an amazing market, but the legacy customer acquisition costs might be too high. You may have awesome revenue growth, but miserable margins. The list goes on. For every reason there is to invest, VCs see ten reasons to pass.

We believe founders need to take advantage of one of the most underutilized signals: the warm introduction from other founders who have made the fund money in the past.

Six months prior to his raise, Jeff spent almost no time talking to VCs. His initial strategy was to research his ideal investors and understand which companies that the specific partner led rounds in. He diligently outlined which of those companies were the most successful and identified the leadership teams. Ali Tamaseb calls these people “Superfounders”. Even better than another investor who is investing directly, the best introduction to a fund is through a Superfounder that they trust. Most founders think that the lead investor from their previous rounds is the best path, but while that gives you meetings—it doesn't put you in a position of strength.

Superfounders understand that they are sitting on the shoulders of giants and are willing to pay it forward.

However, you have to work for that golden introduction! If you are reaching out to a Superfounder right before fundraising, you are too late.  You need to establish real trust, and real trust takes time. I encourage founders to put together their target list of Superfounders at least six months before their fundraising kickoff date. The earlier the better—these folks are typically amazing mentors who can help you navigate the early stages of your startup.

In your initial outreach, ask for advice. Share why you deeply care about your company and your team and give them a reason to help you. There is something special about the spark in the eyes of a founder who is excited to win and create real impact for their community of customers. As operators ourselves at MATH, we spend a ton of time mentoring founders before they are ready to raise their round.

If you want to turn a Superfounder into a mentor, you need to be an amazing mentee.

Follow up immediately after your meeting and show that you are incorporating their feedback to your startup. Don’t ask for investment or introductions—your goal is to genuinely listen and learn. There is so much nuance in building a startup. The ones that go the distance are the ones who approach their craft with discipline and rigor. Show that you are someone who is open to coaching and growth, this goes a long way.

Meet with them monthly and show progress. Investors invest in lines, not dots. Imagine the introduction that a Superfounder will make for you six months from now—you want them to say that you have grown in front of their eyes. Meeting when there are problems that the Superfounder is uniquely setup to be useful gets them excited and gets you, the founder, great advice.

What’s even better is if you can get an angel investment check out of the Superfounder. Most successful operators are active as investors or scouts for other funds. They might even be LPs in a handful of venture funds themselves. Typically, venture funds keep their investor list close to their chests. Imagine the weight of the introduction of someone who has invested in the venture fund themselves. I can guarantee that you are going to get the attention of the most senior partners in the fund right away.

Don’t ask for the introduction unless you have it all together: a clear narrative and materials to back that story.

The more prepared you are, the faster the rest of the process will be for your fundraise. Momentum matters. Ideally, you will have multiple Superfounders who can vouch for you in your initial outreach, each providing 5-10 introductions. Ask for the connections to be made in the same two week window; you want to create a real sense of urgency from multiple funds to establish a competitive process. Ultimately, you are optimizing for the best partner who will help you along your journey, with the best terms for your final outcome during the exit.

This method only solves for the gateway problem—you still need to deliver an amazing pitch with stellar fundamentals. I recommend reading Brad Feld and Jason Mendelsohn’s excellent book "Venture Deals" or Scott Kupor’s “Secrets of Sand Hill Road" to get a primer on the process—both have been fundamental in my own journey in navigating venture capital. In addition, the YC Series A Guide is a must read for every founder.

It is so much easier to build trust with other founders—you are one of us, and we all remember what it was like when we were just starting out. Ultimately, if you can’t impress other founders, you won’t impress VCs. Use this as a gateway to earn the trust of people who will invest in your journey.

If you enjoyed this piece - give us a follow @MATH_V_P and learn more about fundraising on our blog.