If you took part in our first-ever Paddle Forward this November, you’ll know that we’ve had quite the year here at Paddle. But like everything else in 2020, things didn’t unfold quite as expected.
As the world went into lockdown in early March, we parked our fundraising agenda and – like businesses everywhere – went back to the drawing board on plans for 2020. The news circuits were adamant the VC industry was going to shut down for the next year; we figured there was no chance in hell we’d be raising any money.
Then we unexpectedly started hearing from VCs that it was still business as usual. We spoke to a few of them but from the position of delaying Series C fundraising until early 2021.
It was FTV Capital’s persistence that shifted the narrative. Their persistence and the relationship we’d been building over the course of several years – well before the idea of partnering was on either of our immediate agendas.
Pandemic or no pandemic , they said, we’ve known you for nearly three years, we’d love to work with you, and we’d love to continue this process with you now .
With that, we found ourselves in the strange position of having an investor willing and ready to do a deal before we’d put together a plan of what we’d do with the investment, or a deck to pitch for it.
So we played catch-up. And not for the first time – it’s a lesson we still need to learn. Almost every time we’ve put feelers out to raise money, we’ve been met by far more interest than we anticipated before we’ve had a chance to properly think through the narrative and everything else that goes with the process.
The art of fundraising
If there’s one takeaway through all this, it’s the importance of consistently going out and building relationships with people with whom you can potentially work and partner in the future, even if right now isn’t necessarily the best time to be doing so.
Looking back, all our fundraising has been the product of the relationships that we’ve built up over however many years with people over regular coffees, dinners, and serendipitous encounters. Being deliberate about building those relationships has been important – especially in an industry where everybody knows everybody and you’re constantly bumping into the same groups and types of people. They can bear fruit in all kinds of ways, whether it’s eventually raising money, or help to find our next strategic hire (thanks again, Harry!).
This approach can also help you steer clear of common pitfalls.
Reputation is everything in the VC game. Yes, you as a founder need to be reputable, but it also goes the other way, which is likely more important for you. You want to be able to quickly understand who is just claiming to have money to invest versus who has actual money to invest in companies. The former is a lot less tolerated than it was six or seven years ago when we first started, but you’d be amazed at the number of people we have met over the years who had absolutely zero intention to invest and were just fishing for information.
It comes back to relationships. It’s a lot easier to understand someone’s intentions when you have a genuine friendship that’s proven to be of mutual benefit well before the topic of raising funds comes up. Let’s not forget that you’re going to have to deal with whoever you take money from on a near-daily basis for maybe the next five or ten years. That’s a pretty daunting prospect for anyone in any type of relationship.
It’s well worth spending the time to find someone who isn’t just showing interest and being helpful when things are going well. They’re also interested and consistently supportive when you hit roadblocks... Or pandemics. For me, the only thing that would have been more stressful than trying to run a business in March, April, May of this year, would have been trying to do that while also having an investor who’s freaking out. Hundreds, if not thousands of founders will have discovered their investors’ true colors in the first half of 2020.
How do you work out ahead of partnering what your potential investors are like when the going gets tough? My favorite thing to ask is to speak to the CEO of a company they invested in that didn’t work out. Another way to tell if you’re dealing with a confident and solid investor is if they give you the option to cherry-pick who you want to speak to from their entire portfolio of past investments.
The best VCs are those that have seen a lot – either because they’ve grown businesses themselves in the past or they’ve been in the game for a while. They can empathize with the situations you find yourselves in. Those relationships are by far the most fulfilling.