We recently announced a $2.5M pre-seed round led by NFX and joined by Tribe Capital, LedgerPrime, GSR, and a series of angels and VCs. We're happy to be part of the NFX family along with unicorns like Lyft, Doordash, Patreon, and Poshmark.
I will walk you through my fundraising story from the beginning to the end, and share my lessons along the way.
Fundraising as a Solo Founder and Finding My Co-Founder#
I started talking to investors through Zoom in November 2021 in the middle of the pandemic. At that time, I had no co-founders or team members. I just had an ambitious idea, a working prototype, and myself. I did get offers from some angels and a VC, but it was difficult to convince top-tier VC firms alone. Three good VC firms rejected me, and I suspect it was because of the team. It's not a good sign if you can't get others to work with you. If I were a VC, at least I want to wait until you find somebody to join you unless you have a pretty impressive track record as a successful serial entrepreneur. After this realization, I paused fundraising in a few weeks and started to co-founder date.
After some intense co-founder dating, I decided to work with my co-founder Rohit at the end of 2021. I met him while I was in South Park Commons, which is a community of builders based in San Francisco. I was lucky because they went remotely around the time I applied for them. I was actively engaging with the community from Japan.
As crazy as it may sound, Rohit and I had never met in person back then, but we concluded that we were perfect for each other (I might talk about the details some other time). Honestly, this was the best thing that happened to me last year. Thank you, Rohit. :)
Getting Ready for Fundraising Again#
In January 2022, we resumed our fundraising. We made some key improvements to our pitch deck by keeping our pitch short (~ 5 mins), using plain English, and adding more visuals. We also wrote a script to remove unnecessary words. Rohit practiced a lot until he could speak naturally and confidently. We also prepared a detailed list of questions and spent a lot of time preparing how we would best answer them.
Moreover, we thought about the structure of investors. We wanted to have a lead investor, follow-on VCs, and several angels with micro-checks. Having several micro-checks may be unconventional, but I highly recommend it to build a greater support network. Thanks to RUV, you can eliminate the administrative burden of onboarding many investors.
The investor structure reflected the type of help we would seek from investors. We wanted to work with investors who could help us with our DeFi protocol design, liquidity provision, hiring, future fundraising rounds, and media outreach. In general, we wanted to ensure that our investors will make us relentlessly resourceful with their brains, networks, and capital. We want to put together the best team of investors/backers possible.
In the meantime, we asked for "warm" intros to investors. Warm introductions will maximize your chances for an introduction as the introducing party has a good relationship with the investor that you are trying to reach out to. So if you have multiple channels to the same investor, get the warmest one. For example, it is usually a good idea to connect with investors via founders who run one of the investor’s portfolio companies.
A cold email should be the last resort. Even if you cannot get lots of warm intros in the beginning stages, your investors will introduce you to other investors as you get offers(Special callout/thanks to everybody who gave us an intro 🙏) In that sense, the order of conversations matters. We talked to angels first because we knew that they could decide on whether to invest, after a single meeting. We also found out that these initial offers worked as strong social proof.
When you are introduced to VCs, think about WHO you are speaking with at the investor firm. Ideally, you want to talk to a general partner to make the process faster, as they are the key decision-makers. Even if you cannot talk to them directly, you want a strong advocate who can speak on behalf of your startup. I wouldn't recommend starting with top-tier VCs. You want to practice and make sure you can answer all the key questions well before you talk to them.
We tried to schedule a bunch of meetings within a few weeks, close our deal, and focus on the product development.
Furthermore, we sent the pitch deck up front. In this way, more than half of our investors jumped right into the questions which saved time for us. Consider using DocSend to track who has reviewed your deck and how long they’ve sent on each slide.
After the initial preparation and scheduling, we started to talk to investors again at the end of January.
At a meeting, we typically spent 5-10 mins to pitch and spent the remaining time answering any questions that they may have. Some listened carefully until the end, some asked questions as we pitched, and others jumped right into questions with no pitch. We were comfortable with each of these approaches - the key here is to ensure clear communication between all parties.
At the end of the meeting, we asked about their investing style (lead or follow-on), typical investment size, and how they can be helpful to us. Since most investors would tell us that they can add value, we asked them for specific examples of how they have helped their portfolio companies in the past. It was a good sign if investors asked us well-thought-out and difficult questions during a meeting or helped us out after the meeting in some way.
As we talked to investors, we kept refining our question list, pitch, and deck.
Things went pretty well. We got one offer after another. In a few weeks, we had more than 25 offers. We never said yes to the offers, though, as we didn't want to end up in a situation where we had to go back on our word. My suggestion is that you wait until your lead investor decides how much allocation they would like to have in the round.
At that point, little did we know that we had a tougher game: getting a lead investor.
We Thought We Were Screwed#
When we started to talk to our potential lead investors, I was pretty confident. We've had lots of offers, and I was sure that we could answer all their questions. Most of the meetings seemed to go well.
But then they went silent. It was tough as we weren’t sure how to interpret this quiet period. And then the rejection emails started coming in. Each rejection email hurt.
Allow me to talk about rejections briefly. I often hear people say, "Get used to rejections.", and it never helped. The better advice would be to share new ways to frame them. The first is to set the right expectation. You will get rejected in fundraising. Even AirBnB got seven rejections. It's going to hit you hard if you think otherwise. The second is to understand that you don't have to convince everyone. For the lead investor, you need only one. The third thing to understand is that while fundraising can make a startup’s life much easier, it isn’t $$ that will make or break your company. Growth is the only thing that matters by definition. Startups with growth are more successful than the ones with no growth, even if they raise a bunch of money from famous VCs.
Let's go back to the story. With the silence and rejections, we didn't know what would happen. We even considered setting the valuation on our own and then raising the round without a lead investor. I remember being frustrated that fundraising was taking more time than we expected. It was already March, but we didn't have a lead investor yet. This was the most stressful time in our fundraising journey.
Out of desperation, we've sent follow-up emails to some silent investors. This was a bad idea. You don't want to return to the investors without a good reason, as you will come across as needy - and they will immediately sense your desperation. Fundraising is like dating in the sense that you might not want to come across as looking too eager.
But we wanted to nudge the investors to speed up our process. We learned from one of our investors, Amy, that partner-level meetings are an important event for investors. She suggested that if we had started to get into partner-level meetings (which we did), we should let other interested investors know right away so that we can speed up the process. Once we started to tell other investors that we've had some partner-level meetings, we began to make progress(although some VCs continued to stay in silence.)
I learned that founders need to create FOMO and nudge investors. Investors talk to a lot of founders. You need to get their attention. I think they also tend to avoid becoming the first penguin, and understandably so. So how do you nudge them? Update them with important events such as a partner-level meeting, a lead offer and a term sheet. Creating urgency will prevent investors from being "on the fence".
Negotiating and Closing Our Deal#
Thankfully, one of the investors gave us a lead offer. We felt much more relieved then. But at the same time, we were careful about how we communicated with them. Deals fall through. Fundraising is not done until you get cash in your bank.
We told them that we would close out ongoing conversations with other VCs by a specific date and stop scheduling new investor calls. We told all remaining VCs (those who were yet to come back with an answer) that we had received a lead offer. The 1st lead offer helped us in speeding up the process.
We then ended up getting a 2nd lead offer, and we decided to take the 2nd one.
We were glad to be in a position to have two lead offers. The ability to walk away if needed is important. We discussed what we can and cannot compromise internally and agreed with our investors after some back and forth. I highly recommend Brad Feld's Venture Deals for anyone who wants to learn how to negotiate with investors.
I want to emphasize that our explicit focus was not only on optimizing for valuation and deal terms. We wanted to agree on terms that would set up the foundation for a strong relationship between the two partners.
We signed a term sheet with NFX. We liked NFX because we were convinced that they would make us resourceful. Their due diligence was thorough and stressful (we even spoke with a partner at Goldman!) but this helped both parties figure out if this was a good fit.
Once our lead is finalized, we started to discuss which investors we want to have and what allocation each of them gets. Unfortunately, we could not have all the investors who gave us an offer but we were grateful for their support. We ended up welcoming two follow-on VCs with relatively big checks, and then the rest of the investors invested in us through RUV.
The Covid-19 pandemic has transformed startup fundraising. We literally raised $2.5m from Zoom conversations. My hunch is that more and more companies outside the US are going to raise funds from top VCs in Silicon Valley.