Fundraising Fieldnotes + Post Money Cap Explanation - 4.2.21

Hey - it’s Jason Yeh 🕺🏻

This is my Friday recap of notes I picked up helping founders solve their fundraising challenges this past week (4.2.21)

If you have any questions, please reply! I try to get to every comment/question I get :)

First, a note on post-money caps🧢

YC introduced their "post-money" SAFE in Sept '18. It was meant to be better for everyone and easier to understand

The truth is so many people were trained on pre-money caps and it’s just a confusing concept. It isn’t easier for anyone. This becomes more and more obvious after every conversation I have with a founder where I have to describe how a post-money SAFE works.

What’s worse is I think when the concept is explained by VCs to founders raising money…

they rarely take the extra step of explaining what happens if they raise another note later

(spoiler: it’s not good for the founder)

Anyway, before going into my notes from the field this week, I leave you here with an illustration that helps explain post-money caps vs. pre-money caps

On to the Fieldnotes for 4.2.21…

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You want me to cut out more? I can’t cut that out of the pitch! 💇🏻‍♂️😳

I did run into this from a founder this week, but I could probably include a similar quote in every week’s Fieldnotes. It’s that common.

When I work with founders on their narrative and pitch deck, I’m almost always deleting more than I’m adding. There is so much addition by subtraction when it comes to a fundraising narrative. I think the main things that are difficult for founders to grasp are:

1. The initial pitch + deck does not close funding on its own. It’s there to get an investor interested in digging further. Anything more will likely just confuse and cloud the story.

2. Not only do you need to catch an investor’s attention quickly, they also have to be able to easily repeat your pitch back to their partners. That doesn’t happen with a super complex story.

3. Cutting stuff out feels like it’s minimizing all the work that has gone into building the company up to this point. Taking things out of something that’s supposed to represent your baby feels like cutting off an arm and a toe. It’s painful for founders.

And because of all that, I get HUGE pushback from founders when I tell them to reduce reduce reduce.

Protip: when actually acting on the advice to change or reduce, it can be helpful to start from scratch. Many times there’s too much attachment to the content that was already produced.

I just got a lead termsheet. Can you intro me to some investors who will close this quickly? (🏃🏻‍♀️not so fast!!)

A founder I’ve stayed close with after coaching her early on in her journey called me to give me an update.

“Jason, I have some great news. We were introduced to a fund that really loved our story and gave us a great term sheet. Have you heard of [FIRM NAME]? Anyway, it was a really tough process but we’re close to being done. Can you intro me to any funds that will quickly fill this round?”

It was a great call to receive. Those types of good news calls warm your soul especially when you know how hard the founder worked.

In spite of the warm and fuzzies, I had to deliver some slightly bad news. I told her, “Not so fast. This is not the time to rush to a close. You still have some work to do.”

I essentially told her of course I had heard of [FIRM NAME]. It was an up-and-coming, well-respected firm led by a luminary in the startup world. When you land a lead, especially one with any amount of respect within the VC world, the remaining capital you have can be used very effectively to bring on very strategic capital. Of course you don’t want to lose momentum and would rather close the rest of the money quickly. That said, it’s worth it to take a deep breath and prepare for another chunk of fundraising work.

Do you need help with b2b sales? Is there a relationship with a corporation that could unlock a lot of growth? Do you want better design chops around the table?

All of those things can be brought on by using your remaining investor allocation as a currency to buy investors who have expertise, experience, or network in those areas. You won’t regret spending the extra time.

Till next week. Stay adamant and be chased.

Jason

p.s. Have you seen this meme? Apparently it’s old but it gets me every time.

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