On Raising Venture Capital
I’m not a venture capitalist but I am a sometimes angel investor. More importantly, I am an entrepreneur who has been fortunate in raising venture capital to build new businesses. Frankly, I’ve had my fair share of pure luck and I’ve been on both sides of the table. The idea behind this piece is to help you think about how to raise venture capital and to give you a bit of backstory into how we raised capital for Jelly Industries, Inc.
The Rare Case
Ben and I had all the advantages you can get and more going into raising venture capital for Jelly. When we knew we were ready to try and raise venture capital, we went to Bijan Sabet, a Partner at Spark Capital and early investor in Twitter. I had developed a good relationship with Bijan working together over the years and I trust his judgment. He liked our idea, he liked our team, and getting a term sheet from Spark went smoothly.
We were fortunate, again, when another former colleague and friend, Josh Elman, a Partner at Greylock, suggested a follow-on investment. This is another firm I respect through my personal relationship with Reid Hoffman (and now Josh). We didn’t need the money yet. But, maybe because I grew up on welfare, my proclivity is to take the money. Pro tip: Take money when you don’t need it because you are in a position of strength.
Some people advised me not to take this money from Greylock. It was more than double what we had raised from Spark and we still had virtually all of the Spark money in the bank. As it turned out, we ran out of Spark’s money after we pivoted, and then un-pivoted. It would have been a sticky situation to raise money now for this, the enthusiastic return to our original vision. However, we have the capital from Greylock giving us runway.
What To Expect
I’ve raised venture capital and I’ve also helped others through the process. It’s challenging and can be very frustrating. You may hear variations of, “It’s a bit too early for us,” or “We don’t invest in this space,” or “We typically invest in earlier rounds.” (What!?) It’s rare to actually hear the word “No.” Even if a partner at a firm loves what you’re doing, they can only place very few bets. VC’s only have a handful of Yes’s in their pocket.
Sometimes raising venture capital may seem like baseball pre-Moneyball. It might seem like there’s no science to it. A “pedigree” can count for a lot. “Ooh, you were an early Googler?” Having already had a big exit gives you points. (Although realistically, past success in no way, shape, or form means future success.) Crazy, runaway, “hockey stick” growth early will get you the meetings you want. If you have these things or not, go in prepared.
Telling A Good Story
My path to technology entrepreneur started as an artist and I still feel most comfortable thinking of myself that way. The value of storytelling when you’re trying to raise venture capital for your startup is immense. I sometimes invest in startups and I can say that when I see spreadsheets, charts, or graphs, my brain tunes out. What excites me most is to hear a compelling story, even if much of it is not yet true.
Storytelling is how humanity has communicated and learned for millennia. A good pitch should be a great story and your enthusiasm while telling the story should be infectious. Whatever deck or demo you have prepared should simply be illustrations — assets that add color to your story. If your deck somehow disappears, it shouldn’t matter. You should be able to stand in front of twelve partners and capture their imagination.
Ambition, Not Fiction
The story of what you are building is best if it’s wildly ambitious. Jelly is a new kind of search engine that will work better for many queries. Instead of returning documents, Jelly delivers answers from real people who already know what you need to know. Challenge yourself to think about what you’d like people to be saying about your product in ten years. How big can you go? It’s daunting, but you work backwards from there.
When I say tell a good story even if some of it isn’t true yet, I don’t mean fiction. Don’t lie, you’ll most certainly regret doing that under any circumstance. What I mean is that you should have the confidence — and instill that confidence in potential investors — that you and your team will fill in those parts of the story that are not yet true. You’ll have impossible challenges, but you’ll rise to the occasion and figure something out.
If you’re at a point in your life where you find yourself taking the 280 exit for Sand Hill Road about to explain to a group of folks who have seen it all that they should trust you with millions of dollars of other people’s money, then you are truly going for it. You wouldn’t be dropping everything and risking it all to create something new, bold, ambitious, and potentially crazy from scratch otherwise, right? It’s time to swing for the fences.
Biz Stone, Co-founder and CEO Jelly Industries, Inc.