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Fundraising always demands patience and grit, but passing the hat in the current environment will test your founder’s mettle unlike any time in recent history. Even investors still flush with cash that, only weeks ago, they had planned to put to work, now have grown skittish […]

Fundraising always demands patience and grit, but passing the hat in the current environment will test your founder’s mettle unlike any time in recent history. Even investors still flush with cash that, only weeks ago, they had planned to put to work, now have grown skittish over the frozen credit markets and are knotting their purse strings instead. If you’re looking for financing, be prepared to work very, very hard for it.

This is true even for the most seasoned entrepreneurs, like Scott Painter, whose pedigree boasts 29 companies, including the early web auto retailer, CarsDirect.com, software and services provider, Zag.com, and most recently, TrueCar, the Zillow for car buyers.

Last summer, as the financial markets inched toward collapse, Painter closed a $15 million Series C round for Zag.com. It was harder for him than normal. Painter has raised hundreds of millions of dollars in his career ($350 million for CarsDirect, alone). Zag has a seasoned management team, plays in a space Painter knows well, and it generates over $1 million in monthly revenues.

“All that and I still had to pitch 120 investors to get one to say yes – 120 twenty pitches later!” Painter booms into the phone. “But look, don’t despair either,” he quickly adds. “Fundraising is a numbers game. The biggest thing founders need to hear right now is that it doesn’t matter if it’s a good market or a bad market, there is someone who will fund every quality company that solves a relevant problem in capital-efficient manner. You’ll have to be realistic: It is most important that you get the money. Don’t quibble about terms and conditions. Forget valuation. Just meet more people, meet more people, meet more people.”

If getting through 120 pitches daunts you, Painter has help. Over the past 16 years, he has streamlined his pitch method to an art –- even using web tools to automate much of the work for him. He explains how, below, in his 12 steps for short-circuiting “the funding numbers game.”

1. Skip the PowerPoint. ”It’s expected, [but] a waste of time,” says Painter. “I never go into a meeting planning to present a slide deck.”

2. Build a web toolkit instead.
Painter means a web-hosted version of everything you would have put in your deck, including your financial models. This screenshot shows such a slide for Tag. The value-add: “Viewers can toggle the metrics up or down if they think my assumptions are wrong, and the whole model adjusts.” Painter finds investors love playing with it.


3. Lock it.
Make your tool kit a private site, accessible with a login ID and temporary password of your choosing. When you invite viewers to the site, require that they use a personal email as their login ID.

4. Build your mailing list.
Painter starts with up to a thousand VCs and narrows it to “a few hundred” who have investments compatible with his startup. Use sites like The Funded to help you narrow your list.

5. Send the “sexy tease.”
By now Painter’s email is written, and it’s short. He introduces himself in a sentence, offers a sexy tease on the company and closes with: “Here’s a link to a site if you’d like to learn more.” Do not ask for a meeting, Painter warns. Do include your site’s password.

6. Wait two weeks.
Change the password.

7. Check the logins.
Since you’ve required personal emails for the login ID, you’ll see each investor who looked at your plan, what they reviewed, and for how long. “And when a VC says ‘We’re going to pass,’ I can tell if he hasn’t even gone to our site. Expect a 10 percent view rate from your email blast.

8. Now reach out.
Your first round of calls goes only to VCs who have already reviewed your plan. The cold call is now a warm call: “We see you went on our site. You looked at X. Do you have other questions?’” Expect two-thirds of your viewers to return your call.

9. Request a meeting.
By now you’ve reduced your initial task list of 200 VC-contacts to 20 calls and 12 phone conversations. Be pleased if half of these take a meeting.

10. Meeting one.
Smile. Listen. Be responsive. “And get out of there as quickly as possible,” says Painter. “The only goal is to get meeting two.”

11. Meeting two.
Make it long. “I always try to see how long I can keep them asking questions.” Talk about your philosophy, your industry. Spring to get employees on the phone with answers.

12. Dinner.
“This is about getting personal, because you’ll need a champion, someone who’ll say ‘this is my deal’ in the final partners meeting.”

If you get this far, you’ve done your job. The rest is out of your control. Painter’s method is no guarantee of funding success, but it will cut weeks off the path to a final ‘yes’ or ‘no’, sparing you precious resources and energy.

Meanwhile, Painter offers parting encouragement: “VCs are still sitting on large funds. The biggest financing impact will be on mid- and late-stage companies that aren’t yet self-sufficient. Rounds for startups are still closing. They did last week, as well. True enough, there is panic. But this does not mean entrepreneurs should pack it up and go home. Building companies during a recession is certainly more challenging, but sometimes it’s a better test of what should survive in the first place.”

By Carleen Hawn

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  1. [...] his career ($350 million for CarsDirect, alone) said on a great blog post on this topic at GigaOM (http://gigaom.com/2008/10/12/12-steps-to-short-circuit-the-fundraising-marathon/): “VCs are still sitting on large funds. The biggest financing impact will be on mid- and [...]

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  2. My vote is this is a top ten candidate for post of the year. AWESOME!

    When I did my first start up it took us 55 meetings before getting our Series A. Biggest challenge a entreprenuer has is that VC’s simply don’t have a sense of urgency.

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  3. There are some great suggestions here. This process can work well for web startups but might not be so great for more technical infrastructure-type plays.

    Also, I actually think some time can be lost by waiting for someone to login and play around.

    I too start from a long list and filter down based on fit. Rather than sending out a web app to play with, I send an e-mail and move quickly to a quick call. I screen and qualify VCs (in the same way as they screen entrepreneurs) and book meetings with people who are genuinely excited about the story.

    One other suggestion not covered here is to BE READY. That means:
    – Have everything a VC will need up front (pitch, competitive analysis, pro formas, exit comparables, management bios), etc. Don’t be caught not having something you know will be asked for.

    – Be due diligence ready. Have all your docs scanned, indexed and ready to go as soon as you have a signed term sheet.

    Mark

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  4. Carleen, this is so excellent!!! The ideas and flow are so portable to a variety of apps. Thank you!!!

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  5. Adrian Barrett Monday, October 13, 2008

    Fantastic post – Does anyone know if something like the Web Toolkit Painter describes is available ready to go? The closest I can think of is Google Apps, but I’d rather not charge off down that path through my ignorance of something better.

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  6. Great post. There are really some valuable pieces that I can use right now in my capital raise process.

    There is one tool I have used before for some small business plans, but I am not sure it works as well as the seemingly proprietary web-based tool that Mr. Painter is using. It is called PlanHQ (www.planhq.com). I am not affiliated with them nor do I want to represent what the product can actually do.

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  7. [...] I have another story that gives you an alternative to this approach on an excellent post on gigaom (http://gigaom.com/2008/10/12/12-steps-to-short-circuit-the-fundraising-marathon/) where Scott Painter (Painter has raised hundreds of millions of dollars in his career ($350 [...]

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  8. [...] $10M and $20M was achievable in Year 3. (Maybe I should have given them an interactive model or web toolkit, that would let them dial in their own [...]

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  9. [...] Painter’s advice – contained in a post by Carleen Hawn  – deserves respect because he’s had so much success in raising venture [...]

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