Introduction
by Evan Loomis
Fundraising for my startup almost wrecked my marriage.
Every Monday morning, I would fly out of Dulles Airport and crisscross the country to pitch my dream of a new, sustainable, home improvement store to potential investors.
The weeks and months dragged on. The dream started to unravel.
Investors committed, only to bail months later because the process was taking too long. My friends sent e-mails with subject lines like, “Are you alive???” It was even worse at home.
A creeping separation had started to set in between my wife and me. We were spending too much time away from each other. Our love was icing over. Our lives were diverging, and I hated the direction in which mine was headed.
I knew a lot about raising money. After college, I worked as an investment banker on Wall Street, where I sold mega-companies like Burger King to private equity firms. I had analyzed hundreds, if not thousands, of deals. When I left New York, I cofounded an angel investment group in DC. I knew what investors wanted because I was one of them. Every day I received e-mails from people looking for tips on fundraising. I was the fundraising guy.
And yet, here I was, two years into launching TreeHouse Home Improvement, with a third of my $7.5 million round left to close in the worst housing crisis in US history. It felt like Bill Murray’s 1993 classic Groundhog Day. In every meeting, I relived the same maddening defeat over and over again. A few friends had the courage to tell me that the dream needed to die.
In November 2010, I finally admitted that there was no way I could close the remainder of the round. This e-mail was my white flag of surrender:
Date: Tuesday, November 9, 2010
Subject: TreeHouse Update
Dear Friends and Investors:
Over two years ago, we started off with a unique vision to launch a green home improvement store called TreeHouse that would make sustainable building easy, accessible, and fun . . . As you know, we have hit some roadblocks that have kept us from getting the necessary funding for our first store.
With this in mind, here are a few options our team has considered:
KEEP PUSHING. Under this scenario, our team would keep pushing to lock down the remaining investment capital. In our opinion, and while our emotions and courage want to walk this path, this is not the right choice. It is not sustainable to our team financially, it stretches our credibility and good word with partners, and it fails to acknowledge the current situation.
THROW IN THE TOWEL. This scenario would dissolve the idea, team, and legal entity. We do not believe this is the right course either. One of the consistent points of feedback from our investors and partners is “This is a great idea. Someone will eventually do it, but the timing for the launch may be off.”
TEMPORARILY PUT THE BUSINESS IN HIBERNATION. In light of a great business concept and potentially bad timing, we think that putting TreeHouse in hibernation is the right course of action. It allows us to preserve all the intellectual, relational, and financial capital that has been poured into the business, and wait on alert for better timing.
This decision was not reached in haste, or without a lot of consideration. We look forward to discussing or answering any questions with you over the phone, but wanted to make sure communication got out in a timely manner, so you are released to take any steps you need to take.
Again, we are proud to call you partners and friends, and we will continue to keep you informed of any developments. Many sincere thanks on behalf of the entire TreeHouse team, and as always, please do not hesitate to call us with any questions.
Best, Evan
I had failed. We were done.
Then, a miracle happened. Two weeks after that e-mail went out, I got a call from Greg King, one of my investors. “TreeHouse needs to come off the shelf,” he said. He would help us raise the remaining $3 million.
Within thirty days, we had closed the round.
How Do You Launch the Venture of Your Dreams?
Sixty-three percent of today’s American twenty- somethings want to start a business.* By 2020, there will be an estimated billion entrepreneurs worldwide. Whether it’s the next Facebook, the next world-changing nonprofit, or the next coffee shop down the street, starting something is the ambition of today’s generation.
But here’s the dirty little secret: starting something is insanely hard.
Launching the venture of your dreams takes more hustle, more failure, and significantly more resources than a lot of people can stomach. Yet, talk to any entrepreneurs who’ve been through it and they will tell you one thing: it’s worth it.
The purpose of this book is to demystify one of the most intimidating parts of launching a venture: raising money.
Seriously? Another Book on Fundraising?
There’s no shortage of advice on fundraising. Most of it is terrible.
Self-described experts spout phrases like, “create a business plan,” “show traction,” and “create urgency,” without any practical insight into how to do what they suggest. A great strategy for a serial entrepreneur with a track record of success will likely be the worst possible advice for a first-time founder. Experienced entrepreneurs forget what raising money is like when you have no network, no track record, and, at best, only a conceptual knowledge of a term sheet. The entrepreneurs we know aren’t interested in the theoretical best way to do something; they are interested in what works. That’s why we (Evan Baehr and Evan Loomis, longtime friends) wrote this book. We wanted to give entrepreneurs what we wished we had had when raising money for our ventures.
“There’s a big gap between what experienced entrepreneurs like giving out as advice and the specific circumstances in which young entrepreneurs are operating.”
—Deena Varshavskaya,
founder and CEO, Wanelo
Over the last two years, we mentored dozens of first-time founders and interviewed angel investors, venture capitalists, directors of angel networks, heads of family investment offices, and CEOs of crowdfunding platforms. We took improv classes. We infiltrated some of the country’s biggest accelerators and angel groups, and sweet-talked fifteen successful entrepreneurs into letting us show you exactly what they did to raise money, including the pitch decks they showed investors. We’re excited to write this book because we have done this and are doing it now. In the middle of writing this book one of us scored a $100 million business deal and one of us raised $25 million, which included the second-largest round ever raised on the startup platform AngelList at the time. We did all of these things to answer one question: What does it really take to raise money?
The Secret to Raising Money
What we discovered is that the skill to raise the money you need, get expert feedback, and build partnerships isn’t just an X factor that some people have and others don’t. On the contrary, it can be decoded.
There are specific habits and tools that aspiring entrepreneurs can cultivate to dramatically increase the likelihood that their ventures will succeed. We give you those skills and tools here.
In the next several chapters, you will:
• Study the original pitch decks of startups that raised wildly successful funding rounds.
• Access templates for common pitch deck elements, like identifying the problem, showing your solution, and distinguishing yourself from the competition.
• Find out which kind of capital to raise from which people.
• See e-mail scripts and techniques to get a meeting with absolutely anyone, including angel investors, venture capitalists, and potential board members.
Yet, as helpful as these techniques are, they are not the secret to raising money.
Nearly every startup founder we interviewed had a “miracle” like the TreeHouse story you just read about— some unexpected occurrence that catapulted him or her into ultimate success. As we dug in, we discovered that these miracles weren’t really miraculous at all; they were the direct result of relationships the founders had nurtured earlier. For Loomis, his friendship with Greg King caused Greg to put his own reputation on the line to help Loomis close TreeHouse’s funding round.
The secret to raising money is one simple principle: successful fundraisers don’t raise money, they raise friends.
Friendships Matter
We want you to crush it with your startup. But even more than that, we want you to build friendships that outlast any term sheet and create true value for you, your community, and your venture. The different strategies for fundraising will come and go. Market dynamics, industry trends, and timing make each venture’s fundraising journey uncharted territory. Yet, the one constant across every startup, every industry, every moment since the beginning of human life on earth is the value of meaningful relationships. This book is really about challenging people to move their visions for the future further down the field by surrounding themselves with like-minded brothers and sisters who believe in what they are doing. Along the way, you may just find yourself with access to more cash than you need.
Part One: Create Your Pitch
Part one is all about the pitch. It starts by introducing you to the pitch deck, why people make them, and why they matter. Chapter 1 describes the birth of the pitch deck. Chapter 2 outlines the key building blocks of a deck: ten key slides you should start with. Then, chapters 3 through 5 focus in detail on three elements of your pitch deck and pitching in general: story, design, and words. Chapter 6 is devoted entirely to the pitch decks that have successfully raised money, and chapter 7 offers some practical exercises for improving your pitching muscle.
Part Two: Get Backed
Part two is all about the fundraising process. Chapter 8 is an introduction to startup finance 101—how funding rounds work, the difference between debt and equity, and an overview of basic terms in an agreement. Chapter 9 describes which kinds of investors fund which kinds of companies. Chapters 10 through 13 are the culmination of everything else in the book—a simple but powerful process for building relationships with people who have the power to take your venture to the next level. The final part of chapter 13 coaches you through the elements of closing when an investor says yes.
*Minda Zetlin, “Survey: 63% of 20-Somethings Want to Start a Business,” Inc., December 17, 2013, http://www.inc.com/minda-zetlin/63-percent-of-20-somethings-want-to-own-a-business.html; and “An Entrepreneurial Generation of 18- to 34-Year-Olds Wants to Start Companies When the Economy Rebounds, According to New Poll,” Ewing Marion Kauffman Foundation, November 10, 2011, http://www.kauffman.org/newsroom/2012/11/an-entrepreneurial-generation-of-18-to-34yearolds-wants-to-start-companies-when-economy-rebounds-according-to-new-poll.