Flying for money: How to raise Series A and B outside Silicon Valley

Our strategy – serving our mission of great returns for our investors and entrepreneurs – is to assist our portfolio companies in raising a strong late Series A or B funding from a large fund, often (but not necessarily) coastal. Once through the gauntlet of finding product-market-fit, building out a team and finding repeatable sales, our post-seed and early A companies must attract additional capital in order to scale. While there are several terrific local funds that focus on these types of checks, I can count them on one hand. That’s not enough frogs to kiss in an obtuse funnel. Further, the bar for our companies is higher than for Silicon Valley companies; after-all, there are multitudes of interesting companies being built in the Bay Area, and getting on a plane requires more effort and time for VCs than driving down Sand Hill Road.

We have been lucky – and our founding teams skillful – in seeing some of our companies attract follow-on rounds from top coastal and regional funds: Accel (twice), Bain (twice), Edison (twice), Drive (thrice), NEA, Battery, Bessemer, Pritzker, Safeguard, Naspers, Ascension, Baird, Jump and more. Below is a summary of our 7 years of experience helping portfolio companies attract follow-on capital. Only our top ~30% of companies have been able to attract follow-on capital from the coasts. While the vast majority of our companies raise follow-on, fewer pass the “get on a plane” test.

Here is the “how to” in ten steps for a top startup trying to raise Series A and B capital from afar, with some insights following. Of note, this is not the process for, seed and post-seed fundraises. Those are largely a local game and often happen with little past history because the stakes (check size for investors, and control loss for founders) are lower, and there’s not much past to work from anyway! So, for A and B:

1. Start planning for your next round as soon as you close your last. You need 12 to 18 months to build relationships you don’t have. Think about the milestones you must hit to raise that next round and incorporate them into your operating plan now.
2. 12-18 months out: Visit the coasts and have a bunch of intro conversations via warm introductions, so funds start tracking you. Say, “we’re not raising yet, but we want to share our story and tell you what we’re going to accomplish before we raise.” The pool should be 10-15 VCs. Include favorite funds you know from the last raise and add new ones. Be selective, balancing towards VCs that have either shown genuine in-bound interest in your company, have made other investments in your space or have a history of investing in your region. Prepare a deck; you will use it some but not all of the time, depending on VC personality.
3. 6-9 months out: Visit again and show them with a deck what you’ve accomplished. Drop the several funds you didn’t like from last visit and add a few new ones, while communicating your rough timing for a raise. The pool is still 12-15 now, and you’re probably getting a sense for those with the best mutual affinity and interest. Keep detailed notes from your meetings on the recurring questions that come up; you’ll want to answer those questions in your deck and in future meetings. Bring more than the CEO to these meetings, usually another co-founder (CTO, CPO or COO) or a killer CxO you hired. You need to show VCs this is a team effort and that you can find top talent and build great teams outside of SV.
4. 5-6 months out: It’s go time. Prepare a deck, do practice pitches with your board and insider VC partnerships. Have them play a new VC that doesn’t know you and ask you hard questions, focusing on the key recurring questions that came up from VCs during your prior visits. Iterate on the deck and prepare a data room.
5. 4-5 months out: With a short version of the deck, fly out again and do a round of 15-20 coffee chats – 10-12 from your existing pool and 5-7 new ones (see below for why you are adding new ones at this stage). Ask qualifying questions to understand if they are really interested. Tell the VCs that you are not yet formally fundraising but will be in a few months.  VCs love to feel like they are seeing you early before others, and these coffee chats will do the trick.  If some of these firms show significant interest, you can allow them to dig in a bit by providing limited data beyond the deck, but try to slow-roll them so they can’t fully pre-empt the fundraising process. Ideally you eventually want all term sheets to arrive within a few weeks, and using data room access as a gate is the best way to do this.
6. 3.5 months out: You are now formally fundraising. Continue video and phone conversations with your favorite 15+ firms from your last trip and eventually narrow this pool down to the 12+ with whom you would really consider working. Make the data room available to them and field data room questions by phone.
7. 3 months out: Encourage the 8-10 most engaged to visit you in person for a deep diligence meeting with you and your team. During those visits, set expectations for term sheet timing.
8. 2.5 months out: Fly out for partner pitches with the funds that have (or have told you they will) issued term sheets. Bring a team trio: CEO + CTO/CPO + COO/VP Sales. Bringing the sales leader is important to answer the question, “how will this $10-20M of investment drive revenue?”, while your technical leader (CTO/CPO) shows coastal firms that good software can be built outside the valley.
9. 2 months out: Get term sheets, negotiate and sign. For the best companies, expect 1 of 2 funds that visit you to issue a term sheet (a conversion rate that would be higher in the valley).
10. Close your round. Note: plan to still have at least three months runway left when you close. It usually takes 4 to 6 weeks from term sheet signature to close.

There are several themes that underlie the outline above. They are important:

Develop real relationships: A successful fundraise requires many touchpoints with investors – a major investment of time. It’s simple; you need to build real relationships for investors to want to get on a plane, wire you millions of dollars and then visit four times a year for the next 5 to 9 years! The most likely investors to give you a term sheet are ones who’ve known you and/or your investors for a year or several years. The least successful fundraisers we see (holding company quality constant) are the CEOs/founders who view fundraising transactionally, don’t invest in building real relationships or behave too cute or opaquely with investors. VCs are people too, so you might as well enjoy getting to know them!

Rely on your inside investors: The best entrepreneurs may complete 10 or 12 fundraising experiences in their lives – investors navigate hundreds. Enlist your inside investors to help hone your story and deck, make investor intros and serve as a back channel with interested investors whom they know. When considering an out-of-town investment in particular, potential investors will factor how existing local investors can impact the investment and how they are to work with. In this sense, existing relationships between local and coastal investors matter and can be used to a company’s benefit. We’ve even seen back channels save a financing a few times when the process goes off the rails.

Get warm intros: While it’s a VC’s jobs to take meetings, you are much better off with a truly warm intro versus a sort-of-warm intro or cold outreach. Warmth of intro goes from hot to cold as follows: (1) hot: get intro through VC’s existing portfolio company CEO that is “killing it”, (2) existing investor with whom target VC has invested before and invests earlier than target VC, (3) influential ecosystem player such as managing director at YC or Techstars who knows both the company and investor, (4) successful startup founder/exec who knows the industry and the VC, (5) portfolio company CEO that is not killing it, existing VC who invests at same stage as target or other VC that has decided to pass, (6) other randos, and (7) ice cold: cold email, LinkedIn message, twitter message (though that was cute a few years ago).

Focus on investors with a history of investing in your geography: Firms and partners develop “bus routes”. If a VC partner is already flying to a city for an existing investment, she or he is much more likely to consider another investment in that city. Likewise, many firms tend to have geographic biases. We chuckle when we hear one of our companies has met with Andreessen Horowitz. To the best of our knowledge, A16Z has invested twice in the Midwest in their existence. We wish it was more! Either way, it pales in comparison to Bain Capital Ventures, for example, which has invested five times in our geography just in the past 18 months.

Keep fresh blood circulation: While the investors you know the best are the most likely to invest, you can’t rely too heavily on an aging cohort for two reasons. First, many of the investors you knew in your prior rounds will “stage-out” as your company grows. Second, there are a host of reasons why investors with whom you’ve developed great relationships and should be a fit won’t engage or put in a term sheet. Just a few examples: (1) just did another deal and doesn’t have more bullets this year, (2) ended up investing in something competitive or at least adjacent, (3) was considering adding your city on their bus route but added another instead, (4) loves the deal but doubts she or he can get their partners’ support, or (5) just not feeling it. This need for new blood explains the VC cohort additions at each trip above and the bulge of new firms at step 5. If you have an exceptional story, there will be some buzz about you in the market by step 5. That makes it a good time to meet new funds who have heard the buzz or have a thesis in the market and therefore may be able to move fast. You never know.

Mind the plane test: The plane test is simple. If you are talking to a coastal investor who has not yet gotten on a plane to come visit you, they are either not far along in their process or not very interested. We have only ever seen one term sheet (of many) without a visit. And why would we? Imaging someone investing millions of dollars sight unseen.

Every meeting is a performance: I suppose this is true of life in general, but certainly fundraising. We’ve seen great companies err in several ways in this respect: not preparing adequately, the CEO going it alone, being cryptic about data and company performance, or talking about crazy price ranges in first meetings! Investors like investing in CEOs/founders who have a handle on every detail of their business (requires preparation!), that have built great teams, who are transparent, and who know the market will determine the value of their company. You’d be amazed by how many CEOs turn off investors in first meetings talking about too large rounds with too large prices. Save that stuff for late discussions and instead say, “we’ve accomplished a lot since our last round and can really use $XXM to accelerate growth; we’ll see how the market prices but believe we’ve earned a strong up round.”

August and December are no-go-zones: While, in fact, the VC lifestyle no longer matches the entrepreneurial meme that VCs vacation all summer and all of December, why test it!? Trying to land term sheets in late summer or late Q4 is a fool’s errand. Practically, step 7 should be underway by June or October respectively.

This post was written with my Partner, Ira Weiss, with inputs from several of our portfolio companies. Thank you!