Fundraising AMA with Springtime Ventures: Fundraising strategies, where to find investors, and more

Hello and welcome everybody in startup world. Welcome, come in, come in. Thank you for joining us on your Monday, or depending on where you're calling in from today, maybe it's already Tuesday. You will have to let me know how things are going in the future. Welcome, welcome. Please join us today. This is the Startup Fundraising Framework. For early-stage founders, we have an amazing guest today, Rich Malloy with Springtime Ventures. You definitely want to start thinking about questions now because the question and answer session is going to get a little crazy later. So be thinking of questions you have about fundraising metrics, all of those fun things. This is great. I am Diane Bailey. I am the head of accelerator growth for Founder Institute. I also run our Colorado chapter here in the US. So I work with founders all the time helping them get investor ready. The world has changed a lot in the last 6 months or so around investment. Really looking forward to Rich's presentation today. And if my team can bring Rich back on stage and he can say hello as well.

Oops, there we go.

There we go. All the buttons. Hello, Rich.

Good to see you, Diane.

So, well, so welcome to the presentation. You're looking forward to hearing your insights on the investment community and how founders can really get in the right mindset of raising funds. I know that from previous presentations, you're very helpful in letting founders get to know what's going inside the investor's mind. And something I have to remind founders all the time is that investors are human beings too. So it's, we're all humans here. We're all trying to help founders. And what I really like about your background, you are managing partner at Springtime Ventures, is you really embody this notion of wanting founders to achieve their dream. And here in the US, we call it the American dream, but really it's just a founder's dream. It's the entrepreneurship dream. And I really like having you looking at investments and talking to founders with that lens. Can you tell us a little bit more about your background and how you got involved with Springtime Ventures?

Sure. Yeah, I'll give you the super short version. And so my first career was in finance. I was in corporate finance, specialized in analytics and reporting. My second career was in sales. I did tech staffing sales for Robert Half Technology in their Midtown Manhattan office. And I was a Chairman's Club and President's Club producer for that. That was a cold calling job. I started there in 2004, smiling and dialing. And I burned out on New York, 14 years in Midtown. Burned out on New York, moved to Boulder. I wanted to get into the tech startup world. Didn't want to do it in New York. Sure as heck didn't want to do it in San Francisco. Boulder called and I answered. And so, I've been out here for 11 years, 12, almost 12 years now, and it's been great to me. And so I've been a— I filled— I joke that I've worn almost every hat in the startup community. I've been an enthusiastic attendee, community organizer, community leader. I've been an underpaid employee. I've been an unpaid founder. I've been a corporate sponsor and a consultant. And now I'm grateful to be able to support the startup community as an investor through Springtime.

Yeah, and it's so great. And it's great that you've worn so many hats throughout that process. So you can really empathize with the founders that you're trying to help. But one of the really unique things I think for you and Springtime Ventures is you don't just help founders at the deal table, you actually help them through your podcast called VC Minute. And if my producer can put that link in the chat, tell us a little bit about VC Minute. And I hear you're going to drop some news today. Yeah.

Yes. So VC Minutes started out as a segment on the Startup of the Year podcast. And, uh, and so when I— and this Startup of the Year was owned by a company called Established, and I worked for them for 4 years while we were building Springtime Fund 1. So just a little background, our first fund was so small we couldn't afford salaries. And so I worked a full-time job and did Springtime in, you know, my, my, you know, my extra time, which, which is none. But, you know, so, but as part of the podcast, when they launched a podcast, I said, well, I'd love to share some, some fundraising advice. And so I would have this little segment called the VC Minute, quick advice to help startup founders fundraise better. And so when I left, when we raised Fund 2 in October of 2021, we got enough where we could afford to pay me a salary finally, where I could afford to pay myself a salary. And so when I left Established, finished. That was the only thing that I asked of them is I said I want to take the VC Minute with me and I want to syndicate it under Springtime. And so I kicked it off in May or June of last year. There are 50 episodes, 5-0 episodes. Each one is less than 2 minutes on average. And that is the whole idea is it's just a quick hit, a thought and insight, and go. And the whole thing is meant to be listened to. Season 1 is meant to be listened to sequentially. So start with episode 1, and work your way down to or up to episode 50. Um, but, um, it is truly, you know, the, uh, it's the piece of this that I think that not enough is talked about, about the psychology of fundraising and the psychology of the seed stage and what's going on behind the scenes. And a VC says this and they really mean that, then are they, you know, and here's how they're thinking and they think about different things. And so that whole perspective of that psychological perspective, I think I think everybody, the founders here, would all benefit from hearing about that and having that mindset and understanding maybe a little bit better of what's going on behind the scenes. So I did season 1 and put out 50 episodes and put it on pause over the summer, at the end of the summer. And today, to coincide with Founders Institute being so great and inviting me here, season 2 kicks off today. So that should go live in about 2 or 3 hours. And so I'm excited for that. And you know what I'm actually going to start with is we'll start with a little bit about the state of the markets. But the thing that is very— another thing that's very near and dear to my heart is self-care and mental health tips for founders. And so I've got 12 episodes also, 2 minutes each about just things to try to make sure that you are taking care of yourself as a founder.

That's awesome. We've had several people join us since we started talking. For those of you who are just now joining, I am speaking with Rich Malloy. He is the managing partner at Springtime Ventures, talking about VC Minute, which is the podcast he has so that founders can see the psychological side of investing and really get inside the head of investors and knowing what they need to do as a founder in order to prepare for that investment. Because Investment isn't— that's not the end game, right? That's the start. So I think sometimes that gets missed in the shuffle there, that the goal is not to raise investment. The goal is to provide value in the world. You happen to need money in order to do that. This is a means to the end, not the end in and of itself. So welcome again, everybody, for joining today. Be sure to put your questions in the chat. Rich is going to launch into his presentation here very shortly. I am going to be going through the Q&A as well as the chat for questions. And then once Rich is done with his presentation, we will go into that AMA and question and answer portion. At the end of this, so about maybe a little less than an hour from now, once that Q&A portion is wrapped up, we are going to go into the networking portion of the, of, of the event today. I'll go into more details on that once we are at that point, but be sure to stick around because this is your opportunity to meet with other founders in the global ecosystem. Rich is going to have a table set up so you can ask him questions directly. So make sure that you are staying around until the end to enjoy some networking with our global community. And with that, Rich, I think I will have you load up your presentation and start whenever you are ready.

All right. I am just double-checking that this link that I'm about to provide is pointing to the right thing. Remember, my link didn't work last time because I want everybody to have everything.

Always works perfectly in technology, especially when it's live.

Yeah, exactly. Exactly. All right. Just in case, I'm going to— I'll drop this. I'll have this. Up and ready in the chat. All right, let's, uh, let's, let's kick this off. I'm going to start my presentation, share screen. Let's make sure entire screen, right side. Boom, boom, boom. Okay, there we go. Looks like everybody's got that covered. Everybody can see that. I'll take that as a yes. And I want you to have access to this report, so I've already provided it in advance. Thanks for the thumbs up. I emojis. And just in case that short link is not working, I've dropped the full link in chat. So welcome. This is the pool party. Work your process to drive the VC process. And thank you for the wonderful introduction, Diane. We've talked a little bit about me and my experience in the VC Minute, briefly about Springtime Ventures. We're a seed stage fund based in Colorado. We invest in the USA only. And we invest only in these sectors: fintech and insurtech, healthcare, logistics, supply chain, and marketplaces. We have 43 investments that we've made so far out of both funds, actively investing out of Fund 2, and we write a check between $500,000 and $700,000. Springtimeventures.com is where you can find us. Let's get to it. Let's go ahead. Let's have some fun. So you think you're fundraising, but what you're really— what you're really doing is throwing a pool party. With these bros. And the pool party is the keystone analogy for the VC Minute. In fact, it's the very first episode of VC Minute. What's worse is that it's not just a pool party, it's like a high school pool party where the peer pressure is so thick you could cut it with a knife. Everybody's milling around the party wondering who's going to get in the pool first. Hey, Diane, are you going to get in the pool? I'll get in the pool if you get in the pool. And nobody wants to be the first one to jump in the pool. And so you have all these people standing around the edge of the pool wondering who's going to get in first. And nobody really wants to be that first one in. We'll talk a little bit about that. But it's important to keep this pool party mindset, this idea of people milling around in your mind, because that helps, I think, to explain the psychology of what is going on really with investors behind the scenes. So here's what's really driving your round. Even though you want it to be a FOMO-based round, where you actually start is this idea of a party round. Now, a true party round is a round where there's no true lead investor and you just put a term sheet out and everybody piles into the term sheet. But even with funding rounds that have a lead investor, we've seen that those still tend to be party rounds where everybody is just trying to work up enough courage to jump in the pool. And so where you start with this is the investors start in a mindset of FOLS, fear of looking stupid. Hey, if I'm the first one that jumps in the pool, now I'm soaking wet and I'm all by myself and I look like an idiot, right? And so nobody wants to look like an idiot. Nobody wants to look dumb. Nobody wants to put it out there, right? And so because nobody has enough capital to take the whole round. And so what we're all doing is we're just trying to figure out, is there going to be enough momentum in Is there going to be enough? Is this going to be a hot enough pool party, right? Is there going to be enough people in this pool to get you the capital that you need in order to get to the next stage? And so while everybody is milling around in a state of foals, you get— this is what you get from investors. You get the SHITS. And this is an acronym that I heard somewhere along the way that perfectly describes the VC slow roll. SHITS stands for Show High Interest Then stall. And so this is where you have great meetings and you think it's going great and it feels like it's going great and nothing really happens. And so you've got all these investors again milling around waiting to see who's the first one that's going to be in the pool. And your job is to just keep moving people closer and closer to the edge of the pool. And that's what this whole talk is about, is about building that momentum to get people to know— first, know that you have a pool party. Second, to know that other people are at the pool party. And then the third is to move them closer and closer to the pool. And the last one is to start pushing people into the pool. And only then, when you start to fill up the pool, do you get to a place of FOMO. And this is where you want to be. There are still FOMO rounds. In fact, we'll talk about this in a second, but there are still FOMO rounds going on. And when you can move all the way through the whole process and get people into the pool, then you'll find that your round will fill up a lot quicker. So, um, let's start with, uh, you know, with a quick review of the state of the fundraising market. And I think this is very important because things have changed pretty dramatically in the last few months. Uh, I have a report. I've gotten in the habit of writing a report every 6 months on the state of the market from a seed investor's perspective, from the seed stage perspective. Highly recommend you grab the last, the Q3 report. You know, there's a lot of information about how we got to where we are. And I made a call about what I thought was coming down the pipeline, and it turned out to be on point and even— and where the markets are even more dramatic from that. But you can grab that link there, richm.us/2022Q3. So these are some slides where these are excerpts from that report. It was called the Hot or Not Pool Party. Right. But what has happened in a hot market like 2021 is that funds are investing in more companies faster. So they might invest in 35 companies over a period of a year and a half, right? Let's just get in everything. Everything's moving, everything's grooving. You got to get in on it. You got to get in on it. That puts you at a pace of about 2 investments per month. That is crazy fast, right? But then things cool down and all of a sudden everybody starts to pull back. Now you look at funds that are investing in fewer companies and they're going to drag out their deployment period of how long until they write their last check over a longer period of time. So you end up with basically 3 investments every 4 months out of that. So 1 fewer investment per month, essentially. And to expand on this, again, these are all still excerpts from that report. There's more data that backs this up, but nearly every seed fund that's investing today has experienced a market downturn as an investor. And so markdowns are coming if they have not already hit. And what ends up happening is you get fight or flight. You think about investors getting punched in the gut as they watch their valuations of their portfolio companies go down. They watch companies close, companies that were high flyers all of a sudden shut down or can't raise or have to lay off. Major layoff staff, right? You're getting punched in the gut as an investor. When you get punched, fight or flight response, right? The fight response is you fight the market. Let's reserve more capital for our current portfolio companies and let's just continue to put money into those portfolio companies to keep them afloat, right? This cuts down on the amount of capital that's available to you as a new startup out there. And the flight is the flight to quality. Right? And this is where investors— where the pool party becomes even more insane, uh, where, uh, they're looking for those investments there where the pool party is hot enough and there is enough investors around the table and there's enough interest, or maybe it's got a big, a big name lead in it and everybody is trying to get into that round. And so now venture funders are looking to put more money into fewer companies that are the hotter rounds. And by the way, these are not mutually exclusive strategies. These are happening at the same time. And so the flight to quality piece, I think, is really where we're at right now, right? Where everybody's trying to put bigger checks into the hottest rounds. The rounds quickly become oversubscribed. It feels like 2021 for those investors, and for everybody else, it feels like 2001. And so what it comes down to is, is your pool party hot or not? Right? If it's hot, you've got a big name lead or an industry lead. Everybody wants in. You've got, you know, very startup favorable terms. This is why you're seeing $5, $7, $9 million seed raises that like 10 years ago was a Series A round and they're now being called a $9 million seed round because there's so much investment or so much investor interest around that table that the startup can keep raising the valuation to take on more money to ensure they've got enough capital to keep that going. And you might be, you know, we're working with a company right now that we've committed that we're actually going to lead an investment on. We're trying to raise $2 million on a $5 million for this company. And we're not, you know, Springtime is not really as a very well-known lead investor. In fact, we don't have a practice for leading at all. And so we're trying to make, turn our pool party from a not to a hot, right? But what's happening to a lot of startups is you can't get enough capital around the table. And so you're struggling to raise at any terms. And I had the wildcard in there because in 2023, or sorry, in Q3 of 2022, I thought there was going to be a wildcard in here where you'd have some normalcy, if you will. But it really hasn't turned out to be that way. It has really gone in the two extremes, the $9 million rounds and then the, you know, struggling to raise two, rub two nickels together. And we'd certainly feel the effects that that has for founders. All right. So let's talk about how you can throw the hottest pool party. And, you know, one of the things I love about analogies is they're great in two ways. So an analogy is great because it gives you this vision of how you can picture something in a more— something that's unfamiliar in a more familiar format. But analogies are also great when you think about how they break down. And so we'll talk a little bit about that, about how this analogy of the pool party breaks down in certain areas. And, um, uh, but first, you know, a little bit about your preparation piece, right? And so as you prepare for your round, um, you— the, the best way to build your funding round, to build your hot pool party, is to do enough work ahead of time to do the planning and do the work to prep before you ever go out to talk to, to an investor, right? So you need to have materials ready— pitch deck, pro formas, etc., etc. You need to have a system, your fundraising system, your fundraising CRM, search for funds, and how you do your outreach. The more you can systematize this, uh, and the more work you can do on this piece, the better. Uh, and then you have your— have to have your numbers in order, right? What is your subsequent fundraise goal? What are your key metrics and drivers? And then what You use those to set what your target raise amount is. That third line there is a whole nother presentation, but for today, I want to talk about the preparation, right? This is about using your system to drive VC's processes, using your process to drive VC's processes, right? And, and so the first thing that we need to do is you need to set up a fundraising CRM. I only have 4 criteria for this CRM. Number 1, you have a CRM. Number 2, you use the CRM. Number 3, it's easy to set up. And number 4, it doesn't break the bank, right? You can tell I'm setting the bar very low here, but my point is, is that this is not— this is something that you must have and you must use it. There are some great options out there. Excel is free, it's fast, but it's just okay. If you want to go with free, there— Airtable has a phenomenal Fundraise template built into it that is completely free and you can use on the free version of Airtable. This allows you more depth and more— allows you to add more depth and more insight rather than just continuously adding rows on an Excel table and scrolling across those. But this Airtable one I think is fantastic. But then there's also things like Fundrise that are purpose-built. And then there's your general suite of CRMs like Pipedrive and Monday and such. Right now, um, I want you to set up your system in such a way that you'll be able to set yourself up for success, right? And so there are the basics of columns and fields that you need, right? And so you, you know, need to know what stage you're at with the— with that investor. You need to know who your contact is, what the last date of contact was with that organization. But then there's some other things here that will help inform your process as you drive through this. Right, first of all, who's that connection? How did you get introduced to this, to this fund? What's their check size? Could be a range. What's their target check size? This is an important piece to know what a target check size would be for, for an investor. We'll show how that fits in later. Right, what's your thesis fit for that fund? Dig in, look at that, look at that fund. Hey, we're a fit for you because, you know, Springtime invests in fintech and I see you invested in a vertical B2B payments app, you know, we're also that, and here's why we're a fit for you. Temperature check. I would, you know, as, you know, as I've been going through this process with a founder on this round that we're leading, we've been talking about what the temperature is of that investor. And so we've added, you know, so I've added this in as something that we should be monitoring, right? They're hot, they're cold, uh, they're somewhere in between, right? Where does this, where does this person fit? What materials have you sent? So as you use materials to continually keep that investor updated and stay top of mind with them, as the old saying goes, lines, not dots, right? The more dots that I have from you, the more that I can draw a line about you and your business. And so continue to keep materials going and flowing to those investors that are in your pipeline. Another piece, important, absolutely critical piece, is to know the next step in that investor's process. Uh, and then the last thing is you want to tier these investors, right? And there is an order of outreach that you should be executing on, and it goes like this, in my opinion. And you could find what works for you, but first is the friendlies, right? These are, these are funds or people that are in, that are institutional investors that will that will take a meeting with you, that will let you pitch them, that will give you feedback on their deck. Hit those friendlies first, get that feedback, find out and start to circle that feedback up and do as many of these as you can do, right? Even if it's not a fit, hey, you know, could we spend 30 minutes? I'd really love, you know, really need to get your take on this as I go out to market, right? The next thing, the next order of outreach for you is warm intros, and you need to get as many warm intros as possible. Right? And so these are the folks where maybe a friendly introduces you, maybe an employee introduces you, maybe, you know, who knows, somebody else introduces you. But these are not the people that are directly in your Rolodex, but they're one degree separated from you. So they're your second-degree contacts where you can get that warm intro. The third tier. So by the time you've gone through all of the friendlies, you've pitched all the friendlies, you've pitched all the warm intros, now it's time to hit up the A-list because now you know what questions you're going to get. And look, we all ask the same questions, right? So you'll know what questions you're going to get. Right? You know what questions you're going to get. You know what's confusing. You know what people are keen on. You know what people don't like to see. You know where people are getting lost. And so you can, so you can have your pitch dialed in when you start to go after those A-list investors, right? And then the last is everybody else. This is where you just start your cold outreach. You start hammering, um, you know, people's, people's forms that they're signing up for and all of that good stuff. So that's where you start to, um, start to hit everybody else. Okay, so let's keep moving through. Um, the next piece here, right, is the stage, right? And I'm not going to read through this whole thing. You could set up as much as you want, but the one stage that you probably don't have in your fundraising CRM that you need to have is the soft circle, right? And this is where the magic happens. And so this is— it will come around to what that soft circle is, but as you're building up and building up and continuing to move people through your process, um, that first call and that due diligence piece, and maybe you split diligence out into multiple steps there, right? But your goal is not to close people on every call. Your goal is to get people into that soft circle, and that soft circle are the people that are interested in you, that are milling about at the edge of the pool, and that maybe would— that you can probably count on to jump in once everybody else starts to jump in. And when I hear soft circle, and this is a Techstars play, by the way, if you've been through a Techstars program or if you're looking at Techstars, this is straight out of the Techstars playbook. But because it starts to, because it helps to generate that heat and that interest, right? And I talked before about how the pool party analogy breaks down, but the critical piece here of how the pool party analogy breaks down is that people can't actually see each other around the pool. Right? And so if I'm rich from Springtime Ventures and you're raising a funding round, I don't know if you've got 12 other investors interested or if you've got zero other investors interested. What soft circle does is it allows you to talk about the amount of capital that you have that's interested, that's also around the pool. And so I know I'm not alone at this pool party, that there's other people around. Yeah. And so we'll dig in on how to get there, but that soft circle is where the magic happens. Okay, so let's find some funds to target. There are 4 great free resources for searching for funds. Signal.nfx— this is an nfx, uh, network effects— is, is the— nfx is the venture fund out of the Bay Area. They have a great free resource. Omni Valley is focused outside of the coast. OpenVC has a really strong international focus. Love the guys out there. They're putting together a lot of really good content. And connect.visible.vc is another free list that I've seen. Um, and so grab, grab these again. You can grab this whole deck, get this information, start filling up your pipeline, right? And you want to do as much of this work in advance. Fill out that form. What you don't want to do is grab 10 funds, send them your info, grab 10 more funds, send them your info, have a few meetings, grab some more funds, That is not the right process here. You want to fill up your pipeline with as many funds as possible. Take it to 100, right? Get 100 lines in that, in that CRM of yours. Just fill it all up. Figure out who they're investing in, who they're, you know, where they're based, why you're a thesis fit. Get all that information, right? And then, only then, can you do the next piece, right? Which is getting people to show up to your pool party. right? But I want you to work about this, and this comes from my— you can see my corporate sales training, if you will, in this, where the structure gives you freedom. The structure of the process creates more opportunity for you within this. And so as you box each of these responsibilities, right, finding the investors, reaching out to the investors, closing the investors, you do those in chunks of time instead of doing it haphazardly back and forth. So let's get people to show up to your pool party, right? Start with those friendly investors and get out there and pitch those folks, get their feedback, get their input. As you start to get input on a pitch deck or on a pitch, you're going to get whipsawed, right? It's, I need this, I didn't like that, and somebody's going to love something, somebody else is going to hate something. Just say thank you, take it all in, and start to figure out what's the right advice for you and what's the right advice for your pitch. Only you know what's working for you. And so stick to your gut as you're gathering all this feedback and getting whipsawed in different directions. Stick to your gut so that you know what's the right piece, what's the right way to take that advice that you're getting. Next up, scour your network for referrals. As you've built that 100 list of 100 funds that you're targeting, right, I want you to go into LinkedIn. I want you to go into Facebook and Twitter and whatever and find how you can get a connection to every single one of those funds. Warm intros make calls happen. Cold intros, man, it's really, really hard. Really hard. And look, we at Springtime, we respond to every email with a yes or a no. And I definitely have taken plenty of cold inbounds and had a couple of really interesting companies last month that I talked to from cold inbound. Not everybody is— not everybody's the same way. But when another— I'm on a call with another fund, I'm like, oh yeah, have you seen such and such company? No, I haven't seen them. Okay, yeah, it sounds good, send it my way, right? Just that little bit of validation turns you from just another cold email that I got to deal with to, oh, My buddy Clay said that, you know, said this was, uh, you know, somebody I should talk to. Okay, cool. Let's take the call, right? Scour your network for referrals. Next up here is that first meeting. Um, you know, just like in job hunting, uh, the job of a resume is not to get you the job, right? The job of the resume is to get you the meeting. The job of the first meeting in most, in, in most job interviews is not to get you the job. It's to get you the next meeting. And to keep you moving through the process. It's very similar with fundraising, right? The job of the deck is not to get you the deal. The job of the deck is to get you the meeting, and the job of the first meeting is to set the stage, right? You're not trying to close the deal on the first— on, on the very first meeting. You're trying to get to the next stage in that first meeting. So you need to set the stage for what is to come, present enough information that it's interesting, that it's compelling, that you're answering their questions And then, and then, uh, uh, ask questions, which we're gonna get to next, right? And then keep the momentum flowing after that. Have follow-up materials. What did you talk about? Here's an interesting article, you know, that I think addresses, you know, the, the questions or the concerns that you had. And then continue to send updates. So you should, because you've got a great CRM and you know when you last contacted somebody and you know what, what materials you've sent them right now, you can get them, uh, get them into your updates flow. I'll go to Techstars again since I'm based in Boulder, close with the Techstars team here, but they do a great job of forcing their startups in their program to send an update every week during program. Weekly updates are a bit much for fundraising, but at a minimum, you should be sending updates monthly, you know, as your fundraisers go as progressing, or maybe biweekly, or even just a simple, like something big changes, even just a simple note to a fund. Hey, there's been some movement in, you know, in this round, or we just landed a big client. I'd love to give you a quick update on that, right? Here's my schedule. Do you have 15 minutes in these, you know, in these time slots, or send times that are good for you, right? Keep those updates flowing, because again, people can't see who else is around the pool. People can't see that the pool's heating up, that the party's heating up. You have to continuously communicate how the party is moving. And then when you're in the meeting, you need to ask good questions, right? You need to ask questions. Not enough founders ask questions. I love, I love when a founder starts a meeting by asking questions because it shows— to me, it shows a little bit— it shows a depth of experience. And, uh, you know, maybe they're just a little bit that stronger of a fundraiser that they're confident enough that, you know, that they're going to get my questions answered, but they also want to just make sure that I'm going to be a good fit for them. So, um, ask a founder to introduce themselves and then start with some easy questions. What's a typical check size? Are you actively investing out of this fund? How many investments do you have left in this fund? Super important questions. Also, where somebody is on their fund life cycle. They've only got 2 investments left. It's going to be really hard to be one of those last 2 checks, right? But if they're, you know, midway through or early on, you know, it's probably going to be a little bit easier to get out to, to, uh, to continue moving them in the process. This is a great question that does not get asked enough. What is your investment committee process? Right? So you are jumping a bit ahead to the end, but it's critical to know what that investment committee process is so that, you know, so that folks can, so that you are prepared for that in advance. Right? And then how do you support portfolio companies is another great question. I get that a lot. Right? And then at the very end, as you've gone through the whole thing, the last question that you should always ask is, What did you hear today that gives you pause? And get an understanding, if you can, of where their concerns are. Then that gives you a great follow-up. Here's an article, here's a slide, here's a thing, right? You don't have to answer it in, in that meeting right then and there. You could follow up with it and say, great, that's awesome, I've got some materials, I'll send that, I'll send that your way after our meeting. So now we've had our first meeting. Now we need to start getting people closer and closer to the edge of the pool, right? So meeting 1, understand the process, right? What are you unsure of right now? What are you— what did you hear that you're interested in learning more about? The next step in your process is, right? And I'm going to pause here because typically you ask an investor like, oh, what's the next step in your process? Tell me about your process. Well, you know, we're going to meet and we're going to, you know, do a thing, and then we're going to dance and dance and dance and dance and dance. And by the time you're done, you're like, uh, not really sure I understand what that was. And so you can dig in on this and say, okay, so it sounds like a good technique for this is to play back what you heard. Okay, so it sounds like the next step is that you and your partner are going to talk about it. Do you talk weekly or do you talk daily? Right. Okay. And then the process after that is that you talk about it at the partner meeting. Which day is your partner meeting? Oh, it's Wednesday. Okay, great. What materials do you need? And then the next step after that, do you typically do another call or do you like to talk to, you know, talk to, uh, other funds or who knows what, right? So you can start to dig in on that process and ask some yes or no questions to try to get a little bit more out of that. It's critical that you understand what the next step in the process is so that you can have a timeline for follow-up and you have next steps for follow-up. So, um, so that then you can follow up after that partner call and say, hey, I hope you had a great partner call. Uh, what were the questions that came up about us? Here's an update from our side. Would love to hear back from you. Here's some schedules. Here's some times that we have next week. Meeting number 2, you want to confirm the process and dig in a little bit more. What's a typical— what's a target check size for you? Because it depends sometimes on round to round. Some companies are dogmatic about ownership. Some are dogmatic about check size. Some don't care. So start to dial in that a little bit. And then the last thing here, and this is a good pre-close question. And I'm saying this is a question for meeting 2 or meeting 3, depending on the temperature check that you have, depending on the temperature of this investor, right? Can I tell other investors that we're talking to you and that you're considering making an investment? Right? And if you get a no, that's okay, right? Maybe you want to put it out there in a way that's a little bit softer so that you're not scaring somebody off. I don't think you'll scare somebody off, but put it out there in a way that's a little bit softer. But you want to see if they're really committed, right? If somebody is willing to say, yeah, sure, you can, you know, like, just to be clear, you know, we're not, you know, we're not saying that you're, that you're investing in us, but we just want to, you know, as we're talking to other investors, you know, do you know such and such investor? Do you know these folks? Like, these are some of the investors we're, that, that we're talking to. Would it be okay if we use your name as we're talking to other investors that you're also in the process, right? And I'm gonna, uh, pause and talk about something that's not on the slide here, but There's a thinking, there's a mindset in the fundraising world of like, don't tell investors of who else you're talking to because they're going to go talk to each other. But the fact is, is that we are all talking to each other all the time. And I think Springtime is very good at this, is we're out talking to investors all the time. Some funds don't do this as actively or proactively as we do, but If I see a company in supply chain, I'm going to talk to Dynamo, which is a supply chain-specific VC that we love and we work with all the time, right? I'm going to send it to Point63, and I'm going to talk to other funds about your investment, right? And so you want to have— to me, you want to have funds talking to each other because it shows that there's some heat around this round, right? And I'll give the other perspective on this is the reason that that you will hear advice to the contrary is what you don't want to happen is to have investors say, oh, I hated that, or I hated this, or I'm not going to invest in that, or did you know about this, or this is a problem, right? And that can quickly kill a round, right? But if you're doing a good job and you're moving and you're, and you're having good meetings and you're having good momentum, then, uh, having other investors talk to each other is a— can be a net benefit for you. So Here we go. So now let's go back to your system, right? And this is why I'm so adamant about having these stages and having these systems is because now you have a sum of potential investment, right? If you're using Streak, we use Streak, for example, uh, here, right? You have a column where you have what that, a single check amount of what that potential investment would be from that particular investor. And as you group those into these categories, right, you've got $2 million in your, you know, that, uh, in this first call pipeline. We've had a first call with them, $1 million in, you know, where you are in some stage of due diligence with a company. You got $500,000 in soft circle and $200,000 in a verbal commit. And this is the magic of the soft circle, right? We're raising $500,000. We've got $200,000 committed and another $500,000 soft circled. And now what I'm thinking to myself, right? If I'm a pre-seed investor and these are pre-seed numbers, right? But I'm thinking, if I'm a pre-seed investor, I'm thinking to myself, oh shit, if I want to put my check in, maybe my check is $250,000 or whatever. If I'm going to put my check in, I need to move on this because they've already got $200,000 committed. They've got another half a million soft circled. You know, maybe half of that comes in. They're going to— this round is going to fill up, right? And that, my friends, is how you use your system You build it properly, you fill it up, you attack it systematically, you get out in front of it, you get soft circle, you get people into the soft circle, and the commitments will still fall in as you're doing this, right? And then you can go back to all of the other investors that are milling around the edge of the pool that didn't want to jump in the pool, that were afraid of looking stupid. You could say, this round is coming together. And that is a beautiful thing. Okay, last, the very last slide I have here, right? And this is a complete departure from all of that, but I wanna point out, Diane, I love that you mentioned this at the beginning, right? Is that, right? Venture capital is not validation, right? Venture capital is a means to an end. Venture capital is a way for you to grow faster, to do things that you wouldn't be able to do otherwise, right? But raising venture capital does not validate your business. And not being able to raise venture capital does not invalidate your business, right? The only thing that can validate your business are customers. You could raise $100 million, and we're seeing this, right? Raise $100 million and not be serving your customers, pivot 12 times and shut her all down, right? That is not validation. What is validation is when your customers are coming to you and they're saying, please give us more of this, we want this. That is what validates your business. This is what you're here for. You're not here to raise venture capital. Venture capital is a means to an end. I'm going to help you play the game a little bit better, but I want you to go out and find great customers, find people that are passionate about what you're doing, build for them. Don't build for me, right? Build for them. And now you will make all the difference in the world with that. And so with that, um, we'll wrap up the, the slideshow here. I will I want to say that time is our most precious asset, and I am so grateful that you would spend some time with me today. So thank you for that. Please let me know how I can be of service to you.

Oh, I can talk, but my cam— there we go. Thank you, Rich. Look at all of those emojis coming on the screen. I think you resonated with a few founders. I don't know, I don't know. Um, I'm old school emojis, we just type things in, any fancy characters there. So I've been going through the Q&A. Um, so a few questions for you, Rich. We have a few founders asking, for pre-revenue companies, how do you quantify traction?

Yeah, so, um, I'm gonna fall back on a, uh, I'm gonna fall back on a Mike Maples quote that I mentioned in one of the VC Minute episodes. But, um, Mike Maples, the founder of Floodgate, early to the— one of the early creators of the seed market, he said, great founders are like time travelers. They come from the future to tell us what the world is like with their business at full scale, right? I'm paraphrasing a little bit, right? But you need to come from the future and share with me the big vision about why your business is the solution, right? And so as you, you know, as you don't have traction, right? What you do have is you should be able to have some problem validation. And problem validation is, for us, is extremely important, right? So we need to understand, right? What is the problem? Why is the pain so great? Right? Take that knife and stick the knife in about why that pain is and twist the knife and make it really hurt about like, this problem is so big and it's such a problem. Sorry, don't have a better word right now. But this problem is such a problem that people can't, it will be falling over themselves to get access to our solution. And then why are you the people or the person to solve this problem, right? If you have domain expertise, lean heavily on that domain expertise and bring that to the table.

Awesome. And here at Founder Institute, we just put up a web page. If my team can put the benchmarks link into the chat, we have been— because we have our grads that are raising money, we have our network of investors, our FI Venture Network, And this is a chart of benchmarks that we're hearing right now in this investment community on what investors are saying they need to see for traction depending on what stage you are and what industry you're in. So what we're seeing is that, yes, no longer can someone just pitch an idea and expect to raise half a million dollars, investors are needing to see some proof of traction. This is the metrics that we're seeing globally that you can use as a benchmark, hence the URL and name of that sheet. So please look at that as well alongside what Rich is saying. So, uh, question around how do you set a valuation for a company? And this is pertinent for if you're raising a convertible note. How do you set that valuation cap? How do you set a valuation for a company in general and also a pre-revenue company?

Yeah, so there is no formula for evaluation, right?

And the attendee list just dropped.

Yeah, um, I should have, uh, pulled this up, but the range for valuations is so dramatic I cannot give you a, um, uh, I'm going to pull up Pitchbooks. Um, uh, let's see here, annual valuation report. I'm going to show you how bananas valuations are, um, uh, because the, the, in really the, the, the true graphical depiction of the hot or not what has been going on here with this. So, I cannot present while a question is showing on stage. Could I present this?

Could you remove the question, please?

Okay. Thanks. I'll do this really quick. All right. And so, this is from the 2022 Annual U.S. Valuations report that PitchBook puts out, right? Um, this, the, this chart is, uh, you know, at the bottom is the bottom decile of evaluation for— this is just for seed pre-money, right? Of just below $5 million. The top decile is above $30 million. And look at the separation between the median and the mean is absolutely massive, right? And so You know, so sure, yeah, I mean, your valuation could be anywhere from $5 million to $35 million. Um, it's— these are deal values. I don't think they have the, the valuation numbers for angels, but I bring this up because this is, this is a critical piece to understanding, right, is that you're not going to set the valuation, right? Your investors are going to set the valuation, and you can start to circle up to see, okay, what's market for pre-seed right now? What's market for, uh, you know, for pre-seed in your particular country, um, and gather data on this stuff and be prepared to— and be prepared to negotiate around that. But, you know, I can't answer that question, um, you know, with a— with pinpoint accuracy because it is so over the map right now. It's absolutely— it's, it's hot or not. It's, it's almost bipolar, really.

Yep, yep. We're, we're seeing the same thing for pre-seed as well. It's Yeah, we have a question. Should found— so this is around how founders can make that first move in trying to get an investor's attention. And should— so should a founder be knocking on your door or should they try to go through the formal process of submitting a pitch through your company? What's the best way for a founder to get the attention of an investor?

Yeah, the single best way is through a warm referral. Right. And so the single best thing you can do is scour your network, right? And find somebody that will introduce you to that investor and just say, hey, you know, talking to Diane and Diane is, you know, she's, she's great. She's here in Denver. I know her and she's high quality and she's working on something really interesting. You know, would you take a look at this? Would you be open to, you know, to meeting with her? I work those and work those introductions. and if that fund also has a pitch us form, and most pre-seed and seed stage funds have some sort of a form online, more and more come, more and more funds are doing this. Um, then you can at the same time fill out that information, right? So, uh, you know, I, I think this is a, uh, I think this is a good strategy when a fund or sorry, when a startup, when somebody reaches out to me and says, hey, would you take a look at Diane's startup? And at the same time, then I get, and I get the inbound through our form. It means that Diane is doing her work and she saw that we have a form and here's, and she shared more information with us. And so now I have some more things to look at as a basis of understanding. And so it's basically coming at me from two different directions and gives me the data that I need to make a decision.

Great. Have a question around patents. How important are patents for a VC?

It depends on the, on the VC, and it depends on the industry. Uh, generally speaking, for Springtime, we don't view patents as compelling, um, just for the industries that we work in. And we're primarily looking at software-based services. Uh, it could be important for AI, definitely important for hardware, showing that IP ownership is critical for, for hardware businesses. So, but if it's, if it's a B2B software and you're patenting a process around, you know, how, how something that, that you have that, that works, um, you know, for us, I'll say just for Springtime, that, that's not very compelling for us.

Alrighty. What is the difference— so this is more of a technical question, slightly technical— what is the difference between a pre-money valuation and a post- post-money valuation.

Yeah, yeah, it's important to understand that, right? So, um, so the way— so the pre-money is, uh, is the valuation that you set before any investment is made. And so a $5 million pre-money valuation, and we're going to raise $2 million. And so when you add the, the pre-money and the raise, you get the post-money. And so with a $5 million pre-money valuation $2 million raise, you have a $7 million post-money valuation. And the reason that you talk about the pre and not the post is because you don't know how much you're going to raise. Do you raise, you know, $1.75 million? Do you raise $2.25 million? Do you, you know, do you raise $2 million, right? The ultimate ownership is determined from the post-money valuation, but it's important to talk about the pre and the raise, and that's typically the common lingo. That's used.

And another question is— this goes to finding your lead investor— is there a typical investor who usually jumps in, and how can a founder identify them?

Yeah, there are some funds that are, um, that only lead, and those— some of the— sometimes they will put that on their website. Um, I'm not sure if any of those I haven't been on some of those websites. The 4 sites that I mentioned, I'm not sure if they specifically designate lead investors of who has led and who hasn't led, but it is a question that you should be asking investors in the process as you meet with them. Do you typically lead? And do you prefer to lead? And some funds will tell you we only lead and some will tell you we never lead and some will say it's in between. And then you have reason to dig in and find out why it's in between. So really the single best thing you can do is to ask investors.

Do VCs typically provide feedback on your pitch?

Typically not. So you can ask for it. You should ask for it. You should ask at the end, you know, what did you, you know, what are you still, you know, what are you unsure about? What did you hear today that you felt like, you know, I didn't validate? What is, what are still gaps in, you know, in your knowledge about this, right? You don't have to ask specifically like, did I confuse you? Or what did you think of my pitch? Or how did I do? But do dig in and ask some questions around. I would ask some questions around their, how they are gauging their knowledge or their interest after you pitch them.

Yep. Yeah. Unless, well, unless you are. So this is, this is why it's really important to have that, to reach out to your friendlies.

Yes.

Because your friendlies, you can ask about the pitch and ask how you delivered it, ask about that information. So that's, that's why having this process works really well. So that you can, you can have an opportunity to ask questions about your pitch. Never be afraid, just pitch to everybody. You don't only have to pitch to investors, pitch to other people in startup community. Here in the US, we have an organization called 1 Million Cups. There's probably a 1 Million Cups near you. They meet every Wednesday and you can give a 6-minute pitch and there's 20 minutes of feedback. So there's a lot of opportunities for you to pitch. Always be pitching and always be receptive to feedback. A lot of founders get very defensive when people don't understand what they're saying, but it's your job as a founder to make sure that your idea is communicated well. So always, always be pitching. Be the annoying person in the room.

Well said.

What is a data room and what should it contain?

Yeah, a data room is, um, uh, is a folder that you share out with investors that are interested in, in, in you that has— it could have, uh, everything from IP assignments to employee agreements to your incorporation documents, board meeting minutes. I mean, you go to, uh, CoolyGO, um, and Cooly, the law firm Cooly, has a great site called CoolyGO that has startup information. They have due diligence check sheets, checklists. They have data room checklists. And so you could put a million things in there, right? But a data room is really— it's a step later in the process with investors, maybe second meeting, maybe first meeting if things are going really well, but where you kind of open up your books a little bit more. To show them just that you've got your legal documentation in order.

Great. Yep. Uh, and I, I'm— can you explain how important it is for an investor when they see a well-organized data room? What does that mean to you?

Yeah, I mean, it shows that you are— it shows that you are prepared for this, that you know what you're getting into, maybe that you've been through this before, or even if you haven't been through it before, that you have an idea of what should be in a data room. And so that you're not dealing with a complete rookie, if you will. Typically, you know, and you should be working with, especially in the US, should be working with a good startup law firm. And as you get into the process, you know, for fundraising, having a good law firm to represent you is critical. You don't have to do it right out of the gate. You don't have to spend that money right away. But, uh, there are a lot of law firms that will run a data room for you, and they will make sure that the documentation is organized in and in order. And then knowing that you're dealing— knowing that a venture fund is dealing with a professional on the other side of the table, like a, you know, a professional startup law firm, adds another layer of confidence that, okay, this— they got, they got their stuff together.

Yep, yep. So with two more questions, one, uh, have some general questions about what is safe and what is a convertible note?

Yep, very briefly, a SAFE is a, um, simple agreement for future equity. Was created by Y Combinator a few years ago as a less— an even less expensive version of a convertible note, and we'll talk about that in a second. But basically what it is, it's just a promise that when you're— when you raise a priced round, which is where You sell preferred shares, there is a formal price per share that is put on, that is put on that. A priced equity round— when you raise a priced equity round, those people that invested on that SAFE note, their, their investment will convert to ownership in that priced equity round at a certain percentage based on the cap of that, of that. I don't really have enough time to get into the whole details on that. YC has great documentation on it, as does Carta. Carta has some great— you can make a SAFE in 5 minutes on Carta. And then a convertible note is kind of in between a priced equity round, which is complex and expensive, and a SAFE is super simple. But a convertible note is actually a debt instrument where you are taking on an investment that will convert into equity ownership at a certain percentage of ownership. And there's also typically an interest rate attached to the convertible note. And so when it does convert, those investors also earn some interest on their investment of what they put in earlier. And there's more complexity around that than a SAFE, but it's less than a priced equity round.

Yeah, there's a lot, there's a lot of ways to raise money. And SAFE is one vehicle. Convertible note is one vehicle. Priced rounds is another. Vehicle. Again, a lot— much more beyond the scope of today's AMA, but I wanted to throw that out there because a lot of the terms are used interchangeably, and it's, uh, no, no, you will get yourself into trouble very quickly. One last question before we jump into the networking portion, and I will tell you how that's going to happen here. So, Rich, What keeps you up at night?

Being a good father keeps me up at night, trying to make sure that I am, you know, giving my family the love and support that they need as I'm building this business. Professionally, oh man, you know, you know, constant demands on that are different. And the exciting part about venture capital is that there's always new things to tackle and new things to learn about and different things to do. Lately, we've been trying to— we're throwing our own pool party with a startup. And so getting people to the pool is what's been keeping me up at night with that. Relaunching VC Minute was another one. Um, you know, I'll share with you, if for anybody out there that's, that's, excuse me, doing content creation as part of their business, uh, my friend Eric Marcoulier, he runs a startup blog called obviousstartupadvice.com. Great blog, awesome advice. He's another, he's a Coloradan. Um, uh, he stopped writing his newsletter kind of for the same reason that I, that I took so long to get VC Minute back on board, is I got too obsessed with like the likes and the numbers and the social media game. And, you know, this person subscribed and, oh, I'm only at so many listens and downloads and whatever. And I got too obsessed with the— with almost like I was creating content just for the likes. And it actually had a counterproductive effect on me where I couldn't bring myself even to start the VC Minute Season 2 again until I detached myself emotionally from like, I'm creating this content because of that random email that I get out of the blue from a founder. It's like, wow, that, you know, that was amazing. Thank you so much. Or, you know, that those, those, those single pieces of where the content made a difference in someone's life and not got a million downloads. And so that is something that has kept me up in the past and that I hope that I've gotten over. We'll see. I'll see you again tomorrow as I look at the download.

Right, right. Those vanity metrics always seem to sneak in.

Oh man.

Well, thank you, Rich, again. This is Rich Malloy. He is the managing partner at Springtime Ventures. Please check out Springtime Ventures. If you go onto their website, you will see the link to VC Minute, which is the podcast that he is referring to. And a lot of this information from today's presentation is also part of that podcast. So you can watch it and digest it on your own time. So thank you so much, Rich, for joining us. And I'm Diane Bailey with Founder Institute. We are the world's largest and most proven network to help pre-seed companies get investment ready. So we know a little bit about what it takes to set the foundation for your business. On to the networking portion. Thank you for those of you who are sticking with us. So my team is going to press a magic button and Rich and I are going to disappear. And in our place, you will see some networking tables. We do have a table set up for Rich, but not all of you unfortunately will be able to join his table. If you could, once the tables are full, no one else can join, including Rich. So please, founders, make sure that there's a slot open on Rich's table so that he can join his own table and be able to be there to answer your questions. Again, it's just a technology thing. So just give him a minute to get over there and then Rich will stay backstage for a few seconds with me in the meantime. But thank you, all of you, for spending time today to learn a little bit about how to raise funding and how to see more value in your company and bring that value into the world. So I'm always humbled to talk to founders and learn about what they're doing and how they are seeing the world as a better place because of the way that they are solving our problems. So thank you, everybody. We will see you on the other side.

Thank you, everybody. Waiting for the magic.