How To Raise Millions For Your Startup: A Q&A With The Authors Of Get Backed

P&Q: What do you think about the value of an MBA for starting your own company? 

Loomis: I got accepted to Kellogg and was excited and went to tell one of my best friends, Evan Baehr, “Hey, I got into Kellogg.” And he proceeded to methodically talk me out of it. Part of the reason was I had already started a company at the time I had applied and so he suggested that I squeeze a ton of knowledge out of just doing something as opposed to learning a bunch of theory.

He asked me a very interesting question. My program was going to cost about $180K, take two years and 20 hours of work a week for a professional MBA. And he was like, “Alright, let’s turn the tables. What if I gave you $180K and an extra 20 hours a week, what would you do?” And I was like, “Honestly, I don’t want to go to business school anymore.” That sounds really bad. I want to go start a company. That’s what I want to do if you give me that much money and that much time. And Evan was like, ‘Well that’s what’s at stake. It’s that much money and that much time.” So I decided not to go.

Baehr: There’s this strange reality for top MBAs, which is that we have to almost hide that we went to business school. When we are either applying to work at a startup or raising capital on our own. Now, it’s not like the question that every VC asks you, like why didn’t you go to business school? Because a lot of them went to business school. But there’s a pretty widespread notion among engineers, and founders that MBAs have a stereotype about them. They are, well I won’t indulge in stereotypes, but they’re not positive and I think in some cases are kind of deserved. Because then it’s sort of like, ‘Gosh, why would I go spend all of this money to pick up this Scarlet Letter on me as a founder?’ And I think it has to do with the current situation of you as an applicant. And I really do believe that if you want to start a company two years from now, the best thing that you can do to start a company in two years from now, right now, is to start a company.

If you know that in 24 months you want to start a company called Xenon, the best thing you can do right now is start even an unrelated company or start Xenon right now and run it and learn from it, even if it is failure, in order to get prepared for launching that next company. I think most people don’t know what they want to do. They don’t know a company they want to start. They’re not positive that they want to start a company. That was part of my situation in going to Harvard. And I loved it. I had a wonderful experience. I learned a ton of things. I met a really interesting set of people. It gave me a lot of ideas on business strategy and business models and finance and mergers and acquisitions and a whole toolkit that I think certainly makes me a better executive, even of an early-stage company.

So I guess I’d say it like this. If you have an idea and you’re ready to go, the best thing you can do is start the company. Even if you think it’s really likely that you’re going to fail. And if you are interested in startups but appreciate the general arena of business, business school can be a wonderful experience.

P&Q: So are the best steps for approaching a VC or angel for seed funding?

Baehr: Let’s think about what most people do. Most people send an email–a cold email–with a pitch deck asking a specific person for a meeting. And not surprisingly, those emails have very low engagement rates. They’re rarely replied to. So components of a successful approach to a VC firm, number one would be a warm introduction. Finding someone that you have in common that would be willing to shoot a one-lined email to preferably a partner at a VC firm saying, “Hey, I don’t know much about this deal, but this is a good person. You should take a look at this deal.” That is a great way to get your foot in the door right away.

Number two would be, you’ve got to establish a ‘why’ for your business and that fund. Almost all funds are pitched because they have money. But just that shows that the founder has been lazy in doing the diligence to be able to make a case for why this specific fund is a good fit. So for example, you could say so and so from Polaris, ‘I am so interested in getting your feedback on my company, Xenon, because of your investments in companies A, B and C. I was so impressed by how you guys managed to grow these companies especially in such a competitive dynamic. I’d love to get some of your feedback on how to grow businesses like this.’ It shows you’ve done the homework and you have a reason why you’re asking for that specific firm.

Next, number three, would be generating urgency. So the investor’s assumption will be that they will forever be able to come back to your deal later because you’re not going to get a deal done for a very long time. And they are always working on how can they get into the right deals before the deals slip away from them. It’s really important to demonstrate urgency.

So how do you do that? The best way to generate urgency is to tell them that you have a term sheet because it communicates that there’s some sort of finite window that will close that they will miss the deal. A related approach is to schedule a trip–this is for a VC firm not in your own city–to say, “Polaris, I will be in San Francisco next Wednesday and Thursday and would love to find 30 minutes to come by to connect in person.” That excuse of being in their city. I think mentioning travel that’s between seven and 14 days from today is about the right window when they’re scheduling. And then give them some options. But not more than two days worth. Those are the things that have this constraining effect, making it likely that they will actually get a meeting.

Next, ask for advice and not money. So you heard when we were going through the pitch email earlier giving them reference and praise for their previous work, you are asking for a specific piece of advice that they would have given to a similar company or themselves. And it is always great to build a relationship with an investor when you are not raising money. So that when you are raising money, it’s a much more natural approach to say, “Thank you so much for our previous conversations several months ago. We have done X, Y, Z based on excellent counsel. We are just kicking off our Series A fundraising process and think our business could be a fit for what your funders are looking for now. We’d really like to find 30 minutes to connect in person.”