How to get a VC (like me) to wire you $2M in under 2 weeks (the FOMO playbook) | Solo Episode

Pablo Srugo (00:00:00):
When a founder comes to me with no pressure, no timeline, no momentum, they just want to chat. I have all the power and that's great for me, but not for you. You need to spend all your time building your business, not fundraising. Which means you need to fundraise as fast as possible and the most proven way to do that is by generating a lot of FOMO.

Previous Guests (00:00:20):
That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. I mean, the name of the show is Product Market Fit.

Pablo Srugo (00:00:32):
Do you think the product market fit show has product market fit? Because if you do, then there's something you just have to do. You have to take out your phone. You have to leave the show five stars. It lets us reach more founders and it lets us get better guests, thank you.

I'm Pablo, I'm a founder turned VC and partner at Mistral. And I've interviewed over two hundred of the world's best founders on the Product Market Fit Show. I'm going to give you the exact four steps they used to fundraise fast but before I do that, I do want to say one thing. Eighty percent of fundraising is the business. It's the team, it's the traction, it's the market. Twenty percent is the process. This is just about that twenty percent. But it's the easiest twenty percent because it's the only twenty percent you can fully control.

Step one is you have to build a list of qualified VCs, at least fifty names and the reason it's got to be fifty. It's not just an arbitrary number. If I look at the data, like historically from our firm. Ultimately, if you're going to run a competitive process, you're going to want to end up with three legitimate term sheets. Because then you'll have options and then you'll also be able to work them off each other to make sure you get the appropriate terms. So if you want three term sheets, you're gonna need to get ten firms to that final stage. Where all partners review the opportunity. So that thirty percent of those actually get you a term sheet.

Pablo Srugo (00:01:49):
Now, if you want ten partner meetings, that means you're gonna have to have twenty VCs that actually take the opportunity seriously and do a real deep dive on it. Because of those twenty, only about ten are gonna say, "You know what? Yes, let me bring this to all the partners." Now, if you want twenty VCs to actually take your opportunity seriously, you're gonna need at least forty first meetings. Because at least half of the people that you meet will tell you it's not a fit for them and if you want forty first meetings, you need to reach out at least to fifty VCs. Because most VCs, to be clear, are going to take that first meeting just to be able to say that they met you. Especially if, as we'll talk about it comes from a referred source. But there's always going to be ten, twenty, thirty percent that pass right on the email, or maybe they're on vacation, or for whatever reason. They'll not reply and that's the minimum, the more the merrier. If you have one hundred, you just doubled your odds. Where you don't want to end up, obviously with zero term sheets but even just one term sheet is not an ideal place to end up. Because you effectively have to take what you have in front of you and you can play hardball, and negotiate. But you know that if this VC says no, you've got nothing left. Two is not bad, but three is really that number where all of a sudden you have the power.

Now, when it comes to actually building this list of VCs. The beautiful thing is these days, it's quite a joke, frankly, to find this list of firms. Every single VC has a website. We're all doing content marketing. We're all trying to get out there with AI, with PitchBook, with CrunchBase. Getting the list is the easiest part of this entire four-step process. The hard part though of that is, that it's not just getting a list of names. It's really the curation part that I'm not going to say is hard. It's not hard, but it does take time. It does take effort and frankly, a lot of the steps, when we go through this process. You'll see they take work but the difference always you got to think about is, I either spend a few hours now, or I spend literally weeks later trying to reel VCs and trying to get them to invest in my company. By spending the time now, you're going to manufacture FOMO and momentum. It's going to make everything else go way faster.

Pablo Srugo (00:03:47):
When it comes down to curation, the things you've got to think about stage, sector, and geography. Does this VC actually invest at the stage that I'm at? Step two is sector, if you've got a direct consumer app and you're going to go after a VC that mainly invests in AI for the enterprise. It's just not going to be a fit, and then the last part is geo. A lot of investors are geographically constrained. So for example, we only invest in the US and Canada. Do they actually have investments in the country where I'm based? And the final thing, actually, and many founders forget to do this but it's really important, is double-check that those VCs don't have competitive investments. Some VCs play this game and they shouldn't, but they do. Which is you might get a meeting and think you're having a genuine conversation with a VC that knows and gets your space, only to later find out that that same VC invested in another company that's a competitor. Was never going to invest in your company and all they did was learn about your company so they can call the founder of your competitor, sound smart on the phone, and give them intel.

Step two is you have to engineer the intros. This is where things start getting a little harder. So the first part is of this list of, let's say, fifty VCs. For every single VC you are going to map who is going to make the intro to that firm. It could be you directly if you already know a partner at that firm and where you don't. You've got to go through your network, frankly, probably through LinkedIn and figure out who do you know that is connected to that VC, and can make the intro.

The reason is you can go cold, but you are not building FOMO if you're starting off on cold outreach. If you want to build FOMO, one of the keys is you have to have trusted and referred sources vouch for you by making the intros. So the first question is, who should you be thinking about in terms of making these intros for you? And there's actually a hierarchy. The best intro source is another founder. When I have another founder that I think is a solid founder reach out to me and tell me that I need to meet a third founder that they know, I'm already coming into that call with high expectations. That's exactly what you want.

The second best is some sort of ecosystem player. It could be some operator, some executive, maybe even a lawyer, like these kinds of people that are in the ecosystem for whatever reason. Angel investors actually fall into this category as well. They're pretty good intro sources and then the intro source that you do not want, and sometimes founders will ask me. Sometimes I'll pass on a founder and they'll say to me, okay, I know you passed but do you have other VCs you could intro me to? If I, as a VC, make an intro to another VC, the first question they're going to ask me is, are you investing? And if I say no, I've just deflated that balloon completely. So the last person that you want to intro you to other VCs is a VC.

Pablo Srugo (00:06:24):
Now here's where you hit the first problem. Most first time founders, especially, this is where they get stuck. You go through that list and you fill it out, and you realize you've got intros to maybe five or ten VCs on that list of fifty. So what do you do? If you have no network, you really only have two choices. Choice one is you go and raise anyways, and you raise without a network. Now, if you do this, what you're doing is you're giving up on that twenty percent alpha that we talked about earlier. That process is effectively gone. You're going to raise fully on the fundamentals, on the team, the market, the traction, and it's just going to be that much harder to drive FOMO, but it's a choice.

The other choice is you're going to have to find a way to build a network, and you're going to have to do it fast. Three hacks that I think you can use as a first time founder to build a network quickly. The first one, the most obvious one is get into Y Combinator, get into 500 Startups, get into some accelerator that's actually recognized and branded. If you can do that, as soon as you get in, you've got a network and you've got a brand. The second hack, which to be honest is my least favorite, but it definitely can work. Is you go to the events, you go to the meetups, you do classic network 101 and you meet a lot of founders, and ecosystem players. That way it worked for us. I mean, we went to a conference and that's where we met one of the founders of 500 Startups. He liked us and he led us into the program. So things can happen. It's just, you're going to spend a lot of time going to some events and three hours later, you got no value out of it and that's just part of the game. The third one that I think is the most effective and most efficient way to build a network as a first time founder is look at your own city, your own geography. So let's say like I'm in Ottawa, I would look at Ottawa and I would find who are some early stage founders that have already raised a seed round. Maybe a Series A round that are just one notch above where I am and then you just reach out cold. You just say, hey, I saw that you raised $2 million for your startup. I'm actually a founder, I also live in Ottawa and I'd love to meet up and get advice on whatever. Most founders are more than happy to help other local founders because they see themselves in those shoes. You can do that. You can have twenty, thirty high-value coffee meetings where A, you're going to build like a solid network. You're going to learn a lot in those meetings and those are founders who raised. So by definition, they're connected to VCs.

So now once you've got all those fifty intro paths mapped out, the next thing is you have to engineer not just who says it, but what they say and when. There's really three steps to this intro process. The first one, you found that somebody's connected to some VC on LinkedIn. You've got to reach out to them ahead of time and ask them, do you know VC XYZ well enough to make an intro? I'm thinking of raising around in the future and would love to connect. Because a lot of people are connected to people on LinkedIn, they don't actually know. So that's the first thing and you can do that well ahead of time, well before you're actually going to go and press go. The second piece is you're going to find that time. You're going to say, okay, for example, Monday, March 15th, that's the day that I'm going to kickstart my process. So a few days earlier, let's say Friday, March 12th, you reach out to these people that you've already verified before and you tell them, "Hey, on Monday, I'm going to go out and we're going to start a process. Are you okay to send a blurb for me?" And you get that confirmation. Now everybody's like locked in and ready to go. And the final thing, and this is something that very few, even the best fundraisers do. Is you want to engineer the exact introduction that these founders will make for you.

Pablo Srugo (00:09:47):
There’s a huge difference between a founder saying to me as a VC, sending me an email and saying, "Hey, I know John and John is raising $3 million. Do you want to meet with John?" I might very well take that meeting, but I have no reason to believe that that’s going to fifty VCs. I’ve got no reason to believe that there’s any FOMO or momentum behind it. So that’s the way I’m taking that meeting. What Marty from Pylon had in his blurb was he had founders reach out to VCs and say something like, "Hey, have you met Pylon yet? I know Marty, he’s a great founder. They’re in YC now. If you haven’t met them yet, let me know and I can try to get you in." If I’m getting that as a VC, there’s all of these assumptions that I have to make. First of all, that this founder is not just making an intro, but actually thinks that this other founder, Marty, is really good. Second of all, I just heard they’re in YC, which I know already is going to drive momentum and third of all, this person’s making it sound like if I haven’t met them yet, I’m already late to the game. Which means I’m going to book that meeting faster than an average meeting. I’m also going to go into that meeting assuming that there are many other people looking at this deal and that’s exactly what you want.

Step three is you have to compress the timeline. This is such a common mistake. What happens is a lot of founders, they'll just be like, okay, I'm going to fundraise. They maybe got some VCs they know, and they just kind of go. They just start setting up some meetings, some are this week, some are the week after, and they're kind of testing the market. All this sort of weird stuff. What happens is, everything is serial and you never have people in the same phase of the process. You never get to build real momentum.

So the way that you manufacture momentum is that you reach out to these fifty VCs through your intros on the same day and when you reach out. Naturally, because you reach out on the same day, many are going to answer within one, two, three, four days. You're gonna get almost eighty or ninety percent of your responses in that timeframe and then when that happens, you're gonna book those first meetings as much as humanly possible over the same two weeks. The only thing that can happen is sometimes VCs will tell you, for example, oh, I can't meet until three weeks from now, four weeks from now. The right answer to that is totally fine. If you can't meet for another three weeks, let's set it up then. But just so you know, I'm doing most of my first meetings over the next week or two. So if by any chance you can meet earlier, that'd be great.

Pablo Srugo (00:12:06):
What you just did there is two things. Number one is you just upped your chances of that VC actually moving the meeting and talking to you faster, which helps you compress that timeline. The second thing is you just effectively told that VC that they're not even close to being alone, that you're running a process, that you've got a lot of meetings coming up, and they're already on their back heels. Which is exactly where you want them. Now, as you have those meetings, you're going to have to continue to effectively delay the ones moving too fast and speed up the ones moving too slow and you can only do this up to a certain point.

But another strategy to do this is, as you have these first meetings and VCs start to get interested. Naturally, they're going to ask you for a data room. So you've got two options. One is you say, okay, cool, here's the data room. You give them the link. The elite option is actually to say to them, we have a data room but we're only letting investors in on this date. For example, if you're running these intro meetings over two weeks, then maybe at some point during that second week is the time that you let investors in. So when investors ask for the data room, you tell them the data room is ready but we're only letting investors in next Wednesday. I'll give you the link as soon as it's live.

Again, you just told this VC that they're not alone. There's going to be many other people looking at the data room and just to be clear. That doesn't mean they're just going to invest just because there's FOMO. What it does mean is you're going to get them to act on your timeline. You're going to get them to act fast. Because once they get this data room, if they like it, they know they can't sit on it. They know they have to decide and that's exactly what you want.

Another huge mistake that I see founders make. This is a rookie mistake, do not do this under any circumstances. Do not set fake deadlines. A lot of people misinterpret this and say, okay, if I wanna drive FOMO, I need momentum, I need timeline. So I'm gonna go in and I'm gonna meet VCs and I'm gonna tell them, "Oh, I'm closing the round by end of March." It is so silly, there's only two outcomes. Outcome one is you hit that timeline, great. The outcome two is that that timeline comes and passes. And all of a sudden it's April 1st, and you're still fundraising. And now I know that you had nothing behind it. That all the power that you suggested you had was completely made up. Don't catch yourself in that scenario. You don't need to do that. You just state facts, you just compress people, you put them together and everything else will take care of themselves. And you'll get all of that momentum without having to make up fake deadlines.

Pablo Srugo (00:14:27):
I'll give you an example of what this looks like in real life. There's this first time founder, Andrew. He's the founder of TaxWire. I met him on the show. He wanted to raise just $1.5 million. He ended up raising $3 million in five weeks by leveraging this exact process. At peak, he was doing twelve investor meetings a day. That's what this looks like in real life. He actually had $5 million of demand for his $1.5 million dollar round.

Step four is run the process. At this point, you've done everything you could. You've compressed the timelines. Now you're in the game. I'm going to give you three hacks and three rules you should use to make this go as smoothly as possible. Hack number one is the inflection hack. I've seen many different founders do this. You know your business better than anybody else. You know when things are about to hit. For example, maybe you've got a pilot that's about to convert. Maybe you've got a customer that's about to sign. Maybe you've got a lot more pipeline than you had last month. Wait until these situations are happening because the best case scenario is regardless of the size of your ARR. It might be $30K, $50K, $500K, it doesn't really matter. What matters is that growth curve, that inflection. If you're having that inflection, in other words, if growth is picking up just as you start fundraising. It drives insane momentum and you can manufacture that for you. I don't mean manufacture the numbers. The numbers are what they are, but you can certainly pick the time when you go out to fundraise to match the time when your business is accelerating.

Hack number two is the you're not alone hack, which is a way to reinforce to VCs that they don't have all the time in the world. They are not alone in this process. You are talking to many VCs, and the best way to do this is through subtle messages. Here's an example, you get into a first meeting and naturally say, "Hey, how's it going?" He's like, "Oh, good. How are you doing?" The answer is, I'm good, but I'm tired, man. I've just been back to back to investors all day. You're just answering a question. You're doing it naturally. You're not bragging, nothing weird going on, but you just told me you've got VC meetings all day. So now again, I've got to adjust to that and say, okay, again, do I like this or do I not? But if I do like it, if I do like this opportunity, I'm going to have to move fast because this person is talking to a lot of VCs. They're clearly running a process. There's many other little lines you can use like that. So again, if you're compressing the timeline, another thing you might get lucky is somebody might want to book you on a meeting or a partner meeting and you've got another partner meeting with another VC. Then make sure you're divulging this information, right? So, oh, I can't do that time. No, instead you say, I'm sorry, I have another partner meeting at that time, so it's not going to work. You let them know that you're in a process with other VCs and you keep doing that as much as the opportunity arises. Because every time you do that, you're just pressing the FOMO button and that is what's going to make things move fast.

The last hack is the small round hack. I actually did this by accident in my first startup. So when I went out to raise, my co-founder and I, we thought we only needed $250K. So we went out and said, okay, we're raising $250K. We started closing some investors. All of a sudden we were fifty percent, eighty percent subscribed. Then we realized, actually, we need more money. We need half a million. So now we're raising half a million. But we're not starting from zero, because we've already got like $200K. So we're starting off forty percent subscribed, and as we got close to that half a million. We realized we needed a million and so we kept doing this until we got to about $2 million. And the difference between going out and saying, I'm gonna raise $2 million, and then you get $100K or $200K, you're only five percent or ten percent subscribed. No momentum, no FOMO, versus if you're raising $250K, and you get $100K or $200K, you're fifty, eighty percent subscribed. Huge FOMO.

Pablo Srugo (00:18:07):
So if you're raising, especially this is true for your first round. Because there is some danger to it. If you're going to VCs and you're telling them you only need $250K, a lot of them are going to pass because their check size is too big. A lot of them are going to pass because $250K is just not enough to get your business going. So you have to have a balance here. Depends if you're talking to angels or VCs. But something to think about if you go back to the TaxWire example is, he ended up raising $3 million but originally only set out to raise $1.5 million, which means he got to fifty percent or more committed faster, and he was able to say he was oversubscribed. Which is another term that for whatever reason is like catnip to VCs.

And then the three rules that you really want to keep mindful, these are basically the opposite of common mistakes. This is like what not to do. The first one is never set a valuation. The only exception here is if you're raising an angel round and you know for sure there's not going to be a lead. But if you're talking to VCs, and you're raising $2 million. And the VC says, what valuation? Do not answer that question, it's a trick question. Just tell them, we're going to let the market decide. Why? First of all, because you are going to let the market decide. The fact of the matter is, you might have whatever valuation you think you want to get and then you're going to get whatever comes in those term sheets. You're going to accept it, or you're going to reject it. You're going to negotiate it, but ultimately, the market will decide. If you give a number, all you're doing is transferring power to the VC. Because if your number is way too high, the VC is going to maybe just pass because what you want is not market or just doesn't make any sense. And now where you would have got an offer, you had zero offers. And two, if it's too low, well, guess what? They're never going to bid higher than that. So you just lowered your own valuation. So rule number one is never give a valuation to VCs.

Rule number two, don't give them a range. A range of fundraising shows lack of confidence and a low understanding of your capital needs. If you think you might need $3 million to $4 million, just pick a number. Just say you're raising $3 million and then if anything happens, you can always oversubscribe. But don't go in there, and especially, and I've seen this before. It is such a bad idea. People go in there and say, I'm going to raise a $5 million seed. That's plan A, but if I can't, I also could raise $2 million and just run a more conservative. You're communicating to me that you don't have confidence in your plan A. Don't do that, figure out what is the right plan and deliver it with full confidence that that is the thing that you're going after. Reality is what reality is. You might end up with a little bit more, a little bit less, and of course you'll adjust. But have a concrete number that you're trying to raise.

Pablo Srugo (00:20:36):
And the last rule, this is really important. Be as aggressive as you can credibly be. I mean that with everything, with your next year forecast, with your market size, with the opportunity. If you don't believe something great can happen, why would a VC ever believe it? Oftentimes founders think, well, I'm just being conservative. The fact of the matter is, no matter what you tell me, I'm going to then take that. I'm going to assume that's best case scenario and I'm going to do my own analysis on how big I think this really could be, on how fast you really could grow. Whatever you give me is the absolute best case. That's how I have to take it. So if you're being conservative, you're just lowering that ceiling. Because I can't take what you say and then go back to my partners and say, you know, this founder thinks they're going to grow to $2 million next year as an example, but I think they're going to grow to $4 million. The answer is going to be, well, if they only think they can do $2 million, why would you think they could do more? It doesn't make any sense. So whatever you say to people, understand that whatever a founder is telling them is the best credible scenario, and that is what you have to present.