085. Insider Round

VC Minute
Here are my four steps to successfully raising an Insider Round

VC Minute – quick advice to help startup founders fundraise better.

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Have I convinced you yet that raising a bridge round is going to be the hardest round you ever raise?  And that you should never call it a bridge round. 

The number one thing you can do to be successful with your raise, is make it an insider round. 

Here’s the thing with the inside around it has to be filled with your current investors, your insiders. So how do you get them on board? You need to start right now. 

First, and you need to do this long before you are in the untenable situation of needing a bridge, you ask your potential investors about their follow on allocation and strategy. 

Here’s some questions that you can ask. 

  • What is your reserve allocation? 
  • How do you decide who you’re going to follow on with? 
  • Can you give me an example of a follow on investment that you’ve made recently? 
  • Can you give me an example of a follow on investment that you’ve chosen to not make recently? 
  • What additional proof points do you need to see for a follow on investment? 
  • How does your follow-on process differ than your initial investment process? 

Asking these questions upfront will help you understand what sort of a firm you’re working with and how they’re going to behave down the line when you need them the most. 

If you have already taken it on investment, you can go back to your current investors and get this information. 

Second, keep your investors updated. There are a ton of update templates that you can find online. It’s so simple and so incredibly important. Do it monthly. It doesn’t have to be long. You just have to actually do it. Start now. 

Third, start warming up your current investors to the next round six months before you run out of money. It will take you at least three months to bring the whole round together. You can’t start this process with less than three months of runway or you’ll have your back against the wall as your runway ticks down into days instead of months.  Talk to your investors now. All of them.  

As the old adage goes, ask for money, get advice. Ask for advice, get money. Go ask your investors for advice about what they think the next round should be. How is the market for a startup with your metrics in your industry? What do they need to see, to consider following on in you?

It’s also a great time to ask for referrals. What funds have they talked to recently that will be a good fit to come into a new round? Better yet, send them a list and ask them for introductions. Then, when they’re on board, ask if you can use them as a reference for new investors. 

Fourth, tell the story about how this round gets you to the next round. How does this enable you to level up on the treadmill? Tell how your revenue is growing and will accelerate with this infusion of capital. 

Finally. If you are bringing in new investors, get all of your current investors to close and wire first. Then give the new investors 15 to 30 days, depending on how much you’ve got circled up.

We’ve participated in both bridge and insider rounds with multiple close dates, with the current investors going first. SpringTime does this as a way to show its commitment to that startup to the new investors that are coming in. Ask this of your investors.

You can only build conviction in new investors by having your previous investors already in the pool, splashing around and having a great time. 

You can have the hottest insider round, but you have to send the invites early and work that pool party magic. 

Whew. Another week at the VC minute in the bag. Hey, before you go. I have a huge favor to ask of you. My favorite VC podcast, the 20 Minute VC, is asking for suggestions for future guests. I’d like your help to get the VC Minute on the 20 Minute VC. Would you help me with that?  

Go to miro.com/20vc. That’s https://miro.com/20vc . And add a sticky for the VC Minute. It’ll just take you a few minutes and man, it would be awesome to talk pool party with Harry Stebbings.

Thanks for your help. You’re the best. 

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