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How We Closed Our First Pre-Seed Round in 2 Weeksby@jean-lafleur
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How We Closed Our First Pre-Seed Round in 2 Weeks

by John LafleurApril 5th, 2020
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There are a few levers that you can activate to motivate investors to participate in your round, and fast. The strongest way to convert potential investors into participating into your round is through FOMO (fear of missing out). The strongest signal you can leverage to get them in your cap table is to have a great fundraising story. Some levers will help you get more leads at the top of the funnel; others will help convert those leads faster into purchasers. In the tech world, there are mafias. They can invest in each other’s companies and make intros to external investors.

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We got accepted into YC on the 9th of December 2019. Originally, we wanted to raise a pre-seed round before starting YC on the 6th of January. But at the same time, we didn’t want to incorporate the company in 2019 so we wouldn’t have to deal with the taxes for 2019. Call us lazy! One would say lazy is not bad, as long as it’s smart lazy!

So we decided to prepare for a pre-seed round at the beginning of January and incorporate on 01/01/2020 at 12.01am.

Levers you can use for a fund-raising round

There are a few levers that you can activate to motivate investors to participate in your round, and fast. Here are a few of them (please feel free to add more in the comments, and we’ll edit the article!).

Think of fundraising as a sales funnel. Some levers will help you get more leads at the top of the funnel; some will help you convert those leads faster into purchasers…sorry…investors!

Top of the funnel levers

In the tech world, there are mafias. Typically, we’ve all heard about the Paypal mafia. These communities are either alumni from a company or institution, or they might all be from a certain nationality.

These mafias can help in many ways. They can invest in each other’s companies. They can make intros to external investors.

But networking is not only about mafias. It’s about live-building it during the fundraising round. For instance, as soon as you have an investor who committed in your round, you should ask this investor about intros. Having an intro from an investor who invested in your company is a high-quality intro with (most likely) a high reply rate.

Personally, the best type of intro to an investors are the ones coming from CEOs of their portfolio companies.

Unfortunately, there are not many levels to get leads into your funnels. So you’d better be smart in how you build your networking.

Conversion levers

The strongest way to convert potential investors into participating into your round is through FOMO (fear of missing out).

You have to keep in mind that missing a great exit has much more impact for a VC than investing in the wrong company. 90% of their portfolio doesn’t succeed. It’s the 10% that succeeds that gives them their multiples. So FOMO is definitely the strongest signal you can leverage to get them in your cap table.

Other levers include authority. If you have an investor who is recognized in your industry, it gives a lot of credibility to your project. But again, what will the investor feel at that point? The FOMO again. In the end, it’s all about FOMO.

So what did we do?

Leverage both the French mafia and the LiveRamp mafia

We’re lucky in the sense that Michel is part of the LiveRamp mafia and that I’m involved enough in the French mafia. This helped us build a list of potential investors very quickly.

Timebox and limit the round

The first thing we decided to do was to set up time limits and an amount limit to our pre-seed round. It would start on the 6th of January and would end on the 17th, so only 2 business weeks. And we would not raise above a certain amount. This forces potential investors to have a feeling of urgency if they want to be in the round. It’s essential that you give them the impression that there is a very high chance that the round will be oversubscribed, but you will try not to go above the limit announced. This is a very efficient way to create FOMO.

Have a great fundraising story

Here was the plan that we announced to our potential investors: “this pre-seed round is a unique opportunity to invest in our team right now, because in April, we will raise a seed round following demo day at a significantly higher valuation.” This resonated well with business angels, as we all knew in the Bay Area what kind of valuation we could get after demo day. Another way to create FOMO.

Being fair

In December, we started to meet with potential investors to get a feeling how much interest we could gather. We sensed some hesitancy towards the valuation, but didn’t act upon it until the 6th of January, when the fundraising started.

When we launched (through personalized emails) the pre-seed round, we let our potential investors know that we had reevaluated our valuation, as it seemed more fair for them, even though the promise of the seed round multiple was already definitely interesting.

Being fair to them was more important to us, as this is the start of a long relationship. Doing so got us our first investors very quickly.

Building on momentum

Once we got our first investors, we notified the others who we got in the round to show that things were happening fast, and that they had better commit fast if they didn’t want to be left out.

That’s how we closed our round in 2 weeks. In the end, we were oversubscribed and had to say no to some people, and to invest less for others. But we got all the people we really wanted in the round. And that was the most important for us.

Fun fact is that the project we pitch is not what Dataline became a month after. But you could say the investment was made on the team.

Hope that’s useful!

Originally published at https://dataline.io on March 27, 2020.