What to do when SVB is collapsing, recession is raging, and even AI hype doesn’t help?
My startup Pandatron.ai raised $550k in March when the SVB bank was collapsing and the timing was the worst in the past few years. Pandatron lowers the cost and deployment time of corporate transformations that involve 1000s of employees with conversational AI coaching. Despite the AI hype, our raise wasn’t a walk in the park. Here are some tips on what helped us raise the funding!
1. Have a harsh deadline
Everyone often talks about FOMO (fear of missing out) as a way to drive quick investor decisions. The typical way to generate it is competition with other investors. Another way is to have a harsh deadline. We previously raised on a convertible note that had a harsh deadline on when we had to raise. So we had to raise the round until the end of March and there was no way of postponing it. It makes it so that all the decisions come at the last minute, but if all is good you end up with the round closed, and fast! I am not sure how that could work with a “fake” deadline, but I’d bet it’s still better than without one. I’d be strict about it though since if investors sense that you are flexible and aren’t closing on time, they will postpone the decision.
2. Target those who are knowledgeable about your industry and the problem you are solving
45% of our round came from people who were related to what we do in a personal way. Either they were a coach, a trainer, a consultant, a potential client, or experienced the corporate change management problem we are solving.
3. Quantity is essential
People talk about exploiting your network and that is obvious, but you also need to be tenacious. Every email and LinkedIn message increases your chances of success. 30% of our round came from LinkedIn, 10% came from cold emails. Word of caution: don’t send too many investor messages on Twitter, they tend to permanently suspend well meaning entrepreneurs.
4. Face to face builds trust
45% of our round came from meeting people face to face at events in San Francisco. Having tried to raise in Helsinki and San Francisco my simple advice would be to move to San Francisco. At any given event, probably 20% of the room here is angel investing. They made their money in tech and angel invest on the side, or they exited from their startup, or they work at Andreesseen Horowitz. Move to a local or a global hub city if you can, seek support if you can’t. I was lucky to get selected for a nonprofit acceleration program SILTA that takes top founders from Finland to the SF Bay Area for three months, and pays for all the expenses without taking any equity.
5. Frequent updates
Keep the momentum going by sending frequent updates to the investors you have met. Make it obvious that you are raising this round, with them or without them. Both updates on the product, traction, and funding are relevant.
6. Ask for detailed feedback
Don’t take no for an answer without hearing proper feedback. Our lead investor said “no” to us but we had good arguments for how we can workaround the concerns they had, and so they changed their mind! We always ask for feedback and record that in our CRM. If their concern is traction it might make sense to update the investor later, and if they are not investing in your vertical it’s also good to know so you don’t spam them in the future.
7. Maintain the CRM
As mentioned above, keep track of everyone you talk to. This is helpful both for the current round, and for the future. For example, some of our investors this round are the people we’ve talked to already during pre-seed.
8. Tap into the investor networks
20% of the round came from one angel investor who was a YC founder and was tapped into that network. Ask the investors who committed if they can make introductions to their investor friends.
9. Use any opportunity to pitch
It might sound funny but one of the investors came on board after I pitched her on the way back from an event in South Bay when she was giving me a ride home to San Francisco. When you are raising, be always on. You never know who might be interested in what you have to offer.
10. Adjust your legal structure beforehand
We are a Finnish company and it creates friction with US investors. We are going to do the flip to Delaware C Corp (standard US structure for startups) but in Finland it takes 6 months to flip so we had to do it already after raising our round.
With clients like Skanska and SAP, Pandatron helps to lower the cost and deployment time of transformations that involve 1000s of employees with conversational AI coaching. Scalable and personalized 1-on-1 coaching conversations also allow us to diagnose change-related issues. More info http://pandatron.ai/