Brex Talks: How to think about raising your next startup funding round
Fundraising is a critical component of growing your business. But it can also be one of the most challenging, time-consuming parts of running a company — especially if you're in the early stages. But every business is different, and every slide deck is going to (hopefully) be unique. So half the challenge is knowing how to present your company and figure out precisely what it is you need.
Brex hosted Plaid Co-Founder and CTO William Hockey and IVP partner Jules Maltz alongside CEO Henrique Dubugras on a panel moderated by TechCrunch's Kate Clark to dig a little more into the process of fundraising. The crew also covered some thoughts on how to start building your second product. You can find the full video here.
Here are some of the highlights:
- Late-stage investing is very different from early-stage investing. As you start to settle into growth mode, your pitch is more about how you've evolved. You'll have to think more about metrics in addition to explaining how you're on your way to your ten-year vision.
- Always focus on building relationships. Even if you aren't fundraising, you want to go out and start meeting as many people as you can. Those relationships may turn into investors down the line, especially as they get to know your business.
- Raise money on the right terms that are good for your business and market. Some companies will need billions of dollars, and some won't. Understand your market to know that you can deploy the capital that you're raising, rather than raising money for the sake of raising money.
Here are some of the best takeaways from the talk, lightly edited for clarity:
Why you should build relationships ahead of fundraising
Henrique: I think a lot of people they meet investors and they’re immediately like, oh my god this guy can give me money — let me try to get some money out. The biggest thing that I learned over time is that the best way to raise money is to build relationships with people over some period of time. They’ll get to know you, and you’ll get to know them. Eventually, it will make sense to do something together if you know they like your business, and you like them.
William: With any startup, to an extent, you’re always fundraising. I think unfortunately money is, venture capital's a little bit like [a drug]. Once you take it, you gotta keep doing it, which I wish it weren't like that. But I think you should always be in a mentality of like, you know you need to make sure you have good relationships with VCs. I think reason Henrique and I can fundraise without trying hard is we do have good relationships.
Jules: The average company we invest in, the average time that we have known the CEO before we invest is 20 months. We’re often getting to know companies quite a bit early, and actual that data is really important to us because it allows us to see, did they do what they said they were gonna do. Did this person deliver or do they over-promise. How have they tracked, how have they grown his or her team? It also allows them to get to know us.
What you should focus on beyond the capital in fundraising
Henrique: We never associated our cash needs to raising money. We always [thought about], when was the right time and right person and right price. If you can get those three things combined, you don’t have to raise a lot of money... We serve startups, they invest in a lot of startups, and [I need] customers. Depending on your product, you can also use your VCs to do some work for you.
Jules: What we want to do for the best companies is, when they ask for a VP of marketing, we want to send them five ideas. I hope they’re good ideas. So when they’re raising money [they’ll call us].
William: If I raise a billion dollars, I don’t have a billion dollars worth of things to spend it on. I can’t turn that billion dollars into revenue. Startups in our business are building financial services, and it’s gonna take a few years to scale and find product-market fit. If you look at Uber, I would dump $10 billion on that [because] it’s a land grab. Your core product is commoditized, and it’s who can get to that market. You have to look at yourself, [and ask] what type of business am I? Can I turn cash into revenue?
Why raising money as a late-stage startup is different than early stage
Jules: A lot of times, people use the same [fundraising] pitch for their series B [funding round] as they use for the Series A, which is often a mistake. The Series A pitch is the vision and the market and some early traction. Ultimately the [series] B pitch is gonna be like, show me your data, and that I want to hear the vision too, but I want to hear the data equally along with it.
Henrique: A lot of times, people say is you know the late stages about metrics, [and] the early stage about the team and vision. I feel that if you know, it’s always about both... Your metrics should just be a way to prove you on the right track for your vision. If you just get too much in the metrics game, you’re not gonna get good terms. Startup multiples are not public company multiples, so it’s never gonna make sense. You’re growing much faster than all public companies, so I think it’s important.