I’ve recently helped a few friends with raising a pre-seed round. For each of them, fundraising is a new endeavor. They all have a typical founder persona being either technical or operationally savvy. Selling and negotiating is new for them - and they don’t seem to enjoy it.
If you notice, fundraising is very similar to running a sales cycle:
- Create a narrative to tell your story
- Identify prospective customers
- Develop warm leads through outbound strategies (email drip or referrals)
- Meet with leads and give a full presentation
- Negotiate terms with committed leads
- Sign paperwork and transfer money
In both processes, the number of candidates will drop by a significant percentage between steps 2 and 3, and between steps 4 and 5. This is commonly referred to as the sales funnel. Success is dictated by a wide top of the funnel and sufficient throughput.
The wider your funnel, the more time consuming the ultimate goal is. This is why my friends didn’t like fundraising. They are not able to focus on their job: building their company. Fundraising and selling are full-time jobs.
When I read Who is Michael Ovitz, I wondered why an agency model didn’t exist in Silicon Valley. Andreesen Horowitz has copied many of the strategies of CAA, but it is still a VC firm. In tech, A VC firm provides the funds, but in Hollywood, funds originate from studios. Agents only work on behalf of the talent. There is no true equivalent in tech.
I concluded that this is due to the timing of payouts. Hollywood talent is getting paid for their abilities, which are already realized. Founders are not getting paid, their companies are raising funds to operate and realize future success. Founders only make money if the company is successful. It takes time to be successful - too long and uncertain for an agency to wait for a payout.
Since the economics don’t make sense, founders end up doing the full sales cycle themselves - even when some parts aren’t the best use of their time.