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Today we’re shifting away from term sheets to share our first of several pieces on fundraising strategy. In this post, we aim to provide some simple advice for founders on effective communication strategy when interacting with investors. Unlike many of you, neither Chuck nor Daniel are scrappy, impressive startup founders; however, they’ve been on the receiving end of countless strong and weak communication styles. Of course, founders must allocate most of their time to building their business… not preparing external communications… but when it comes to fundraising and keeping those around you engaged, a long-term track record of consistent communication and relationship building with internal and external stakeholders makes a HUGE difference.

We titled this week’s newsletter Founders and Athletes as a framework for sharing some of our thoughts on investor communication strategy. What do athletes and founders have in common? A lot.

Read on to find out:

1. Background: College Sports Recruiting

2. Rule #1: Communicate Early & Consistently

3. Rule #2: Ask for Help

4. Rule #3: Keep Knocking

Background: College Sports Recruiting

By the fall of Daniel’s junior year of high school, he was incredibly fortunate to receive a handful of verbal offers to play division one college tennis… after plenty of rejections. For context, he started playing tennis at four years old and basically spent his entire adolescence traveling to random cities for tournaments. Reflecting on how he approached his college recruiting process drew many parallels to how we believe founders should communicate with investors.

While there are various rules for how early a collegiate coach can contact a high school athlete across sports, the general rule is that coaches cannot conduct outreach to high school athletes for the purpose of recruiting until June 15^th after an athlete’s sophomore year.

**But… high school athletes can outreach and send updates to coaches well in advance of June 15^th if desired. Also noteworthy is how high school athletes are assessed. Based on results in competition, athletes are assigned a national ranking within their recruiting class. Each ranking range corresponds to a rating.  For example, in tennis, a top 25 ranking equates to a “blue chip” rating … a top 75 ranking = a “5-star rating...” and so on…

Lastly, starting on August 1^st before junior year of high school, top recruits are invited by college coaches for paid “official visits,” a huge step for one’s recruiting journey. Official visits typically indicate that a respective coach has a high level of interest in offering a prospective recruit a future roster spot.

Rule #1: Communicate Early & Consistently

We don’t have statistics but a high percentage of high school athletes UNDER communicate, waiting until June 15^th after their sophomore year to communicate with college coaches for the first time.

This is a huge mistake:

1) Coaches are bombarded with emails on this date and it’s very hard to stand out.

2) Coaches know that if June 15^th is your first time reaching out, you’re probably sending a similar email to tons of other schools.

3) Coaches have already built virtual relationships with other prospective recruits who communicated early.

If you’re a tip top blue-chip recruit, you can probably under communicate and still land a great scholarship based off sheer superior athletic talent. For everyone else, building consistent lines of communication well before the end of sophomore year is essential.

Daniel began creating dialogue with coaches and sharing results many months before June 15^th of his sophomore year (see below for a flash from the past). By providing consistent updates on athletic and academic performance and staying top of mind for many coaches, he was able to successfully navigate the recruiting process and stand out on official visits alongside numerous other 5-star recruits.

So what does this mean for FOUNDERS?

1/ Have you heard of the mere exposure effect? Humans develop an affinity or preference for people they are consistently exposed to (as opposed to someone that seems foreign or new). It’s very hard to convince an investor who is meeting you for the first time during a fundraise to write a check (unless you have a unique track record). Investors want to feel like they’ve built a trusting relationship with the founders that they decide to support. The only way to build this is by launching communications early in the founder journey (even if investors that you are communicating with may not be relevant targets for years to come). Communicating consistently with prospective investors is also a great indicator of how you will communicate after they join your cap table.

Lastly, each update is an opportunity to show off: how well you understand your business, how it should be assessed from a KPI perspective, your knowledge of the market you are competing in, your ability as an operator and team builder, how you plan to address underperformance and handle challenges that arise, and so much more.

2/ In a post we love (shoutout Ben Z!), there’s a great call out on the tracking of milestones. By building a paper trail of investor updates, investors/prospective investors are exposed to the setting and delivery/miss of milestones. From our experience, entering a diligence process with long term pre-existing knowledge of business performance accelerates our investment decisions. This equates to less time spent answering questions about the data room for founders, which means a less painful fundraising process. Investors pass on opportunities quite often because they can’t get a strong enough point of view on a business due to a lack of historical familiarity or because they feel rushed to learn a new business. Long term information asymmetry goes a long way. Of course, be careful about what you share with who. Certain updates with sensitive milestones may only be appropriate for insiders.

We’ve seen two blatantly opposite approaches to milestone setting work. Shoot for the moon knowing that coming up short will still be an incredibly impressive result OR underpromise (with reasonable ambition!) and overdeliver (our preference)

3/ Lastly, as a founder, it’s not only about communicating with existing and prospective investors. Keeping employees, vendors, service providers, and all relevant stakeholder groups engaged in the progression of the business from day one is crucial. Several founders in our networks share separate updates for varying stakeholder groups. Especially in the earliest days, an external partner (or in the case of CPG, a co-manufacturer) may be taking a major chance on you as an underfunded startup. Proactively sharing updates will give crucial operational stakeholders the confidence to continue partnering.  

Rule #2: Ask for help

When Daniel first embarked on his recruiting journey, asking for advice from his coaches (and even independent recruiting consultants) was incredibly valuable. Throughout many steps of the process, Daniel proactively sought out counsel from experts who had helped numerous athletes acquire roster spots at their dream schools.

Founders must ask for help. Especially when things are tough and being open with investors might feel the hardest, these can be the times when an experienced investor can add the most value. Even more important is asking for help before you’re “in to deep” as a preventative measure. With minimal runway, there’s only so much any great investor can do for you.

There are three types of investors from our experience.

Class 1: Investors who are extremely proactive in helping solve problems that arise for founders. Hopefully your board members fall in this bucket; however, we’ve also seen smaller angels become indispensable for founders in certain cases (check size isn’t everything). In rare cases, investors in this bucket might also over-involve themselves for the worse.

Class 2: Investors who really want to help but are 1/ genuinely too busy personally and/or professionally or are 2/ fearful of taking up too much of a founder’s precious time. As a result, they default to not helping very much even though they’re motivated and highly capable of adding value.

Class 3: Investors whose only value is their check. They don’t want to help beyond providing a financial investment or don’t have the skillset to do so.

You’d think these classes are correlated with check size but there are exceptions. We’ve seen cases in which a lead or large check investor can be so demanding that they become detrimental to the founder. Conversely, a smaller check angel might have incredible relationships to share and significant experience in the sector that you’re aiming to disrupt. Major investors will likely run reference checks on you before they invest and you should do the same on them, especially if you have optionality (more to come on this topic in future newsletters).

Communication strategies for each class:

Class 1 – Board members will have information rights (so you’ll be forced to communicate) and as mentioned, other investors in this bucket will prioritize helping.

Class 2 - This is where consistent, proactive communication makes a massive difference. Remember, Class 2s want to help; however, they need to know exactly what you need help on… and they need to see you as top of mind. If Class 2 investors have a clear idea for what you need and have continuous exposure to your communications, they may become Class 1s and add unexpected value.

Class 3 – Trying to convert Class 3 investors into Class 1 or 2 may be a complete waste of time; however, hopefully they’ll come out of the woodwork (is that the expression?) if you keep including them on investor updates.

Tldr: if you’re consistently communicating, hopefully you’ll move 3s and 2s to 1s.

Rule #3: Keep Knocking

Top schools that Daniel outreached early in his college recruiting process completely ignored him… and continued to ignore him; however, over time as results continued to get better on the tennis court, some of those same schools that he continued to communicate with started calling and emailing.

There’s a major temptation to ghost or disassociate from investors who reject you. It’s sensible. Why would you want to continue communicating with someone who doesn’t appear to be bought in on your vision? As uncomfortable as it might be, continuing to communicate with rejectors will better position you for the future. You don’t know how your inside investors will behave in future rounds. Some funds will follow on, some funds that you expect to follow on won’t, some funds will unexpectedly wind down, etc, etc.

There is a plethora of reasons for why an investor may have said “no” the first time. The most common (and kind of annoying but fair excuse): “too early” or “not enough traction yet.” Continuing to emphasize the traction you are achieving time and time again will help eradicate this excuse in the future. It also shows grit and resilience, intangibles any investor would look for…

Daniel recently wrote an angel check into a commerce enablement company that he said “no” to twice. Stories like this are very common. Your top priorities for fundraising are SPEED and OPTIONALITY. Keep knocking rejectors with great results and you’ll maximize the likelihood of achieving both.