When I was a founder raising capital for my first company, I had no idea what proper fundraising looked like. I thought you just tried to get as many meetings as you could with investors. Any investors. This was 2000 in Seattle and there weren’t many successful founders looking to share their wisdom. The .COM bubble crash didn’t help either.

This was also a time when software was delivered on CDs… or even floppy disks! The Internet was a ghost town for founders and TechCrunch didn’t exist. The first accelerators were at least five years away and the first seed funds (and Angel List) were still a decade away. Sufficed to say, there wasn’t much opportunity for founder education.

By my second company, I felt like I had learned a lot. And I had. But I didn’t realize then how little “a lot” could be. Among the many lessons was that most investors (nearly all) were not going to invest in us. Some, it was clear, just were not a good fit for us. For example, I learned that institutional (fund and VCs) will pretty much never invest in the first fundraising round. So I stopped trying to “meet with VCs” because it was a waste of everyone’s time.

I also learned that angel investors will usually want a lead investor to commit before they will write a check; and the vast majority of angels never lead, including angel groups. Finding one lead investor, it turned out, was harder than finding ten follower investors.

By about my third company, I had figured out a few more things and fundraising went much better. But I was still missing some important insights. One was that fundraising should actually be run as a process, with a centralized repository of company documentation and pitch materials (the term “data room” was not yet in parlance) and a CRM to keep track of all those emails, coffee meetings, and phone calls (yes, we used to talk to investors by phone.) Fast forward, most startups have a data room, and solutions like FounderSuite make the CRM piece a breeze.

Also by about my third company, I realized that I was not likely to ever learn all the lessons. The next couple of companies, as well as mentoring, advising, and investing in literally hundreds of other startup founders, confirmed it — the lessons are endless. And not just fundraising lessons; every kind of lesson — product, sales, marketing, recruiting, operations, partnerships, mental health, integrity, luck….

If you see enough lessons unfold (say, 24 years worth,) you begin seeing patterns; the pattern becomes ‘the thing.’ If you see enough patterns play out, you begin seeing principles; then the principle becomes ‘the thing.’ I don’t know what happens after principles… ask me in another decade.

The principle I’d like to share with you at the start of 2024 is that you should strive to look like a top-decile company to the investors you’re pitching. I can’t think of a single other thing that will reduce your fundraising friction than to pitch to the right investors.

Notice that I said, “pitch to the right investors,” not “pitch the right deck,” “pitch the right story” or “pitch the right deal.” Yes, all those are important. If your pitch, the deck, the story, or the deal are not good, then your screwing up. But even if you have all those things and you’re trying to pitch to the wrong investors, then you’re still screwing up.

Active investors (the ones that are most likely to invest) see a LOT of deals. If the investor is a fund or VC firm, it is likely that they will see hundreds of deals per year, sometimes 1,000 or more. In the end, most will invest in around 10 or less. This is especially true of the investors who are most likely to lead your round. This means a couple of things.

First, it means that investors say “no” a lot. But it also means that they very often will not say anything at all — because they just don’t have time to reply to every founder who sends them a deck or messages them on LinkedIn. They really only have time to look closely at the deals that come from warm intros and the ones that happen to appear to be wildly in alignment with what they recognize as their sweet spot.

Second, it means that you are wasting a lot of time and energy if you are trying to reach investors who do not see you as significantly aligned with what they recognize as their sweet spot. When a founder sends me their spreadsheet of 200 potential investors and asks me who I can make an intro to, my biggest value add turns out to be marking investors that I know are not aligned with them as a waste of time. You’re welcome.

If you are trying to get the attention of investors that are NOT likely to invest in you, then you are creating a ton of friction in your fundraise. More friction means more time, more distraction, and more chance that you won’t raise your round at all. Instead, you should be able to defend why the vast majority of the investors you’re looking to pitch would consider you to be a top decile company for their thesis — i.e., that you look like a top-decile opportunity to them.
Top-decile might sound like a high bar. But it’s not. Remember, most investors are only going to invest in a very small percentage of the deals they see, often less than 3%. So for you to get a check from them, just looking sort of like a top 10% company is required to get their attention.

What counts as top-decile? In short, investors should easily recognize that you are aligned with the sectors, business models, traction, round sizes, check sizes, etc. that they typically invest in. Sure, investors have the latitude to deviate from their ‘normal’ investment thesis and sometimes they invest in startups that don’t look like their typical investment. But those opportunistic bets are often based on something extraordinary, like you have already closed 80% of your round with investors for whom you do look like a top-decile company. At a minimum, save the opportunistic hail-Mary investors for the end of your round… not the beginning.