Lessons - The Brutal Truth About Fundraising | Russ Heddleston - Built & Sold DocSend for $165M

In this lessons episode, explore how founders can navigate the complex realities of fundraising at every stage. Discover why timing a raise depends on traction, credibility, and vision rather than rigid milestones. Understand how simplicity and clarity in a pitch deck build investor trust and uncover key best practices that separate successful startup storytelling from costly fundraising mistakes. And do you think that founders should go and get those nose ASAP before that like pre-revenue? Or do you think that you should wait till you have revenue to actually go out to raise that even series A? Well, yeah, series A and C. And Docsend has research on all these different stages. We've tried to quantify it because and the research that Docsend does in this stuff is just of interest to me personally because when I was starting pursuit and I was asking for advice, I got just so much anecdotal advice. I'm like, this is what I didn't work to do that or this is what I didn't, it didn't work, so don't do that. And I was like, has anyone like done any like kind of research on this? And when I went to conferences, it's usually like like older venture capitalists who pontificate about like what they like to see in a company. And if you're going to get me to invest, here's my investment philosophy. And it's kind of more geared towards like them pontificating on why they're so brilliant and successful, which you know, as an entrepreneur in the audience, being like, I just need your money is like not necessarily super helpful to me. And I'm like, I don't even care if it's your money. I just need someone's money. I'm trying to fund raise here. You know, so for the docs and research, we try to come at it from the entrepreneurs perspective. And so we break out how series A is different than series C, then pre-C, and so on. Even venture capital fundraising is something we have enough data on to have some interesting takeaways. And it's not so much like what should you do? It's just like common takeaways from all the companies that we can get to participate in this research around like what are common factors of success and failure. And so the narrative that a company tells really depends on what they're doing. And so it's kind of hard to give specifics, which is kind of annoying. And to your question around like, is it better to raise like pre revenue or like pre launch or the answer is usually like it depends because that's what I mean by take stock of like what you have to show for yourself, kind of as evidence. Like if you're a second time founder, you know, awesome. If you've got a, like a really great track record and career as like a Google machine learning engineer or you've gone to like name brand schools, you know, these are all things that can count in your favor. If you're, you know, if you're like, oh my god, I'm a nobody. I'm non-technical. I have nothing of note on my resume that a venture capital should be like, oh, well, at least that's a, you know, impressive something or other. You know, then yeah, maybe you need to have a little bit more traction or revenue or something to show for it. Maybe you have to be a little bit scrapier. And so the answer is it depends. And so that's why, you know, it's just good to like get advice from folks and, you know, the nuance of your business. And typically it's easiest if you can get advice from like, if you're raising a seed round series A investors because they'll be more honest with you, hoping that they'll come back to them later and they'll have an advantage in funding your series A. As opposed to getting advice from seed investors when you're looking for seed round, like they're just looking at you as like, do I invest or not? So get that advice. But specifically to, you know, do I raise before revenue or after revenue or before launch or after launch? Like the common tradeoff is that it's always easier to sell the vision before launch because you can say it's going to be huge. And so you can be persuasive as a founder and just say, like, here's all the evidence I had. Docs and raised or seed round before we publicly launched. So we raised our series A before we had any notable revenue. So we decided to, you know, do those things earlier rather rather than later. But on the other hand, launching early gives you more information on like what is working or not working. So you can kind of get started like actually scaling your business earlier. So there's just tough tradeoffs to make for all of these decision points. And so, you know, fundraising unfortunately is time as a founder. You don't get back. Like, you don't get credit for the time you spend fundraising. You just get credit for building your company. So fundraising is a necessity, but you kind of want to get it done as early as possible or as fast as possible. I'm kind of get back to building your company. I know that you I know that you've mentioned that fundraising and like sort of best practices are very case by case. Are there are there any anything that is more universal that you can sort of help someone walk away with it? Because listen, if you're fundraising like this is the best practice based on what I've seen or there's a probability that if you do this, you're going to end up being more successful. Or is it just really on a case by case, you don't want to commit to any absolutes, which is also fine. No, no, no, I could go through a whole bunch of stuff for you. We could spend a couple hours on. I'm sure you go. So let's do a few. Let's do a few. Okay, we'll do a few. The first is like people ask, do I need a pitch deck or not? And my answer is usually yes. If you're asking that question, yes, people who don't need a pitch deck have enough previous success to and the relationships to just walk in and say, here's generally what I'm doing, give me money and like, okay. And people also, most people, yes, be like, oh, can I create a video pitch and like, well, maybe, but like just the way it works, at least in Silicon Valley, you're kind of like professional, you know, software investing, like venture capital is like pitch decks allow investors to be very efficient running through things. And so it's like three to four minutes per visit, like view on average. And so they can just intake a lot of information about what you're doing. So yes, you're probably going to have to create a pitch deck. And then also, by the way, that pitch deck is so helpful when you have to go higher a bunch of people, it's also very helpful in forming like what your sales deck looks like. If you're doing V2B, you're doing any sales. And it's just a really helpful document for what are you doing like document, like, and then, you know, you're going to iterate on that in the future. So so create a deck and be thoughtful. It doesn't need to be the world's best designed thing. Also, in the creation of that deck, keep it simple. The most common mistake I see is that people make what they're doing sound more complicated and hopes that it makes it sound smarter or more defensible. And it does not have that effect, typically. You know, one of the nice tests of this is like, can you take it to a friend who's not in tech, your parents, an aunt, uncle, and tell them what you're working on and see if they can like repeat it back to you. And even when you're asking like friends for feedback, give them your pitch, show them your deck, give them all their pitch and then ask them like, how would you repeat this back to me? And if they have difficulty with that, that means you got to dumb it down more. Because the best pitches seem like intuitive, makes sense. And they might leave you with questions like, why hasn't that been done before? Or isn't that kind of like blah, blah, blah? And then you can answer and address those things. But if you start the pitch with, why is it differentiated that gets in the way of like, what is it to begin with? And so a lot of founders, especially first time founders aren't comfortable dumbing down what they're doing to like that level of simplicity, which I think you kind of have to do in order to get across the point. There are other like best practices around like why now or why you, you know, type of things like those aren't obvious questions. Like I see a lot of founders where they're like, well, I don't need to add a why now section or why now. Hey, just obvious that this is a thing that it should be done today. And another thing to stress for founders is that nothing is obvious to investors. Like assume no knowledge on the part of an investor when they're reading your deck. So, you know, like as you go through, I keep an eye out for like start with the obvious stuff. You know, like why are you uniquely suited for this? Why is this a thing that has to be done today? Why hasn't it done before? And there are also invariably going to be like holes in your pitch that you know about. So for docs and one of the holes in our pitch was like, why doesn't Google just go do this? Or why doesn't Dropbox go do this? And there wasn't a great answer. And for a lot of software, there's not a great answer as to why Google doesn't do it or some big other company. There's been a lot of research around innovators dilemma. And if you've worked in a big company, it becomes a little bit more apparent like why things just move real slowly. But in terms of like, you know, pitching it and, you know, how to represent that, you know, for us, I was like, well, I wouldn't talk to people and they're just not going to build it. So, you know, for you as a founder, it's okay to leave some things unanswered. Like don't overstress about them. If you know, the question is like, well, why doesn't Uber do this? It can't be so close to Uber that's like, oh, the problem will do this. But if it's like, listen, they're focused on these things. There's a risk. But, you know, I've talked to some friends there. And I think we've got years in the future to do this. And some investors might say no, like that's too risky. Other investors might be like, I believe you. And I think you've got a great head start on it. And we'll back you. So again, you only need one yes. So instead of focusing too much time on like that particular hole in your deck, maybe put more effort into what is your go-to market? How are you scrappy in the beginning? Or, hey, what's your hiring plan? Or like list all the engineers you know that you're going to recruit once you get the funding in the front door. So there are those things. I think another common one is like, uh, financials. If you're like a seed sage company, don't put financials in there. I think this was like a thing in like the 80s, or maybe 90s or something, where it's like the business plan thing. And then you had to like have pro forma numbers. And like, especially early on, like don't, don't do that. It's like very rare that that needs to be a thing like to the extent your business has like, uh, clogs or you're like a physical product, you need to demonstrate that you understand kind of like how those things work. But like, you know, if you put financials in there, people will spend a lot of time reading them. And that's not necessarily what you want. Because usually your financials aren't the bright spot for your startup and anyone can make up math and make it look like a hockey stick. So I'd say, you know, that that's like a made up exercise like not to put in there. Thanks for tuning in. If you found this valuable, don't forget to hit that subscribe button so you never miss an episode. And if you want to dive deeper into this conversation, check out the links in the description to watch the full episode. See you in the next one.