On How We Raised $150 Million

Startup for Startup

2019-07-30

15 min read

After successfully closing a funding round of $150 million, monday.com founders Roy Mann and Eran Zinman and myself – Lior Krengel, shared our fundraising journey experience in an in-depth conversation on our “Startup for Startup” podcast.

Once the episode aired, we decided to translate its content for a detailed blog post highlighting the key insights and valuable lessons learned from our challenging, yet rewarding fundraising journey. 

In this post, I’ll walk you step-by-step through the whole journey, from mapping relevant investors; to creating a work process and building a data room to choosing the right partner. 

It’s important to note that even though we were able to raise $150 million, this post isn’t meant to be a “how-to” for raising rather, it is intended to serve as a helpful roadmap for startup founders looking to raise capital of any size.

The critical thing you’ll need to do before anything else is shift your mindset. One needs to be mentally prepared and fully committed before the round begins, understanding that you’ll be expected to be all in for an extended period of time.

Are you ready? Then, let’s get started!

Mapping relevant investors 

The first stage in any fundraising journey is creating a “hit list.” This means compiling a list of potential investors to pursue, excluding those who’ve already invested in your direct competitors. 

If you’ve had previous good experience with any existing lists decide if any of the investors should be carried forward. You might also want to speak with your current investors to get their input and suggestions or search for more potential investors on your own using websites like CBInsights, CrunchBase, and LinkedIn. 

Another thing to think about is the possible check amounts of those on your list. There are many more investors out there who can write checks for smaller amounts compared to those who can write checks for the whole amount, especially if we’re talking millions of dollars. If you’re fundraising for a larger amount, look for investors who can write checks for amounts in the middle range of your target too. 

In the end, you can end up with a long list of potential investors. What we learned from previous rounds is that it helps to narrow down the list in the beginning to those you think will be your most relevant and likely to invest. You don’t want to end up with a list that’s too long when you’re at the point where you need to be making final decisions.  

Creating the work process

Once you’ve compiled your investor hit list, your next effort is to create a work process that makes up the core of your fundraising journey.

Our process worked well for us and consisted of five key sequential milestones: 

  1. Hold a conference call with investors
  2. Invite investors to visit our offices 
  3. Build an effective data room 
  4. Visit investors’ offices and share data
  5. Make a final decision

Supporting the work process

There were a few other crucial things we did to support the fund development work process that we believe made it successful.

Holding daily sync-up meetings

Make sure everyone is on the same page at all times during the process. No more than 24 hours should go by without having a sync-up meeting. 

This is extremely important, especially when you run into situations where you have to alter behavior – and you will need to! For instance, if an investor pushes your meeting up by 30 minutes, does that mean they are interested, or that they don’t care?

These actions can mean so many different things. It’s important that your team arrive at a consensus on an interpretation so you are aligned with how to proceed. In our experience, even if everyone on the team had already spoken with each other 20 times informally about the round that day, we still had our scheduled daily sync-up meeting. 

Going through a fundraising journey is like being on a roller coaster. There are lots of highs, lows, ups, and downs to deal with, so these sync-up meetings are also a good time to listen, share and support one another. 

Creating a backchannel relationship

In the beginning, we wanted to go directly to the top of a fund and speak with a senior partner. If anyone other than a partner approached us, we really weren’t in a rush to move forward. We assumed going through a lower level intermediary to eventually get to a partner would take too long, especially if it was later in the round.

What we ended up realizing through experience was that our initial intermediary contact with a fund could actually be a vital and valuable communication link between us. With this understanding, we created what we call a “backchannel” relationship – someone on our end (other than Roy and Eran) who would be the constant contact and liaison with whoever first approached us from a fund.

Creating this unique relationship with the fund at this level was significant and beneficial for both sides. For example, when Roy and Eran formally invited a firm partner to Israel, the person on our end (in our case, it was me) would then approach the person who initially reached out to us and follow up by asking: “Hey, you know, we were really serious about the invite to Israel, are you going to come?” This relationship and personal inquiry really helped move things forward. 

The backchannel can also act as a much more informal contact with a fund. With communication usually done through the pressure, expectations, and constraints that typically come with official meetings and formal email discourses. Through our informal contact, it’s much easier to openly discuss what’s going on, bridge any gaps and keep things moving forward.

That is why even in cases where we had an opportunity to reach out to a partner directly at the onset, we still worked at developing a backchannel first because of its value in the long run. 

This also affected how we mapped out potential investors since we started adding people we already had relationships with that could introduce us to those with the power to make funding decisions.

Using competition to build momentum

You should always keep in mind each fund’s decision-making speed and process so you can better strategically time when to approach them. The goal is to create a sense of competition between all interested funds. Telling funds who else you’re also talking with can also help build momentum and gets the funds to move quicker and closer towards a decision. 

The best way to do this is by approaching the same type of funds around the same time, recognizing that different kinds of funds move at different paces. For example, growth funds typically move fast, while crossover funds generally move at a much slower pace and your expectations for these movements need to take these differences into account. Before we learned this lesson, crossover funds felt we were rushing them, while growth funds didn’t understand why we kept delaying them. Their frustrations were understandable given the circumstances.

But once you understand their different speeds and act accordingly, everything starts to move more efficiently and everyone is happier with the process.

Recognizing and understanding fund dynamics – it’s not always about you

Fund dynamics can be quite complicated. There are internal politics, decision-making issues, certain limitations and change of personnel. The list goes on. 

For example, a senior partner who you’ve been working with, who understands your industry and business model suddenly moves on from the firm. They end up leaving with no clear and knowledgeable successor to replace them, and now all the dynamics in your relationship with the fund have changed.

Another situation you can run into is when a fund you want to pursue is extremely hesitant to invest in your company because of past experiences with startups similar to yours. Their past history, which has nothing to do with you, has now tainted their perception of your company’s potential, and now it can be tough to get them to move them beyond that.

These scenarios can happen during the process, and it’s important to recognize that it’s likely nothing to do with anything you did or said. Roy and Eran experienced both these situations during the journey. They learned that being able to read the situation and understand the dynamics that are sometimes outside their control and unrelated to their efforts helped them better navigate and overcome these bumps in the road. 

Anchoring with a valuation

Unlike many startups in a fundraising process, we gave a valuation ahead of time. And we used this as an “anchor.” Eran explained that “negotiations go around the anchor set and whoever puts down the anchor first sets the playing field.”

There are several advantages to this strategy. First, it filters out uninterested parties; Secondly, giving a valuation in advance has long term advantages. Showing a fund your numbers early on allows them to follow your progress more easily. As a result, investors are more likely to end up supporting you because then they can track and embrace your vision through time. 

We learned that it also exposes and filters out those investors who are looking for a downside approach to those looking for an upside vision. Roy and Eran always look for an upside vision in investors. They believe that there are two types of investors, those who, when things go wrong, disappear; and those who, when things do wrong, enter the fray. 

Like anything, there are disadvantages to pre-valuation disclosure: if your valuation is wrong, you will have to adjust as the market dictates. 

Setting timelines

Having a fixed timeline for each significant milestone was one of the main reasons we think our fundraising process was so successful. Going through multiple processes with different investors at different times is both time-consuming and unnecessary. Setting concrete timelines and sticking to it gives you greater control and makes the whole process much more efficient. 

This was especially true when it came to our data room. Every fund received our data at the same time, regardless of when they asked for it. The fixed timelines saved us countless hours of work required to update our data room each time a new fund expressed interest.

Building an effective data room

Sending data with your company’s performance is a common step in the fundraising process. This step is critical because when potential investors see your numbers – it gives them an important reference point in your story and some insights into your company’s future.

Startups typically invest a lot of energy into the pitch and presentation and don’t give much thought to the supporting files with all the data. What’s sometimes overlooked is that those data-filled spreadsheets are just as important and need just as much time and attention as everything else. 

If you want to build an effective data room, you should consider doing the following: 

  • Build a master spreadsheet and create all additional files from the master to avoid inconsistencies caused by pulling data from different sources.
  • Clearly label all your files so that when someone opens them, they know what numbers they’re looking at. 
  • Think about what data you’re including. More data points don’t necessarily make your case more compelling. In reality, too much data can overwhelm or confuse people.
  • Include graphs and detailed explanations with your numbers. Make your point and the conclusion you’d like the investor to reach as clear as possible. 

Also, if some data ends up painting a negative picture, explain why. It may seem counterintuitive, but Roy and Eran think it’s important to be transparent. These files end up in the analysts’ hands, and they have to convey the results to management so the more reasoning you offer, the more understanding they will have to support your rationale.

Don’t be afraid to push back.

It took some time before we got our data room right. In previous rounds, we asked investors what data would help them reach a decision. At the same time, we brainstormed internally about what we thought they’d need. In the end, the accumulation of all the spreadsheets ended up totaling 30 to 40 sheets, which was far too much. 

While the purpose of a data room is to find out what information investors need to move them closer to a decision, it’s equally important to set boundaries – you can say no and ask for a good rationale for a specific request.

One investor, for example, once asked for our marketing per channel, and we wondered why. The investor said, “I saw you reduced the budget in December.” We answered that it was intentional and we do it every year because we take into account the holiday slowdown. They were satisfied with our answer and no longer wanted to see the file.

This saved us a lot of time and work, so it’s worth considering when you have the confidence to do it.  

Manage the back-and-forth communication.

While you may want to be quick to answer a question because you think doing so will get them closer to a decision, you may also want to consider waiting a bit. 

From our experience, what tends to happen when you respond too quickly is they’ll fire off even more questions, sometimes on a whim, and expect you to answer them just as quickly as you did the first time leaving you scrambling to come up with answers. The subsequent back and forth can start to feel like a dizzying game of ping-pong. That’s something you want to avoid.

Waiting until the next day to respond helps manage expectations on response time. Investors then tend to be more selective and thoughtful about the questions they want to ask while giving you a reasonable amount of time to prepare the answers you want to give. 

Receiving the “shit” sandwich

You’ve most likely heard of the compliment sandwich where someone tells you something you don’t want to hear sandwiched between two compliments. We instead refer to this as the “shit” sandwich. 

This past round, we received a few vague emails from potential investors asking us to “talk with them about the process,” and we were quick to pick up the phone without knowing what they actually meant. At the beginning of those calls, we’d exchange pleasantries before they’d slip in the official “no,” and then quickly follow it up by telling us how wonderful we were regardless of their decision. 

This kind of call was draining and always arrived at the worst time – right before an important meeting. It was hard to regain our energy and confidence right after those conversations.

That’s why it’s important to schedule those kinds of calls towards the end of the day where they can’t easily impact your work hours and mood. Sync-up meetings are a good opportunity to check-in and support each other after a “no thanks” call.  It’s also important for you to find ways to regain your motivation and inner peace and balance. Even if at times like these, it means stealing away for a few minutes of quiet meditation. We often do this and highly recommend it.  

Asking for feedback from investors 

There were some funds where we reached an advanced stage that didn’t end up maturing into an actual investment. But one of the best things that we got from them was their full feedback on us, telling us frankly how we measured up to other companies; what we were lacking; what was preventing us from being at the top; what the value of a fund could be for a company such as ours, and so on. 

Their honest feedback was incredibly valuable to us. It’s worth taking advantage of a full feedback session if you’re willing and able to have the opportunity.  

Deciding on a partner

When you have a selection of funds to choose from, it’s a good idea to come up with criteria for selecting a partner. For us, we found the following conditions to work well: 

  1. A partner who supports your long term vision;
  2. A partner who would mesh well with your current board members;
  3. A partner who doesn’t make things difficult (i.e., impossible to get a hold of);
  4. A partner with whom you already have great communication and chemistry.

Sending whiskey as thanks

This “whiskey” thank you is the brief final stage. 

After we successfully closed, we sent every single investor that we met a bottle of whiskey in gratitude along with our thanks, even to the ones who said no. We believe it’s important to show that you didn’t take their decisions personally or negatively and you’re acknowledging the time they invested. And the investors really appreciate the gesture and the invitation to keep in touch. 

Continuing to nurture those relationships for the long-term is important, regardless of the outcome because no today may become a yes in the future.

Wrapping it all up 

It always sounds like a cliché, but it’s true; we really wouldn’t have had such a successful fundraising journey if it wasn’t for a great product and company along with an incredible team to support us throughout the process. 

We learned so much and hope that our journey will serve as a valuable resource for the journey you take with your startup. Good luck!

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