June 4, 2020

Choosing the right person of contact while reaching out to investors - Jessica Li, investor at Soma Capital explains how to do this.

In this episode of Fundraising Radio, Jessica Li, investor at Soma Capital talks about fundraising at the earliest stages, how to reach out to the right person and how to establish that connection with the point of contact at a fund. This episode is full of insights into fundraising from VCs at an early stage.

Highly recommend all early entrepreneurs going through Soma Capital's program: https://fellowship.somacap.com/

Transcript

This is Fundraising Radio and today as a guest speaker we have Jessica Li, investor at Soma capital.

this episode will mostly talk about reaching out to general partners and managing partners versus reaching out to associates, how to choose that right.

Person of contact.

Also we'll talk about what your early stage founders do during these trying times.

of course, we'll talk about, Selma cattle's preference in terms of investments and Jessica's personal investment preferences.

Jessica Laskey called bite, you giving us some background on yourself and on Selma capital.

Sure.

Thank you so much for having me.

as you briefly mentioned, I am an investor at semi capital.

I'm actually the first full time hire.

I joined Soma around nine months ago in late August of 2019 and do or a lot of everything depending on the time of year.

obviously involved in new seed stage deal flow is fall as follow on opportunities in the portfolio, but also involved in supporting existing portfolio companies, managing relationships with co-investors, both seed and non seed stage investors, as well as LP limited partner communications, general content, community events, obviously all virtual now in person before, and things along those lines.

able touch the full spectrum of activities that goes into running a VC fund in Soma itself is a seed stage fund based in San Francisco where sector and geography agnostic.

we follow an approach of primarily indexing to Y Combinator.

the large majority of our portfolio comes from YC over the past five years.

we were founded in 2015 and currently on our third fund, some exciting portfolio companies in our portfolio include ironclad Cruz Lambda school, boppy Fraser pay flutter wave in astronomists.

That's, I've heard some names that I know, so that's really impressive.

I was actually, my second question was what's your role at Soma, but you've already answered that.

we'll move on to actually, you've answered two of my first questions that said that's tricky.

My second question was what do you invest in, but you've already answered that.

let's move on to the topic that you've just touched onto, which is you being in charge of, those, events that somebody is hosting or participating on those events.

right now during this pandemic, everything is of course online.

what's your recommendation to early stage founders what's advance, should they attend? Where should they find dopes events?

Yeah, definitely.

That's a really great question.

I think in general, there's some hotbeds if you will, for events.

definitely follow the pages, whether it's Facebook, I like SPCs don't really use Facebook, but definitely LinkedIn Twitter on the websites.

A lot of VCs will have a place where you can input your email address on their website and you can stay updated on their newsletters or whatever form they're email updates end up taking.

they'll usually broadcast their events and other happenings through that channel.

of course, as mentioned sometimes Facebook, definitely LinkedIn and Twitter, along with obviously investors, at those various funds, usually both GPS, general partners is walleyes associates slash in alleged slash principals will share the bigger or more important or more impressive events, that the fund is having.

definitely follow up, funds, to be able to know when they're doing events either by themselves or through a partnership with other investors or other entities.

that's one area, or one general area.

the second area is different Slack channels.

a lot of Slack channels are closed to just investors, but there's definitely some open Slack channels as well, accelerated as obviously a really great one, for different aspiring founders operators and investors, as well as current founders, operators and investors.

a lot of times in the event, sub channel, people were having events, including investors or founders or operators in the channel and this lock group, we'll share more there.

I would also say, just generally, different, big players in this space.

Silicon Valley bank, obviously, I mean, they do actually have a venture arm, but they're obviously not traditionally IBC, but still of course really involves the startups.

they have a regular stream of events, as well as I'd say, kind of figuring out who are the key players in your industry, because obviously if you're an enterprise vendor, you wouldn't really want to go and follow a consumer investor unless you were genuinely really interested for some reason, bet, basically find out who are the key investors that non investor individual people in your space and follow them.

you can get general updates from broader Slack channels, as well as of course industry specific Slack channels and other community groups like open land or WhatsApp.

Perfect.

Right.

And, yeah, I highly recommend you using Oakland land.

Actually there is a lot of great information there.

I'll leave a link to open lands, in description of this episode and by the way, so ma is one of the investors in the open land, right? Yes, exactly.

Awesome.

It's great talking to you then personally, fan of it, but let's move on to the current situation.

right now it's been done make well know that and by the way, the advice on following the funds pages is great.

I think that's really useful.

personally, I recommend you following some newsletters from, issues like, Crunchbase daily and stuff like that, but let's move on to actually fundraising Uranus, try and time.

what's your condition? Two is early stage founders who are trying to raise their first round right now during this.

COVID-19.

Yeah, definitely.

obviously there's the first step of deciding whether or not you need to raise.

And I think what's interesting.

assuming that this would be a seed or even a pre seed round, if it is your first round of fundraising, I think usually, as a generalization seed stage or pre-seed founders or pre product market fit.

usually that's a very challenging spot to be in, but I think during a pandemic like this, it's actually a pretty fortunate situation because if you're pre product market fit, you don't actually need that much capital.

because when you're pre product market fit, you're still trying to figure out product market fit.

you're still doing mostly internal work, improving your product, getting to know your users, iterating, loser, understanding the market findings, and the back and forth Seesaw factor really balanced out your product and market.

it's obviously hard work, but it's not really capital intensive work.

you don't need to be in place.

You don't need to hire up a jillion people, et cetera.

so, it's actually a pretty fortunate time to be new capital light.

I'd say for those founders and deciding whether or not to raise, if you can put together a family and friends round or some kind of angel round, or even, hard to say this, but obviously personal savings, Israel, if you're in a position to do so, then that could be a better way than, fundraising in what is very much an investor's market.

the bargaining power right now is very much in the hands of investors in most situation, partially for people who are not serial entrepreneurs or people who, aren't at this crazy point of traction.

I'd say think long and hard about what your capital needs actually are and whether you're able to go through alternate alternative sources of financing for that and not just equity.

obviously family, friends, tapings, et cetera, angels would fall into equity, but also consider different debt options.

if possible, of course there's a different risk return tradeoffs in each of those different asset classes, but definitely try to understand your own situation with the business in different funding options you have.

don't just think that VCs are the only way out, but then if you are, sure.

did that exercise and positive that VC funding is right for you, in terms of getting in touch with investors.

so I I'd recommend a few things.

first if you have relationships with any investors, it doesn't have to be, obviously this again is assuming this is your first fundraise.

of course it wouldn't by definition be from any prior fundraisers or prior pitches.

if you're able to get in touch through an alumni, maybe one of your friends from college, or even from high school is a VC dower and B their brothers of ECA, maybe their dads, or, anything like that.

just look for people, you have some existing relationship with.

and so I would start there.

also I would say a lot of times founders kind of make the mistake after an initial touch point of just checking in with the VC and just saying, Hey, how are things just checking in doves? The a kind message, but I'd better than nothing, but it's much, much more impactful to write a super thoughtful, doesn't have to be long.

cause obviously everybody is busy and can't read extended email drops or email messages or write them for that matter.

But, I'd say it's really important what a thought into your updates and not just say, Hey, like how are things are just bumping this or whatever, but actually discuss how COVID has been impacting your business over the past and weeks or months, whatever it was that you lost touched base with said investor.

I think it's really important to address the elephant in the room.

also not just give a lay of the land, but share more on your particular thoughts around growth strategies moving forward and how you're able to really survive or even thrive during this environment.

also I think investors, because, even if you do an intro to them, they're probably not going to be able to meet you, during this time or before your fundraise closes before you ideally would like them to invest.

I would say, definitely try to get references.

Bay's investors are looking much more mean references are always helpful, both in and outside of COVID, but I think especially when the investors can't meet you, they really get comfortable when somebody actually says that they can speak to your character on your ability.

instead of just finding some kind of, random mutual, LinkedIn connection, who you don't even really know, ask for people who worked with you, who've been your manager who can vouch for your work ethic, your leadership, your technical intelligence, your product ability, things like that.

I would definitely recommend that.

I would also say what's interesting is a lot of times people try to go through like other investors, but investors don't always take and chose from other investors.

actually they always take intros or you're not always, but they are more likely to take interest from their own founders, reach out to you, to me or to my boss or someone else on my team.

we're always pretty inclined, take those intros.

so, it goes through other founders that, who can open up their cap table to you.

I mean, that's pretty great as well.

I'd say also when you're asking for a warm introduction, whether it's through a founder or through somebody else, make it as easy as possible for them to make that warm intro.

instead of just saying, Hey, can you intro me to Jessica Lee? But say that obviously, but also say here's a message you can directly copy and paste, to share more about me, about my business with Jessica Lee and why would love to get in touch with her super easy as is really helpful.

the last thing too, is a lot of times people don't want to talk to you associates or analysts or even principals cause they don't have technically don't have check writing ability, which is true, but I think it's much better to, go through analyst associate principal and really get them on your side.

then, actually, just going directly to your partner and having them reject you, especially because partners don't usually take in bounce, they're more so reliant on their analyst decisions, a reason why they hired them in the first place.

I think that's pretty important to not discount or discredit, junior people at the frame, obviously, ideally you would get to the partner meeting, but obviously there's different steps before that.

the associates analysts can be really great internal advocates for you along that full process.

True.

And that's a great advice.

by the way, you send out to people who are listening to this associates and analysts usually, I mean pretty frequently raise up in the VC chain.

a couple of years later, if you make this connection a couple of years later, maybe that X analysts can be a check writer now.

don't underestimate people, right? So I'm here, we're moving on to your personal experience in terms of investing.

I imagined that Soma capital gets plenty of inbound and ask him to review their pitch deck.

Can you name three major points that you think people should have on their beach deck? Three must have points.

Yeah, I'd definitely say, I'd say, the first would be to get to the point on exactly what it is you're doing.

I think so many times people either have that side super laid on in their dad or maybe there's like, don't have it super explicitly at all and spend so much effort and slide and space and talking time, energy, et cetera, explaining and setting the setting.

I think it's super important to obviously do that at some point, but get to the heart of what it is you're doing.

that VC is, I think sometimes VCs will get stuck and argue with you on whether or not they agree with your thoughts around where the world is going, et cetera.

by the time you actually get to your side on what you're doing, they're already checked out or zoned out or written you off.

it's really important to get to the point, and really articulate what it is you're doing.

especially articulate in a really clear, right.

I think sometimes people have a tendency to use analogies, which is helpful to help them understand things, but sometimes analogy may only make sense to you because you're looking at it from one particular frame of reference.

And obviously you're the founder.

you spent so much time with what you're building and you understand it deeply understand your own vision, but VCs are usually too proud to admit if they have questions.

maybe not if legitimate, like really great questions, but definitely if they have questions around fundamentally what you're doing.

make sure you, err on the side of being overly simplistic and like, pretend almost like you're talking to five-year-old or kindergarten or whatever, and just break it down for them really simply.

you can share analogies to help them frame what it is they're looking.

analogies are only helpful if somebody actually understands underlying concept and fundamentally that's 0.1.

the second point is to really emphasize your team.

I think so many times you'll put team at the very end of the deck, but I think especially in the seed stage, investors are making team beds because they understand the product and the market can change over time.

As you were just saying, finding product market fit is something that happens during the seed stage.

that's, actually after a founder has already raised their seed round.

a lot of times seed investors, preceded investors certainly, will invest before there even is a product or before the product is launched or before you have significant traction or before you monetize.

what they're really betting on is your team.

I would go into some detail, obviously don't make it too wordy on the deck itself, but highlighted be prepared to highlight some different ways in which your team has worked together or just really figured out that you're super complimentary, but longterm aligned.

also how you were able to convince, I think people love seeing that you as a founder were able to convince someone on the validity and the potential of your product so much that they wanted to join you as a cofounder or as a founding team member or just kind of other early full time person with lots of skin in the game.

I think that's important to highlight and then I'd say third, I would really highlight the why now the answers to the why now question so many times, if there's a say I'm buttering it, I guess, but it's basically that, being, having the wrong timing is just like being wrong.

Zippy built Uber before people had cell phones, great for you, but that would not have taken off.

I'm sure many people have called and there's specific examples around how that's happened.

I think really dive into conceptually and specifically what is the technological cultural, political, societal inflection point that you're really building on and why? not just that you have a great product, cause I'm sure you spent most of your duck talking about that, but why you've got the timing just right, so that you have this perfect storm, if you will, to really build this company,

I like that analogy perfect storm.

As we talked about things that you should have on the pitch deck, I want to talk about three common mistakes that you see during the presentation.

the founder is actually in front of you talking to you, what are the common mistakes that you see that, you're like, Oh, that's, we're not going to invest in that person.

that might include, in the way he or she entered the room or the way they sit, whatever comes into your mind where the, those three common mistakes that you see.

Yeah.

That's a good question.

I think a couple of different things.

So three things.

The first is when there are co-founders and hopefully there are co-founders on for the reasons mentioned it's helpful to have multiple people on the team, not too many, obviously, but at least two I'm around two.

I think sometimes when it's just one co-founder answering every single question or giving the whole pitch and really hogging up the time, I think that's kind of an orange or sometimes even red flags.

I want to see obviously, maybe you'll have the CTO and he's more technical and less, business oriented.

he's not super salesy or social, et cetera, which is fine.

I think it's really important to not really have equal a speaking time.

We don't have to tie him it or anything, but at least just showcase the talents, the different people, not just through his life, but through their actual presence.

Obviously, given they're able to actually attend the meeting or be on the zoom calls.

I think that's number one.

I think number two, as well is basically, I think what we look for is really strong salesmanship.

Sometimes people you have two founders or one founders pitching and they're super technical.

they built a really incredible product or they could, or they are, but then they don't really have the sales skills to break down incredibly complex concepts in a way that, VC is who are hopefully smart, but not super technical can understand.

I think sometimes people are like, Oh, but why does that matter? VCs aren't the customers, but ultimately in most cases you'll be selling to customers.

You don't understand the product as well, whether it's because they, our HR teams or their business side teams in general, or maybe you're creating a whole new category, that's actually super big, but you need to do customer education first.

you think that's super important to show through your skills.

of course there's different ways to do that.

There's different ways to practice and get feedback from people.

I'm sure those have been books and other resources out there.

definitely hone your salesmanship and don't just rely on the technical, impressiveness of your product or of your own genius and minds.

I think that's numbered.

I think number three, as well as just people who don't show a deep empathy for the market, they're creating for, I think sometimes what was the founders who are super smart and amount a market that's really, but then we obviously being a founder is incredibly difficult.

if you don't have some kind of personal connection to the problem, you're more likely to give up.

Not that you definitely look, some people are just resilient, no matter what the context, but I think it's just really impossible to see someone who, you're like, Oh, you're creating something for Parkinson's and your grandmother had, Parkinson's like, it seems like a real, reason to pursue this beyond just, monetary fame or glory.

I think having that founder market fit is really important, but even beyond that, I think, just in terms of like you're getting your initial customers and knowing where your customers are hanging out or potential customers are hanging out, I think it's really important to get into the minds of the customers.

I think showing that you've done tons of user research or that you are a, would be research user yourself, I think that's super important.

Right.

And that's great advice.

I don't really have anything to add onto this, so let's move on to the next topic and we have a couple of questions left and then we'll wrap it up.

first question is, do you, or have you ever done any angel investor investing yourself before you joined Soma capital or while your words in force so much capital?

Yeah, that's a good question.

I have mostly invested in public markets on my own.

I haven't yet, been angel myself.

I'm not an accredited investors, so that kind of creates certain hurdles, legal hurdles, to that.

obviously don't want to impose on founders, but, I think there are definitely a lot of really great.

first of all, I think as you're able to use, your, wealth and net income and all of that increases and you're able to actually become an accredited investor, I think at that point in time, when you're legally able to invest more easily as angel, it's really important to do.

because a lot of times, if you want to stay in venture BCS, we'll say like, okay, cool.

You obviously have had a job in venture.

That's great, but where people want us to, you put your own money, not just, your money where your mouth is.

they want to make sure that you've actually done, deep homework where you actually have skin in the game.

so it's really important to show that.

that's kind of one point and just why it's important, in terms of how to get involved.

I think I've seen a lot of times investors who are focused maybe on the series a at their funds, obviously angels don't really invest the series a with the, with some exceptions, but usually they're very early on as people probably know.

sometimes theories, they, investors will start to build relationships with seed stage investors, and better understand what they're seeing so that they can put an N a small angel talk into those seed rounds.

building relationships with early stage investors, if you aren't one yourself already is really helpful.

second, like VC groups out there.

emerging venture capitalist association is a really big one of 300 Prejean VP people, and two around the 600 pre GBB, but people from around the country.

they had this thing called the cow hollows, which alludes to this area of SF for those of you don't know.

basically it's the syndicate where a lot of different investors, who are in this, in similar boats in that they're not, GPS, they're all pre GPS, but they bring different perspectives naturally as the LGU from their different deal experiences or different fund focuses, et cetera.

they're able to help each other diligence, a particular investment, and they're able to work together on this angel and Cindy and Jola syndicate, and then be able to see them to invest together.

the last one is just like sometimes there's ad hoc, SPVs that are put together.

I know some of my friends have done, so I'm totally, you both have, some deeper technical experience working in tech companies.

You can understand the product better and bring a unique angle to actually help these founders.

I think that's a pretty helpful, Avenue as well.

I think in general, if you're not able to angel investors like getting to know angels, building relationships, maybe having like a, equivalent of a paper portfolio, sometimes people who can actually trade stocks, I want to get involved in the stock market, we'll have a paper portfolio.

so, they will do I'm STEM, fake trading.

If you roll around that and say something like that, so that you can track your actual investment performance over time is really helpful.

Cause sometimes you'll work on a deal at a fund that maybe you personally didn't really want to do it, but your boss just did.

obviously you were kind of putting on angel is really where you're able to calibrate and understand how you are as an actual investor.

that's super important to talk as an investor, especially because the average on feedback cycle for seed stage investors is seven to 10 years.

by the time, seven to 10 years from now, you probably have forgotten everything that's happened in the year of 2020, at least at the nitty gritty level of what investments you worked on.

I think it's really important to be able to, and have an incentive to actually talk your own performance, and be able to improve like that at home,

Right? And by the way, advice to those who are not accredited investors, but still wants to invest in early stage companies or are multiple equity crowdfunding platforms.

For example, next week, I actually have an interview with a CEO of Republic.

we'll talk a lot about regulation, CF, and how unaccredited investors can actually be on early stage fan, rounds.

we'll wrap it up.

culture action was your, what's that one thing that you want the listener to do as soon as this episode is a word one specific thing?

Yeah, so actually given the demographic on people listening, I would like to call out the fellowship program we launched just around a week ago, last Wednesday.

you can go visit it and fellowship dot dot com.

if you follow me on medium, or, one to you, I've written an article recently called startup shouting at Soma, which basically shares about the program.

You can really find that anywhere I've tweeted about it and LinkedIn shared about it.

basically it's a way for aspiring founders to be matched with early stage companies in our portfolio for internships.

after the internship, they apply their skills that they learned, from working with our early stage founders.

again, there's roles in engineering, product design, as well as business is super diverse, both technical and nontechnical, and businesses across different industries, consumer enterprise biotech, real estate, et cetera.

after that internship, you apply and throughout the internship, there's complimentary programming like fireside chats panels, group mixers, obviously all virtual.

after all the things you've learned through the combination of those different events and, your internship, you'll incubate your own company again, remotely given COVID.

we will continue to provide resources, office hours, exclusive content, mentorship network access throughout the incubation period.

At the end of that, you'll pitch to you STEM a capital for investment.

regardless of if you get investment capital or not, you'll become Scouts or fellows, however you want to call it for summer on your respective college campuses, or if you're out of college or have graduated by that time, then your different communities to continue to pay it forward.

the other founders in the ecosystem and let us know what top talent, both for joining startups, as well as founding startups, you're seeing.

That's awesome and living make sure that I understood correctly.

how it works that I, so for example, it was me take myself as an example.

I already have a job, a Fincher, see yourself not do that, but we will look at me as an example.

for example, I repeat the word example way too many times she is correct, but let's say I'm applying to that program right.

Then.

also let's say I'm interested in real estate.

I will be matched, I will be assigned as an intern to a startup that works in real estate, right? Yes, exactly.

I worked for that startup for a couple months.

Right.

Okay.

Yeah.