In this article Jessica Li, investor at Soma Capital, tells us about choosing the right person to invest in your idea, she shares some details about early stage fundraising and about her personal investment preferences.
Jessica is an investor at Soma capital, which she joined in August 2019. Now she is involved in new seed-stage flow, in supporting already existing portfolio companies, and managing relationships with Co-investors. She is also taking care of general content, community events (which are virtual at this time due to COVID-19 Pandemic). In other words, Jessica is able to touch on the full spectrum of activities of a VC fund.
About Soma Capital (https://www.somacap.com):
Soma Capital is a Seed-stage Fund based in San Francisco (sector and geography agnostic). It follows an approach of primarily supporting companies coming from Y Combinator (a large majority of Soma portfolio companies over the past 5 years came from YC).
Soma Capital was founded in 2015 and its list of portfolio companies includes Cruise (https://www.getcruise.com), Lambda School (https://lambdaschool.com), Ironclad (https://ironcladapp.com), Flutterwave (https://flutterwave.com/us/) and more.
Advice for early stage founders:
How to find events?
There are different hotbeds of such events, so you should follow Facebook, LinkedIn, Twitter and maybe use a tool which activates mailing, so that you can stay updated. Obviously they will share important or impressive events that the fund is having. And the other way to find out about events is using different Slack channels (a lot of Slack channels are closed to just investors, but there are definitely some open Slack channels as well), WhatsApp channels and Open Land chats.
How to fundraise during COVID-19?
Obviously the first step would be would be deciding whether or not you need to raise now.
«And I think what is 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 is a very challenging spot to be in, but during a pandemic like this, it is actually a pretty fortunate situation because if you are pre-product market fit, you do not actually need that much capital because when you are pre product market fit, it means you are still trying to figure out product market fit». This is hard work that includes improving your product, getting to know its users, understanding and exploring the market findings but it is not really a capital intensive work. So if you are able to put together a family and friends round or also some kind of angel round instead of trying to fundraise in the «investor’s market» it is better to choose this option.
In terms of getting in touch with investors Jessica recommends to look for people you already have an existing relationship with (assuming it is your first fundraise so there are not any prior fundraises or pitches). Maybe it is someone from University or even high school or maybe their dad or brother who is an investor or who knows an investor.
The second important thing is to write a short but very thoughtful message addressing it directly to an investor you have chosen to write to. Of course just a «check in» kind of message would be better than nothing but it is much more impactful to address the elephant in the room and share more on your particular thoughts about growth strategies and being able to survive during this environment.
Other useful advice from Jessica is to try to get references. During this time it is unlikely that investors would be able to meet you before your fundraising round closes or before you ideally would like them to invest. So references are always helpful but especially during COVID, and they are much better than some random mutual LinkedIn connection. Ask people who have worked with you or who have been your manager and who can vouch for your work ethic, your leadership, your technical intelligence, your product ability and things like that.
If you are asking for a warm introduction it is better it to make it as easy as possible for a person you are asking to do it. So instead of just asking whether it is possible to introduce you to A. it is much better to attach a direct message which could be copied and pasted to the person you would like to be introduced to.
3 must-have points on the pitch deck:
- Getting to the point on what exactly you are doing (say it in a SUPER straight forward and in an explicit way) without using any analogies. Or you can use them but only after you have explained the main concept of what you are doing in a very simple way.
- To emphasise your team (not to put it at the very end of the deck because the product and the market are likely to change all the time whereas the team is not). «I would go into some detail, obviously don't make it too wordy on the deck itself, but 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 long term aligned».
- Answer the question «Why now?» because having the wrong timing is just like being wrong. Dive into it conceptually and explain what is the technological, cultural, political, or societal inflection point that you are really building on and why you have got the timing just right.
3 common mistakes during the presentation:
- When there is JUST one Co-founder answering every single question or giving the whole pitch (red flag!). Different people should be in charge of their professional aspects. It is necessary to have at least two co-founders.
- Investors are looking for strong salesmanship, so that is important to have a person with great selling skills besides the members of the team creating a product which have a rather technical vision. VCs should understand the product (even if they are not customers). You need to do customer education first and do not just rely on the technical impressiveness of your product or of your own genius minds.
- You should have some kind of a personal connection to the problem and show empathy for the market. Showing that you have done tons of user research or that you are a user yourself is super important. Also knowing where your potential customers are hanging out is really helpful to get into the minds of the customers.
Blog post written by : Lisa Belinskaya