Build your dream team, not your cap table

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Hey everyone - we've got one of Europe’s up and coming founders telling us how she raised her $3.8Mn Seed round and $3.4Mn Pre-Seed round.

Jen got not only Creandum (possibly Europe’s best seed-stage fund, backing companies like Spotify, Depop, Klarna, Bolt) to back her, but also angels such as Courtney Chin (Coinbase), Kristin Chen (Top.gg), Laura Lewandowski (Smart Chiefs). That is (super) impressive!

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Before we get into it, a quick introduction to Jennifer Phan (Jen) and Passionfroot.

Jen was actually one of us - a VC-turned-newsletter writer who saw firsthand how broken creator monetization was. Passionfroot is her solution: a complete operating system for creators, managing everything from brand deals to payments. Think of it as "Shopify for Creators.", where as a brand you can find creators across platforms (YouTube, Instagram, Beehiiv) to market your products.

Back to it!

The Story

Raising your seed round might be “easier” today than it was 20 years ago mathematically, but capital isn’t the only factor anymore. Building a team of advisors, board members and leveraging their networks have a non-zero impact on the success of any company (i.e., why almost all trillion dollar businesses have come out of Palo Alto).

Jen was also fortunate enough to be a VC before, which gave her an inside track on how VCs analyse opportunities. Here’s how she used what she learnt:

#1 Focus on WHO you want, not how much or what valuation

Jen sees the investor and the value they bring as an extension of their product and go-to-market team, with each investor there for a specific reason. 

Here's what's interesting - Jen didn't start by pitching VCs. Instead, she mapped out exactly who she wanted, and more importantly, why:

#2 Run it in waves

You might have heard from people that raising venture funding is a “numbers game”, while that is true that doesn’t mean there isn’t any method to the madness.

What this means is once you have your list from #1 above, segment this into 3-4 waves based on investor-company fit and how consequential they would be to your cap table. Jen used this strategy:

Wave #1: Strategic angels & operators

• Why? Angels tend to be the quickest to get a response and decision from. Even if their checks are small, their “Yes” can be super valuable to create positive momentum (Y-Combinator)

• This is your chance to refine the pitch, get feedback from people who genuinely want to help and set yourself up for success in wave #2.

• Leverage their networks to get warm intros to Tier 1 VCs, up next.

Wave #2: Tier 1 VCs

• Why? If angel checks are the snowball, getting a16z or Sequoia will be the avalanche for your seed round.

• Don’t forget. “The most important thing is to make sure your warm intro is from someone genuinely excited about you. When an investor knows someone they respect is putting their social capital on the line, you get to break through the noise.” (Lenny’s Newsletter)

• Strategic FOMO. Being an ex-VC herself, she found that VCs hate missing out on the next big deal. After all a bad investment costs them 1x their capital, missing a good one costs them much more. By going in this sequence (Angels then VCs), Jen was able to create market chatter, which led to running paralell conversations and competitive tension between VCs.

Wave #3: Sector investors

• Why? Tier 1 VCs tend to be multi-stage, multi-sector funds, but the main advantage of an investor focussed on your sector is they just get it.

• Jen (and Shensi Ding from Merge, backed by Accel, NEA) have found that it’s super difficult to change a VCs mind on a sector, so the cheat code is to find ones that already like it!

• Here’s how:

  • Check their websites (many will just tell you what they like / don’t)

  • What investments have they made in the last 12 months (fund teams change, and with it, their opinions)

  • Insight / articles written by them: do they actually get your sector?

Wave #4: Other pools of capital (crowdfunding, family offices, etc)

• Why? Because you need a back up plan.

What This Means For You

#1 Map your ideal cap table: list out the specific expertise gaps you need to fill and who is best to fill them

#2 Use waves to create momentum and FOMO: Start with angels who can move quickly and use them for feedback and warm intro to VCs, which will in turn create some buzz

🔴 Red flags!

• Investors who need extensive education about your market

• Long delays in feedback or next steps

• Requests for introductions to customers without commitment

• Lack of engagement with your vision in first meetings

Remember Jen's golden rule:

If you enjoyed this issue, please share it with fellow founders and operators. Have questions about fundraising? Reach out at [email protected].

See you next week!

Rahul & Aryaman