How To Raise Millions For Your Startup: A Q&A With The Authors Of Get Backed

Evan Loomis (left) and Evan Baehr (right), co-authors of Get Backed. Courtesy photo

When going about raising money for your venture, it’s best not to be an asshole. “I think if you’re an asshole, you’re going to get derailed,” says Evan Loomis, a former Wall Street investment banker turned entrepreneur, mentor, and co-author of Get Backed. “Because people almost never give anyone money unless they like you.”

Loomis, and co-author Evan Baehr, who earned an MBA from Harvard Business School in 2011 and has founded multiple ventures, released Get Backed last month. The book, which is already gaining traction and earning praise from fellow entrepreneurs, focuses broadly on building relationships as a way of raising early-stage funds.

And the two would know. Over the past three years, the two have raised $50 million combined for their own ventures and counseled many others to do the same. Through his small business online lending platform, Able, Baehr aims to serve the Fortune 5 Million–the 5.8 million small businesses identified as the “backbone” of American economy.

Inside the book, which catapulted to the top of Amazon’s business new release list, the Evans break down pitch decks from 15 startups that have raised a combined $150 million. It’s essentially a step-by-step fundraising how-to manual for gaining early support.

The friendship between the two is evident as they playfully call each other out on answers throughout the exclusive in-depth interview with Poets&Quants. Here, Baehr and Loomis discuss everything from the importance of relationship building to a potential startup funding bust to why Baehr talked Loomis out of getting an MBA from Northwestern’s Kellogg School of Management to start a business instead.

Poets&Quants: What problem were you trying to solve by writing Get Backed?

Baehr: The problem we were trying to solve is that many early stage founders have a sound idea, ample enthusiasm, and sometimes, even some early traction. But, they have no idea how to raise money for their business. That is an especially problematic situation because raising capital is often the white blood for the possibility of making a business succeed. So capital is needed to even determine if there is possibility of a successful business.

Loomis and I had met with hundreds of early stage founders, just as friends, to brainstorm with them on how to get some capital for their business. And we wanted to take our learning through those conversations and our own ventures that we have raised capital for and put it in a format of a book and online content to make that information accessible to everybody. And make it available to anyone building a company. Because we really believe that fundraising is a teachable skill. And that there are great people with big ideas [who] deserve to raise capital that aren’t currently able to. So we’re helping them overcome being stuck.

Loomis: The only thing I’d add on top of that, they don’t really know where to start. But for many [who] would start to raise money, they would jump in without a good coach by their side or without the knowledge of how to handle this and would more often hurt a number of relationships with their friends and family. As you can imagine, the startup founder typically looks to friends and family first when they’re raising money and that can get to be a little bit of a dicey situation if they’re not honest. And so what we found from one of our friends and people that we interviewed is that not only did they not have a field manual for raising money, many even had the worst experience, which is no money and a lot of burnt relationships.

P&Q: The book seems to focus on the importance of relationships. What are some things startup founders can do to avoid those potentially burnt relationships and build good ones?

Loomis: We care deeply about relationships. And the book really started off with Evan and I just trying to take care of our friends. More often than not, we’d get an email from an excited friend that would say, “Hey Evan, I’ve got this really cool idea, what should I do?” And our first measure of counsel for them typically was, ‘Think of this like you’re raising friends. Don’t think of these investors as money dispensers. Try not to put them in some sort of elite status where you immediately become nervous of them or standoffish. Think of them as friends and crowdsource. Get out there and ask for a lot of advice from smart people. Be playful with the feedback you get. Don’t hold on too tightly to it.’

That type of advice ended up working very well because you have to get in the fundamentally right mindset about people to seeing them as wonderful. They’re also curious. They’re interested in ideas. They’re interested in contributing to your idea. They want to make the pie bigger and that’s how the fundraising process typically works. That’s opposed to me giving you a pitch with the investor quiet on the other end of the table and 20 minutes later I say what do you think about my deal. But real fundraising and the best fundraisers are people who are playful. Kind of as in Baehr. They are curious. They ask good questions. They make it an experience that they invite the investor into.

That’s the fundamental thesis of this book. If I were to distill it down to two words, it’s great friends…first.

Baehr: Uh, Loomis, that’s three words.

Loomis: Well, I had two and then…you know…yeah, I messed that one up.

Baehr and Loomis: (laughter)

P&Q: What can our readers do to start building relationships and get ahead of the game if they plan on starting a venture either while in an MBA program or quickly after?

Baehr: I have an MBA from Harvard and was really involved in the startup community when I was there and I think I have been surprised at two things. Number one, the really small number of startups that emerged out of Harvard. This was a class of maybe 950 and I can think of maybe a dozen startups from classmates. I think that trend is increasing, but the reality is, it’s pretty rare that companies get started and funded out of business school. Consulting and banking are still massively dominant sectors that your classmates will go into.

This leads to my second point, as I think about all the people that have been very helpful to building the businesses I have built and raising the capital I have raised, less than 5% of them I met through business school. My peers in business school worked in consulting and banking and my professors from business school teach corporate strategy. None of those things are helpful for building a startup.

Loomis: Whoa, hey, this sounds kind of depressing.

Baehr: No, it’s the truth. And here’s the takeaway. It is really important to build a network of people that can help you meet the specific needs you’ll have in launching a company. If you’re going into business school, you should be spending time with people in the computer science program. You should be meeting local angels and venture capital firms in whatever city you’re in. You should be participating in business plan pitch competitions. Because those activities expose you to networks of people that will be much more specifically helpful to actually launching and raising capital for your business.

P&Q: What do you think about the value of an MBA for starting your own company? 

Loomis: I got accepted to Kellogg and was excited and went to tell one of my best friends, Evan Baehr, “Hey, I got into Kellogg.” And he proceeded to methodically talk me out of it. Part of the reason was I had already started a company at the time I had applied and so he suggested that I squeeze a ton of knowledge out of just doing something as opposed to learning a bunch of theory.

He asked me a very interesting question. My program was going to cost about $180K, take two years and 20 hours of work a week for a professional MBA. And he was like, “Alright, let’s turn the tables. What if I gave you $180K and an extra 20 hours a week, what would you do?” And I was like, “Honestly, I don’t want to go to business school anymore.” That sounds really bad. I want to go start a company. That’s what I want to do if you give me that much money and that much time. And Evan was like, ‘Well that’s what’s at stake. It’s that much money and that much time.” So I decided not to go.

Baehr: There’s this strange reality for top MBAs, which is that we have to almost hide that we went to business school. When we are either applying to work at a startup or raising capital on our own. Now, it’s not like the question that every VC asks you, like why didn’t you go to business school? Because a lot of them went to business school. But there’s a pretty widespread notion among engineers, and founders that MBAs have a stereotype about them. They are, well I won’t indulge in stereotypes, but they’re not positive and I think in some cases are kind of deserved. Because then it’s sort of like, ‘Gosh, why would I go spend all of this money to pick up this Scarlet Letter on me as a founder?’ And I think it has to do with the current situation of you as an applicant. And I really do believe that if you want to start a company two years from now, the best thing that you can do to start a company in two years from now, right now, is to start a company.

If you know that in 24 months you want to start a company called Xenon, the best thing you can do right now is start even an unrelated company or start Xenon right now and run it and learn from it, even if it is failure, in order to get prepared for launching that next company. I think most people don’t know what they want to do. They don’t know a company they want to start. They’re not positive that they want to start a company. That was part of my situation in going to Harvard. And I loved it. I had a wonderful experience. I learned a ton of things. I met a really interesting set of people. It gave me a lot of ideas on business strategy and business models and finance and mergers and acquisitions and a whole toolkit that I think certainly makes me a better executive, even of an early-stage company.

So I guess I’d say it like this. If you have an idea and you’re ready to go, the best thing you can do is start the company. Even if you think it’s really likely that you’re going to fail. And if you are interested in startups but appreciate the general arena of business, business school can be a wonderful experience.

P&Q: So are the best steps for approaching a VC or angel for seed funding?

Baehr: Let’s think about what most people do. Most people send an email–a cold email–with a pitch deck asking a specific person for a meeting. And not surprisingly, those emails have very low engagement rates. They’re rarely replied to. So components of a successful approach to a VC firm, number one would be a warm introduction. Finding someone that you have in common that would be willing to shoot a one-lined email to preferably a partner at a VC firm saying, “Hey, I don’t know much about this deal, but this is a good person. You should take a look at this deal.” That is a great way to get your foot in the door right away.

Number two would be, you’ve got to establish a ‘why’ for your business and that fund. Almost all funds are pitched because they have money. But just that shows that the founder has been lazy in doing the diligence to be able to make a case for why this specific fund is a good fit. So for example, you could say so and so from Polaris, ‘I am so interested in getting your feedback on my company, Xenon, because of your investments in companies A, B and C. I was so impressed by how you guys managed to grow these companies especially in such a competitive dynamic. I’d love to get some of your feedback on how to grow businesses like this.’ It shows you’ve done the homework and you have a reason why you’re asking for that specific firm.

Next, number three, would be generating urgency. So the investor’s assumption will be that they will forever be able to come back to your deal later because you’re not going to get a deal done for a very long time. And they are always working on how can they get into the right deals before the deals slip away from them. It’s really important to demonstrate urgency.

So how do you do that? The best way to generate urgency is to tell them that you have a term sheet because it communicates that there’s some sort of finite window that will close that they will miss the deal. A related approach is to schedule a trip–this is for a VC firm not in your own city–to say, “Polaris, I will be in San Francisco next Wednesday and Thursday and would love to find 30 minutes to come by to connect in person.” That excuse of being in their city. I think mentioning travel that’s between seven and 14 days from today is about the right window when they’re scheduling. And then give them some options. But not more than two days worth. Those are the things that have this constraining effect, making it likely that they will actually get a meeting.

Next, ask for advice and not money. So you heard when we were going through the pitch email earlier giving them reference and praise for their previous work, you are asking for a specific piece of advice that they would have given to a similar company or themselves. And it is always great to build a relationship with an investor when you are not raising money. So that when you are raising money, it’s a much more natural approach to say, “Thank you so much for our previous conversations several months ago. We have done X, Y, Z based on excellent counsel. We are just kicking off our Series A fundraising process and think our business could be a fit for what your funders are looking for now. We’d really like to find 30 minutes to connect in person.”

P&Q: Are there any ‘don’t do’s’ that could derail fundraising no matter how great an idea is?

Loomis: I think if you’re an asshole, you’re going to get derailed. Because people almost never give money unless they like you. And there can be shades of asshole-ism. If you don’t listen to what they’re saying, they are going to write you off as like an arrogant guy that maybe is brilliant, but they don’t take feedback or their ears are plugged. Or if you’re just kind of rude. That’s a quick one for me.

People are going to feel around for your character. If they don’t trust you either, even if you’re a nice guy, and you’re not an asshole, if they don’t trust what you’re saying is true or you’re kind of a ‘hype guy,’ that’s a big strike against you. The little dirty secret is most of the VC firms at a larger level and certainly angel investors at a local level, they’re all communicating with each other. If you offend one, word gets around pretty fast that you’re either not a good guy or you’re not very trustworthy because you’re using language that is intended to coax people in an emotional direction that they may not be ready for.

Baehr: A personal example here, to go with Loomis’s point about reputation. Reputation is everything in early stage ventures. And that’s why a warm introduction is so helpful. Because it shares that social capital. It shares and provides that stamp of approval from a trusted source to another that even without saying the words, it communicates this is someone you should consider doing business with.

We had a very personal case of this with my last company, Outbox. We had raised a second round of funding and decided to shut the company down. We were going to shut the company down, but we had money left and so we had this situation where our board and our largest investors shared with us that they thought we should keep the money and build a different company, which was an awesome thing to hear–not what we anticipated hearing–but that’s the message they gave us. So we had this situation where we had literally dozens of other investors that our reputation was on the line with. We could just go straight to them and say, “Look, here’s the deal, the board voted, we’re keeping the money. We’ll let you know what we’re going to do next.” But we were really afraid of getting this reputation like, ‘Oh, you’re the guys that took the investors money and went and did something totally different.’ So we were very cautious in going one-by-one on the phone or in-person to meet with those investors to explain the situation, give them ample time to ask questions, and make sure they were comfortable with the direction that we were going.

So I think reputation lasts a very long time and is shared very widely shared among such a small, tight-nit community that is the world of venture capital.

P&Q: What are your thoughts on all this VC money flying around, especially in Silicon Valley? Is it a potential bubble? 

Baehr: I’ll just say if I were a predictor of equity markets, I would be in investing. And since I’m not investing, it means I have no inside knowledge about equity markets. And I would say that the widespread counsel I hear now to founders is raise as much as you can right now. Mainly because of a fear of equity markets collapsing and the markets really drying up. And this raises two hugely interesting topics for me. Number one is the importance of timing. That timing can have such a huge power in explaining the success or failure of a company. And that timing is around what is happening around venture capital and public equity markets. So you can find the companies that have really weak fundamentals that raise on higher valuations and IPO and they’re off to the races. And that’s because they did not experience a major equity downturn during the rise of their business. And a lot of that has to do with timing.

The second point is that at the end of the day, the number one responsibility that a CEO has is the growing concern of status of the business. Meaning, if you run out of money as a CEO, the company, regardless of its numbers, is dead. That brings us to a–just thought of this—third point, which is this tension in early stage founder advice. And the tension is you want to raise as little money as possible as late as possible. And you want to raise as much money as early as possible. Now you may notice, if you study that very closely, that those two things are the exact opposite.

What do we make of the tension? Why would you want to raise as little money as late as possible? Well, that means the less money you raise, the less diluted the financing round is and the later you raise, the higher the valuation is. So a lower percentage of a more valued business means more money for the employees. And that’s a great thing. Meanwhile, the other side is to raise as much money as possible as soon as possible. The sooner you have a lot of cash on your balance sheet, it means that you can invest in resources like people and office space and marketing dollars. And it means you have that money sooner so you can share more traction faster. Implicit in that is this takeaway that there is actually not a right answer for how much money and when to raise for your venture. There is this real tension being how much to raise and when to raise it.

P&Q: Why should a current MBA student read your book?

Loomis: Let me take an even bigger step backwards. Just about everybody I know has a dream or a big idea. My mom, my dad, my uncle, my little kids. Right now one of my little kids wants to be Captain America, but that’s a different thing. Our book is really aimed at helping people with what do you do with your ideas. We have laid out a very methodical, easy-to-follow, playbook to take the concepts, put it on paper, get feedback, formalize an official pitch deck, and learn how to exercise those relational tools that I think everyone has in them to compel people to see their vision.

I think this book is really for everybody. And especially business school students. And I think one of the reasons why more people don’t do anything with their awesome ideas that they have is because they’re afraid or they just don’t know how. Our book hits fear and ignorance square between the eyes in the way that we’ve laid it out and tried to provide examples of other founders raising money.

In the book, we ask 15 ventures that have collectively raised over $150 million and we show you exactly how they got funded, which is kind of cool. Because most of the time you see a Techcrunch article or an article on Poets&Quants or whatever it is that comes out, and it’s triumphant. Uber raises $2 billion on a $100 million valuation in one month. But how did they do it? And we answer the how, pretty, I think entrepreneur-friendly. We just take it for granted that entrepreneurs have ADD–and this can be true for business students as well–in your attention is valuable and we just broke it up in a digestable way.

Baehr: Just thinking through my experience at HBS, I would say there are three things in our book, which I learned very little about at business school, which are critical to raising capital. Number one is story. Especially for early stage ventures, telling a story that invites an employee, partner and investor into the business is absolutely critical. And story is not a set of Excel worksheets. Story involves a plot, and a narrative, and a protagonist and lays out this hopeful view of the future. That is this elemant that I think is rare in business school.

Number two is design. Communicating through the visual aid of pitch deck requires thoughtful design. Learning about types and colors and layouts to create something that is beautiful and inviting is mission critical and the second thing I learned very little about in business school.

The last thing is the second half of the book is about running the road show. And that is a failed process. The story I was told was that there was no sales club at Harvard for a long time. The students demanded a sales club. The administration said, there will not be a demand. No one here wants to learn sales. They somehow created it anyway and after a year or two it was the largest club on campus.

I think students are starting to understand there is a need for sales. Raising capital is not about creating a beautiful business model and sending it out to the thousands people and knowing that the smartest people will buy it. Venture capital and equity sales have to be sold. And that involves a charismatic person telling a great story, going to the right target or potential buyers or investors and running the process of following up with people and getting the deal closed.

Those three things to me are super important for being good in any job, but certainly in raising venture capital and are being underemphasized in business school.

PQ: Any final thoughts?

Baehr: I’d just add that I found working on startups while in business school was a really great sandbox to experiment and learn. And it also gave me a lens through which to see a lot of my coursework. The stuff I worked on in school was silly and probably wouldn’t become a business. But it was this really helpful little sandbox to develop a little bit of experience and play around and learn some new tools.

The second thing I’ll say is in business school, I think it’s very possible to become the founder or employee that you want to be. Many people are coming into business school out of finance or banking and they want to start a company or join a technology company. And for the most part, people with those resumes, which I see all the time, through applicants at Able are not people who are not a good fit skill-wise for a startup. Or for starting a company. But the good news is, you can actually become that person. And that takes a lot of your own work. For example, as a founder, there are some important skills and design is one of those. You can take a course with lynda.com and learn how to use Photoshop. You can enroll in a design class at General Assembly. Let’s say you want to found a company and you believe understanding data is really important for marketing analytics. You can buy a book about that. Or you can be an intern at a startup and practice designing funnel metrics.

There are all sorts of things you can do outside of your formal coursework that will actually give you the real skills that you can use as a founder or an employee of a technology company. So if you’re not the employable person yet, design a pathway so that you can become one.

Loomis: The last thing I want to say is, I did not experience this because I did not go to business school, but my friends that did had an amazing halo over them during the whole process. So if they did have an idea, getting a lot of those doors open and having a really rich relational outreach was at their finger tips, which I think is a big benefit to starting a company while you’re in business school.

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