Build Lines, Not Dots
When, and how, to talk to investors
When you’re building a venture backed company and you raise capital, the raise itself is very episodic. You raise it, and then you move on. It’s a dot.
But the relationships that go into that “event”, or dot, are lines.
Dots are points that accumulate in a “trust bank”, and lines trace the balance.
The first dot
Mark Suster from Both Sides of the Table wrote a great piece on this back in 2010.
“The first time I meet you, you are a single data point. A dot. I have no reference point from which to judge whether you were higher on the y-axis 3 months ago, or lower. Because I have no observation points from the past, I have no sense for where you will be in the future. Thus, it is very hard to make a commitment to fund you.”
Meeting #1: You exist! Welcome to the rolodex. This is where the journey begins.
Something often glossed over is this is also a dot for the investor on YOUR graph. This is a dating process, which means it goes both ways.
Yes, the investor has a bunch of cold hard cash in their bank account. But you also need to assess if they seem like someone you’d want to hang out with and get advice from +3 hours a quarter for the next ~4 years.
After all, while cash be green, it’s also a commodity. Try to gauge what may come with that good.
Establishing a track record
Chad Gold, CFO at G2 (and formerly of SalesLoft) broke down the process of building lines, not dots, on the Run the Numbers podcast.
“You establish a relationship before you need anything. You are meeting them and:
Letting them get to know you as the finance leader
Telling the story of the company
Giving them snippets on the performance of the business
And so then we meet again, and not when we need something, and it becomes a line.
And at that point you can say hey remember six months ago I said we’d hit x, well we just achieved that.”
In this way you are starting to establish this track record with investors and building the relationship before you raise money.
And then the fundraise itself is easy. They’re excited to spend time with you because you didn’t come to them when you needed something - you built a relationship before.
This all comes about through the process of providing updates, rather than making asks.
But don’t take every meeting
As an operator, be intentional about who you spend time with. When you raise capital it’s not just about the money, but also what you need for your stage and category.
And that starts with knowing the right people to meet with.
Intentionality allows you to be selective about how you do it.
Lens that you filter inquiries through:
Do I know this person?
Is this the right stage for me?
Is a fundraise imminent?
Everybody is busy. Investors are busy, too. And you don’t want to waste their time.
Plus, it’s to your advantage to have an element of scarcity. People want what they can’t have. You want to at least seem exclusive and hard to get.
“I refuse to join any club that would have me as a member.”
-Groucho Marx
Don’t create dots you don’t want
And it’s entirely possible to create too many dots.
“I've written ad nauseam about the power of controlling your narrative in the market and by "being in market" often, whether or not investors will ever admit this to you, you've created a series of data points in an investor's head that you have misjudged your ability to raise, failed to execute, or just weren't desirable to their peers. This is almost regardless of the progress your company has made.”
Whether you like it or not, perception is important. Investors are attracted to smokin’ hot dots. If they’ve walked across your lines too many times, they get sick of you and move on to the next shiny toy (dot?).
Not too hot, not too cold.
Lines span companies
Investors are building lines with both companies and the CFOs / business leaders they talk to.
There’s already a line in place when you go from one company to the next. In fact, those investors may have been the ones who helped place you at the current startup (I’m a prime example).
Which brings me to my next point…
Play long term games with long term people
The lines you build are all a reflection of the web of relationships you can depend on. While it may be an ego stroke to quickly take a check from a VC with a household name, no questions asked, you are really linking yourself to the person making the investment.
Always think PEOPLE before FIRMS.
Investors change jobs all the time, just like Operators do. The average tenure isn’t much longer than the ~2.5 years you see in the startup world. And the relationships you build transverse firms.
As a younger operator, you want to take advice from sage older investors, while building long term relationships with younger investors in your age bracket. If you can hitch your wagon to an up and coming investor, you have more shots to get cast in films.
George Clooney, famous actor guy, became famous later in his career. The first decade plus was a series of sleeping on couches, freaking out about interviews, and not landing the job.
One day he flipped the equation and said, “You know what… these directors NEED someone to play this role. I’m the SOLUTION to the problem they have.”
Once he started thinking of himself as the answer to their problems, he started landing gigs left and right.
A simple inversion.
The same thing goes for a VC needing a great CFO to be a steady hand on the wheel at a startup they just invested in. Their reputation is just as much on the line. They don’t want that joint running out of cash.
To take the cinematic analogy a step further, there are lots of duos who turned dots into multiple lines over the years. Think: Martin Scorsese (VC) casts Leonardo DiCaprio) to play CFO in at least six healthcare LBOs. John Ford needed John Wayne to play CTO at five cybersecurity startups. Steven Spielberg hired Tom Hanks to scale at least four companies through $100M in ARR as CRO. The list goes on.
Career arcs are essentially a series of curved lines.
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Run the Numbers
Listen on Apple, Spotify, Youtube
How will AI impact your P&L? I asked my buddy Fred Havemeyer, a leading sell-side equity analyst from Macquarie specializing in AI and software research.
On this episode we cover
The difference between the metrics the sell side uses vs operators in their day to day jobs, and how to translate between models
The art and science of valuing a company
Quantifying the productivity gains we’re seeing from AI today
The cost models underlying large language models, and what realistic long term gross margins for AI companies are
And real life use cases for finance people diving into their first large language models
Quote I’ve Been Pondering
“You clearly don’t know who you’re talking to, so let me clue you in: I am not in danger, Skyler. I am the danger. A guy opens his door and gets shot, and you think that of me? No! I am the one who knocks!”
-Walter White, Breaking Bad
Great read. I love the Clooney example. It really drives your point home