How to raise $200M (or at least try)

I wasn’t able to attend LeWeb last month, but I managed to watch a panel called “great rides” that reminded me how challenging fundraising can be for startups. In this panel Loic Le Meur talks to Peter Pham, cofounder and partner at Science, and Jeff Bonforte, SVP of communication products at Yahoo about getting past 2,000 venture capitalist no’s to raise $200 million.

If you haven’t seen their talk, you’ll want to watch it:

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During that panel talk, it occurred to me that even veteran entrepreneurs struggle with funding and need to work hard to succeed. I don’t believe there is one right way to raise money, but you should try and avoid some of the big mistakes if you can.

Based on my own experience at Microsoft Ventures and on insights from the panel, here are some basic tips that will help you focus and come up with the fundraising strategy for your startup.

1. Fundraising is not as easy as you think, it’s all about volume and numbers. You can pitch your idea to 70 VCs, hopefully have about 30 interested, meet 10-15 in person, have about seven follow-up meetings, and maybe, just maybe get 1-2 term sheets. Prepare yourself for a long and mentally draining process.

2. Timing is everything. Start to look for funding only when you are ready to manage the process and have something viable that will convince investors. If you look for an investment too early you might burn your reputation.

3. Do the math! I’ve seen so many entrepreneurs getting ready to raise money without knowing how much they actually need. Bad idea. If you don’t know what you’re asking for, you’ll never get it.

4. Get an introduction. Yes, you can send cold emails, but your chances of at least being considered rise significantly when you get an intro from someone in the industry. We do this very often at our accelerators — connect startups we believe in with VCs from their industry. It’s not a done deal, but it’s a foot in the door.

5. Start with VCs you probably won’t raise money from, it’s a good way to practice and get feedback. If you are lucky, they will ask some good questions that will help you prepare for the real thing.

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6. Work in parallel. You need to approach several VCs at the same time even though it may be hard to manage. Working in parallel will not only save you time but also help you create leverage. Keep it organized with an Excel or a CRM system, and document your progress.

7. Find a metric within your business that you know you can control and drive massive growth. Your key performance indicator can be retention, registration, engagement — whatever you are %100 sure you can grow over the next three months. Linear growth equals death, VCs want to invest when they see growth because they are afraid they might miss out if they don’t. Share your KPIs when you do your first outreach. It will take 3-4 weeks to get your first meeting and a few weeks more for a second one — if you can show growth during this time, it will help you get more attention and become a good leverage for negotiations.

8. Fundraising is a one-man show. VCs may want to see a strong team, but they only need to negotiate with one team member. Only one team member (usually the CEO) should be handling the process, representing the company’s interests.

9. Luck may have more impact that you can imagine. Luck is also an important part of the process. Don’t underestimate risk or get too comfortable with the process. Anything can happen in a few weeks, days or even hours that can kill a deal so time is of an essence. Work smart but work fast..

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10. 90% is not done. Almost signing is not like signing. Follow through!

Zack Weisfeld is General Manager, Microsoft Ventures Global Accelerators. Prior to Microsoft Ventures, Zack cofounded a number of startups, including Sequoia backed Mintigo, and was Vice President of Marketing & Strategy at Modu, the Israeli personal communications startup. (IP Sold to Google Corp.) Earlier in his career, Zack served as the General Manager Americas and Corporate Vice President for the Mobile Market at Msystems, which was acquired by SanDisk Corp for $1.6 billion at the end of 2006.