- Pete Flint, a general partner at NFX, says you should have these attitudes if you are an early-stage startup founder on your fundraising journey and would like to understand the investor's psychology better.
1. Arouse the fear of missing out (FOMO);
2. Quiet the fear of looking stupid (FOLS);
3. Play to win. Don't play not to lose.
- Pete also shared how to pitch to NFX the right way. The firm looks for signals such as team, market, and a solution that's focused on a region, such as Latin America.
If you are here, you're probably a fan of NFX. If you have no idea why your colleague forwarded this article to you, we'll show you why.
NFX is simply the most valuable player when we're talking about seed rounds in our friendly neighbor Silicon Valley – right between Y Combinator and a16z. The VC firm has more than US$ 1B in assets under management and has invested in more than 150 startups. Latin America is taking a bigger space in NFX's portfolio and now hosts over 10 of the firm's bets. (One of them is Latitud. Olá!)
Fundraising is a full-time job that takes time away from making your startup grow at that same moment. So you probably want to get funds as quickly and as effectively as possible – and, for that, you need to dive deep into the investor's psychology.
Hearing what NFX has to say is a very, very good idea. The good thing is you don't need to book a flight to San Francisco. Pete Flint is the one who flew to our Vamos Latam Summit, in São Paulo.
The general partner at NFX shared three attitudes early-stage startup founders should take if they are on the fundraising journey and looking to understand the investor's psychology. Pete also shared the signals the firm looks for when evaluating companies, and why NFX is so hyped about Latin American startups.
First and foremost, fundraising is about creating in investors the fear of missing out(FOMO).
Remember that venture capitalists make money by trading outsized risks for outsized returns. They lose money or break even on most of the companies they invest in, so they're looking for really big ideas that make the difference in their financial results.
If they don't invest in your startup and it becomes the next Nubank, Rappi, or whatever billion-dollar company you can think of, they'll regret it. The VCs that did invest will rejoice.
Make them feel that regret right now.
Easier said than done, right? Well, here's what you can do: validate that your startup might be the newest hot thing by creating competition.
Pete says so, and we agree. In our Fundraising Playbook, we talk about calendar density. That means: getting your agenda out there and scheduling meetings with all investors that are relevant to your business in the span of a few weeks.
It's a tight window of time where everyone gets to know you, your business, and that you're fundraising now. Investors have to decide quickly, in up to 3 weeks, if they're in or out.
And why have calendar density? If you space pitch meetings too much, you run the risk of staying on the back burner while the funds go after the hottest deals. Because they know you will wait. Show them you won't – and you just created the fear of missing out.
Take a minute and step into the shoes of the investor who wants to put money into your startup. Imagine going into a room full of your colleagues and explaining why your crazy idea will be a home-run, and why money needs to be put into it this second.
VCs do that all the time, and that's how unicorns are born. They're also humans, and the fear of looking stupid is a real thing. Take a good note of the FOLS, and now you can step out of the investor's shoes.
You need to help that investor build a connection between "this is a crazy idea" and "this might just work."
For that, Pete shared a concept dear to NFX: the ladder of proof.
Each step is a predictor of risk or success. Rapid growth, a great team, and paying customers are some examples. If some steps are super well-made, the investor will likely ignore some flimsy ones. Know your investor so that your strongest steps are also the ones they consider the most important.
Bring all those data points and help the investor climb your startup ladder. At the end of it, there must be a sizable opportunity and a worthwhile investment.
Don't tell VCs that your startup is a safe bet – they know it's not. VCs love a crazy idea – but only one that might just work.
Pete Flint's a brit (with a Physics degree from Oxford, no less). When he moved to the US to raise money for himself, a part of his personality had to say goodbye – the one that apologized all the time.
"I had to get rid of this politeness. Raising money in America, you have to be hardcore. You have to show your passion and that you're moving mountains to make this work, you're gonna do whatever it takes to break through walls and see this through."
You might be an amazing founder who's just like how Pete was. If that's the case, push yourself (and stop saying "I'm sorry" in the hopes that everyone will disappear).
Mind you: that doesn't mean you should become the biggest salesman or saleswoman on the face of the earth. But you do need to drive your passion home to the investors. That's because VCs know being a founder is freaking hard. They need to see that you have this unwavering passion to put up with all that work.
Remember the ladder of proof? Investors are always looking for signals that explain why your startup is the right investment right now. You need to study what are the signals valued by the investor you want in your cap table.
What are those signals for NFX? It starts with team and market.
After getting to know the founders personally, NFX starts to get references from other ecosystem players. "Do you know this person? What do you think of this market? Have you even heard of both of them?" are questions the firm asks founders, angel investors, and other possible backers in NFX's network. (Latitud's in this VIP list, just so you know.)
Take one last signal from Pete himself – but this is a red flag. NFX gets disappointed when they see a startup that is just a derivative model from something that was already created in the US, for example. That's because Latin America is a very unique region, and products need to have a unique insight that satisfies some need of this specific market.
The very best companies in the region are the ones that are:
You might be wondering why you should build from and for Latin America when the world is such a vast place – and a vast market. Take it from Pete: we have a fertile ground that still needs to be explored in trade of not only a huge upside but also a huge impact.
"In LatAm, incredible companies can be built incredibly quickly. You see companies like Nubank, Rappi, and many others accelerate so quickly, which you don't see anywhere else in the western world", says Pete.