- So-called biotech rebel Ethan Perlstein describes fundraising as a whole lot of rejections and "crippling self-doubt," but he got through it.
- Here are the three biggest lessons he learned.
The birth of a start-up is greeted with fanfare and expectation. As a culture, we're intoxicated by stories of entrepreneurial heroism. The larger and more oversubscribed the round — and the more earth-shattering the mission — the better. Nowhere is this ethos more true than Silicon Valley. It's for precisely that reason that my start-up Perlara was conceived and born three-and-a-half years ago.
With our latest round of financing behind us, here are some learnings from a tour of duty pitching Sand Hill Road's venture capitalists. Listen up, founders.
My first hard-earned lesson? Don't take any meetings with a VC if their fund hasn't already invested in your space or vertical. The onus is on them to prove to you and their limited partners why your company should be first. As founders, we forget that VCs know exactly how it feels to walk in our shoes because they have to pitch limited partners to invest in them. I'm consistently surprised that founder empathy isn't the default disposition of every VC.
The biggest mistake I made over and over again before I got wise was giving free tutoring sessions to "biocurious" tech investors (a term I heard while networking) who were not all that serious about investing in deep science, in particular biomedical science. I don't need to name names. Just cruise Sand Hill Road and pull into any office villa. You'll find them. Mercifully there were public transportation-accessible tech VCs located in San Francisco, which cut down on my travel time and opportunity cost.
It's deceptively easy to fall into the trap of being the accommodating founder who goes with the flow by dutifully scheduling follow-up meetings that will go nowhere. Never wrap up an investor meeting or call without taking their temperature. Most investors know within five minutes. That means there's never ever a reason to take more than two face-to-face meetings — one on their turf, one on your turf — with a prospective investor. Any more and you're being strung along.
How do you know where an investor stands? Just ask. Here's what I suggest: "Are we a thesis fit and can you see yourself getting to conviction?" If a VC can't answer those two questions, they either weren't paying attention to your pitch, or they're not taking their job and your time seriously.
Too many founders hear investors tell them that they're going to "circle up with the team," and believe them. Weeks of radio silence and several Monday VC partnership meetings later, founders maddeningly realize they've hit a dead end. Unfortunately, few investors come right out and say no. All too often they sugar coat rejection with unverifiable excuses about timing or purely ceremonious offers to help. You know as a founder that you've hit a wall when you hear things like, "we need 4-5 weeks to dig in," or "we prefer to lead," or "love your mission, tell me how I can help."
You want to know how you can help? You can fund my company.
Now there are some VCs that have an emotional connection with founders, however limited, and they provide supportive feedback that accompanies the rejection. In my personal experience, this is rare. That's why I counsel other founders to not waste their time pressing investors. It's like asking an ex-partner to list all the reasons they broke up with you. All you need to hear is a firm no. The only people who can improve your product with feedback are customers, so you can safely ignore almost every investor's advice about your business model.
I'm not advocating burning bridges with VCs because they utter the words "no" or "pass." If their rejection is professional and well-defined, founders should return professionalism in kind. However, if a VC passes but ends the email with the open-ended entreaty, "Let's stay in touch for the next round" — don't! It's their job to keep tabs on you. That's why VC firms hire folks like principals and associates. Sometimes the sourcing spirit even moves managing partners.
This advice doesn't come from a place of bitterness. Every company thinks they'll be the hot deal, but few will. Your existing investors are your base of support. You already wooed them; they're already in your corner.
Always fundraise from your base. At the seed stage, particularly in the Bay Area, there are too many "one-and-done" investors who will never exercise pro rata, and who will probably never add more value to the company than their initial equity investment. Not every angel investor who invests in your company will cut a second check, and you shouldn't necessarily expect all of them to. Identify the early investors who will be your lifeline in years to come.
Your other major lifeline is other founders. Seek out succor and solace from other founders during the fundraising process. Only they truly understand what you're going through when you're going through it. Don't be afraid to vent about fundraising, even on Twitter (I'm pretty sure that earned me the moniker "biotech rebel"). Empathy and new leads can come from anywhere.
Being in fundraising mode crowds out all other mental activity. Sometimes that's because your schedule is chock full with back-to-back pitch meetings. Sometimes it's because you received too many rejections in a 24-hour period and you can't shake the imposter syndrome for days. Sometimes running the business becomes a welcome, much-needed respite that helps you keep your sanity and remember your mission.
No one talks about the dark underbelly of fundraising: Crippling self-doubt, loneliness, and personal tolls on all your other relationships. My biggest regret is not having a co-founder to help shoulder the boulder of responsibility.
Looking back on it, my best decision as a founder was joining Y Combinator. It truly takes a village. And it proved to be a very nurturing start-up village for me. Find your village and dare to change the world. Expect rejection. Seek empathy. Persist.
Ethan Perlstein is the founder and CEO of Perlara, a biotech company founded in 2014 and based in South San Francisco. Ethan received a Ph.D. in molecular and cell biology from Harvard in 2006, and was an independent postdoctoral fellow at Princeton from 2007-2012.