Understanding VC Signals (Part 2) + Fundraising Fieldnotes 9.24.24

Welcome to Part II of our Understanding VC Signals series. If our last issue left you stunned, I get it. It’s crazy to see this kind of thing happen… until you see it over and over again. Then it just becomes reality.

This week I’ll try to normalize it even more by covering why signaling matters so much and how it can boost your chances of closing a deal.

So what are the signals venture capitalists actually pay attention to? How can you use them to your advantage? Let’s get into it…

First Things First: Why VC Signals Matter 

At a high level, early-stage investing is based on a bunch of assumptions and not hard science. Investors are essentially placing bets on the future, and no one has a crystal ball to guarantee that bet will pay off.

So, in the absence of hard data, they’re forced to react to signals. They have to fill in the blanks based on what they feel. Because of that, the signals you send venture capitalists can make or break your fundraise, just like the story I shared last time. The story highlighted how a negative signal, such as desperation, can undermine your credibility and turn investors away. 

This week, let’s focus on the positive. Let’s talk about four signals that could turn your pitch from “meh” to “wow.”

1- Perception of Options: The Nervous Founder vs. The Confident Leader

One key signal is the opposite of what the founder in last week’s post projected: the perception that there are other options available to the founder. So, if a founder is overly excited to talk to a VC and you can't quite figure out why, or if they’re following up too aggressively and seem nervous, that might signal they don't have other options. 

This perception of desperation can lead investors to question the startup’s appeal and the founder’s confidence in their venture. It might make VCs wonder if the startup is struggling to attract interest from other investors, which can weaken their negotiating position and potentially diminish the perceived value of the opportunity.

On the flip side, if a founder is a bit harder to pin down—not in a rude way, just a little less available—yet remains polite and confident, it gives off the impression that they’re sure they’ll close a deal, regardless of what you say.

The trick here is to ask yourself, How would you react if you had a ton of options? How would you write this email if you liked the firm but had 5 other firms chasing you? 

This simple trick can work wonders.

2- The Repeat Founder Effect: Fewer Mistakes, More Trust

And then there’s the repeat founder effect. When VCs see a repeat founder, they interpret it as a sign that there will be fewer mistakes. Why? Because someone who’s been through the startup grind before has learned from their past blunders and, hopefully, won’t make the same ones again. 

If you aren’t a repeat founder, though, what experiences or personality traits do you have that might signal a similar ability? You can’t say you will act like a repeat founder, but you can send signals that show you learn quickly, that you make quick decisions, and that you’ve learned from mistakes.

3- Team Dynamics: The Power of Experienced Collaborators

Similarly, VCs love to see teams that have worked together before. This suggests that they’re likely to have fewer co-founder conflicts, as they already know how to collaborate effectively. They understand how to communicate, handle conflict, and avoid a big headache for founding teams and investors. 

Your team may not have worked together before, but there are signals you can send that indicate you all might be like a team that has. Can you tell stories about early conflict resolution? Clear lines of decision-making? Send the signal that you’re a team ready to win.

4- Shipping Velocity: Progress as a Key Indicator

A signal that I personally love and always look for is shipping velocity. How does that work, and what does it look like?

Shipping velocity isn’t just about the pace at which products or features are launched; it’s about the overall momentum of a startup. It reflects how effectively a team turns ideas into tangible outcomes and responds to market demands. High shipping velocity often indicates a well-organized, focused team that can rapidly iterate based on feedback, capitalize on new opportunities, and overcome obstacles.

So with every touchpoint you have with an investor, think about how it's perceived from an investor's point of view. Ask yourself: What signal am I giving off? What impression might an investor have of the company?
Start really thinking about how to present yourself in the best possible light so that the signals don’t get mixed up and turn off a prospective investor.

So, that’s the lowdown. Hope you’ve enjoyed this two-part series.
Stay tuned because we’ve got more insights coming your way that you won’t want to miss. 

Be chased,
Jason

Most founders struggle with storytelling in their pitches.

They trail on and on or don’t incorporate memorable speaking points to amplify their message… or both.

To help I’m releasing a FREE mini-course on how to craft and use mini-stories. It includes:

• 2 key lessons with over 10 minutes of recorded lecture content

• 1 detailed exercise to implement your learnings - a compilation of essays I wrote on narrative, deck & pitch

To gain access:

1. Click on this link

2. Take 1 minute to create an account on Circle (the platform we use for our courses)

3. Boom! access granted

After 4 weeks, you will get booted out so that we can roll out the next mini-course! (this also serves as a push for you to actually absorb the content instead of feeling like you have forever to do it)

This is a huge value add. I suggest you take advantage of it!

Yes. Pre-seed AI founders should work on this. In fact, I like the idea of having someone assigned the sole responsibility of the demo. It doesn't have to be throwaway work too... it can be part of developing the product vision.

LA is a great place to build a company 🙏☀️🌴

Stay focused, stay focused… 😆

Small asks!

If you thought this was helpful or enjoyable in any way, I’d love for you to:

• Forward this newsletter to others who would enjoy it (use your referral link and get some cool rewards☝️)

• Follow me on Twitter where I’ve begun building in public (my course, my podcast, etc)!

• Listen with a friend to Funded, my podcast that tells the rollercoaster stories of how founders raised millions (and subscribe🙏)

• Ask me your fundraising questions so I can help you and cover them in a future issue

• Are you planning to fundraise? Join Adamant Fundraising - the fundraising accelerator program that's helped founders raise over $311M 💰

• Let us launch a best-in-class fundraise for you. Pain-free and effortless on your end!