Reid’s Rituals of Great Boards: the 8 strategic tools used by top companies

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Reid’s Rituals of Great Boards: the 8 strategic tools used by top companies

Reid’s Rituals of Great Boards: the 8 strategic tools used by top companies

Reid’s Rituals of Great Boards: The 8 strategic tools used by top companies

Fundraising

Inspired by LinkedIn: Keep the board on the same page during a fundraise.

Most companies consider a fundraise when they find themselves in one of three scenarios:

You’re fine on cash, but you’ve got an inbound inquiry from a potential investor.

You’re fine on cash, but shifting market dynamics prompt you to consider taking money.

You’re short on cash and you’re within a window in which you need to raise money (e.g. 6-12 months of runway).

Note: There are other times where it’s important to consider fundraising offensively or defensively — such as competitive circumstances, but generally these principles will still apply.

Each of these 3 scenarios requires a different strategy, and the board can help a company decide the best path forward. The board members can be a collective radar to answer key questions related to fundraising like, “What are the circumstances in which you should consider an unsolicited inquiry? Should you raise more capital than you need?” And there are scenarios where you should

consider blitzscaling⁠

and doubling-down, even when you have a lot of capital in the bank.

Scenario #1: Inbound inquiry

Companies may get unsolicited inbound inquiries for investment. Regardless of your cash situation, it’s important to collaborate with your board on next steps.

In most cases, there are two decisions to make with each inbound inquiry:

Should you take it or not?

Should you evaluate that inquiry alone or go after more?

Your board can help you decide how to handle inbound inquiries and define the scenarios where you should consider an unsolicited inquiry.

Scenario #2: Market dynamics

Another common scenario that often leads to fundraising is shifting market dynamics. Similar to scenario #1, you might have plenty of cash in the bank but the world is rapidly changing and you want to strike while the iron is hot. This could be influenced by a combination of factors:

The market is hot — lots of growth and investment in your space.

You think the market will get worse in the near future.

You accomplished something important and want to capitalize on the progress.

This was the case when LinkedIn raised its Series D round. In June 2008 we raised $53 million led by Bain Capital Ventures. Then, just 4 months later as part of the same process, we extended the Series D by an additional $23 million from a new set of investors. At the time, LinkedIn was cash-flow positive, so we weren’t running out of money. So why did we do such a quick follow-on raise?

In October 2008 the world was on the verge of a massive global recession. We believed that the investment market was in serious risk because David Sze came to us with a significant warning. Greylock’s partnership had an internal discussion in early 2008 and then shared with all portfolio companies: the market was at risk and that future fundraising might be significantly more challenging. And if a crash happened, it was unclear how quickly the market would recover. LinkedIn was also ready to blitzscale — we were adding 1M users every 25 days, and we had yet to scale our sales and marketing resources.

Raising the additional money ended up being the right decision. Despite the recession, the additional funds and strategic partnerships from the Series D propelled LinkedIn into a later IPO at 4x the valuation.

Scenario #3: Need cash

The third circumstance that leads to raising funds is the most obvious: when your company is low on cash. This typically happens when you have 6-12 months of runway left. In this case, you’ll want to run a more proactive process. As with all fundraising, there are many considerations, strategies, and tactics outside this focused post. However, it is essential to organize a coordinated approach with your board.

⁠

A fundraising ritual for your board

So your company is ready to raise money! Hopefully it’s the good kind of fundraising (everything’s up-and-to-the-right!), but regardless, fundraising can be an intense process.

This is a simple ritual. It offers a way to (a) set your ideal investor criteria, (b) crowdsource firms to consider, (c) get your board to raise their hands for introductions to each firm, and (d) nail the investment pitch. There’s a little piece at the bottom for evaluating offers as well.

⁠

Clear example data

⁠

Step 1: Set your ideal investor criteria

Work with your board to identify the set of criteria for the type of partners who would be the right fit, and why.

Criteria

Why

Author

Upvote

Strong track record

This will be a key...

Extensive network

As we scale marketing...

History of fair dealings

...

Previous investor

...

There are no rows in this table

⁠

Step 2: Identify potential firms

List the firms you’d like to consider and ask your board to make introductions. Now you can prioritize — which people should we reach out to first? Which later?

Firm

Partner

Criteria they meet

Priority

Notes

I can make an intro

Green-Plus

Daniela Dewitt

Strong track record

History of fair dealings

Extensive network

They typically invest in later-stage companies

Zoomit

Kate Morrison

Extensive network

Strong track record

Kate is fantastic, we should definitely consider Zoomit

Groovestreet

Lana Steiner

Previous investor

...

Bioplex

Kayley Dwyer

Previous investor

...

There are no rows in this table

⁠

Step 3: Nail the pitch

Ask your board for feedback on your pitch deck. I recommend using a

Two-Way Writeup⁠

to build the pitch, capture comments and sentiment, and discuss the most important topics live:

Instructions: Take a few minutes to go through the pitch deck below. Then, click that you’ve read the slides and add questions or ideas to the table below.

⁠

I’ve read through the slides →

⁠

Add a topic or question

⁠

Question or idea

Author

Upvote

Downvote

What product challenges do you have in the next quarter?

How do you think about total addressable market?

How’s hiring going?

There are no rows in this table

⁠

Step 4: Evaluate offers

Finally, as you receive offers, do a standard evaluation of their various pros and cons. Let your board weigh in on which offers to accept.

Firm

Pros

Cons

Letter of intent

Amount ($millions)

% of shares

Implied valuation ($millions)

Vote to accept

Vote to reject

Bioplex

Strategic partnership

Firm has a history of unfair dealings

Sample LOI.pdf

$15.0

6.0%

$250.0

Groovestreet

Experienced board member.

Term sheet is complicated.

Business-Investment-Letter-of-Intent.pdf

$25.0

9.0%

$277.8

There are no rows in this table

⁠

Next up:
`$100 Prioritization`⁠
⁠

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Fundraising

Scenario #1: Inbound inquiry

Scenario #2: Market dynamics

Scenario #3: Need cash

A fundraising ritual for your board

Step 1: Set your ideal investor criteria

Step 2: Identify potential firms

Step 3: Nail the pitch

Step 4: Evaluate offers

Next up: $100 Prioritization⁠⁠

Next up:
`$100 Prioritization`⁠
⁠