The Critical Nature of Startup Funding
For founders, raising capital is a high-stakes endeavor that can make or break a startup’s ability to scale. AJ Shankar, founder and CEO of Everlaw, a legal tech startup, learned this firsthand during his Series A fundraising round. Despite facing 29 rejections before securing funding, Shankar’s experience taught him valuable lessons about the importance of experimentation in the fundraising process.
Understanding the Challenge
In 2015, Shankar’s company was still in its early stages, and legal tech was not yet a recognized software category. Although they had developed a strong product with over $2 million in annual revenues, and top law firms and state attorneys general were using their e-discovery solution, investors were hesitant. Shankar’s lack of legal background and the industry’s unfamiliarity with legal tech made it tough to convince venture capitalists (VCs) to invest.
The Need for Experimentation
As Shankar pitched to VCs, he noticed a pattern. Initially, they showed interest, but ultimately rejected his proposal due to various reasons such as lack of investment thesis in legal tech or market size concerns. Despite the rejections, Shankar continued to refine his pitch, hoping to get closer to securing funding. However, after 29 rejections, he realized that refinement alone was not enough; he needed to experiment with his approach.
Rethinking the Approach
Shankar understood that fundraising is intensely personal and emotionally daunting for startup founders. The pressure to perform can lead to a tendency to stick with what has shown some success, even if it’s not working overall. He realized that experimentation, rather than refinement, was key to success. By restructuring his pitch to use analogies familiar to VCs and focusing on the conceptual vision rather than product features, Shankar was able to connect with investors more effectively.
A Breakthrough
The change in approach yielded immediate results. Within a week, Shankar received a term sheet from Andreessen Horowitz (a16z), a reputable VC firm. Their investment was a turning point for Everlaw, enabling the company to grow significantly. Today, Everlaw serves over 1,000 customers and generates nine-figure revenues annually.
Key Takeaways
Shankar’s experience underscores the importance of an exploratory mindset in fundraising and beyond. The key takeaways include the value of experimentation, بشefully when the stakes are high, and the need to adapt your approach to your audience, in this case, speaking the language of VCs to secure funding.
