User Manual for Founders

As rule, we don’t give generic advice on how to pitch/fundraise, but we do think it’s important that founders get a clear picture on how best to fundraise/pitch us.

This is the user manual to our process, preferences, and quirks as well as a founder’s roadmap for the the fundraising process with Earnest Capital. Also relevant may be What We Invest In.

Starting the Conversation

Cold Outreach: We definitely encourage cold outreach. DMs are open on @tylertringas and @earnestcapital and you can also reach the whole team at hey@earnestcapital.com. We broadly agree with the Ban Warm Intros critique and try not to rely too much on introductions or referrals.

The best use of a cold message is to start by letting us know what you’re working on without any specific ask, build a track record of making progress and taking action before making an ask. The worst way is to cold ask for “15 minutes of your time” without providing any information about your company upfront.

Pitching: We don’t tend to do traditional pitch processes and we aren’t VCs so please forget everything you’ve been taught about “how to pitch VCs” πŸ™.

There are two ways to start the conversation with us:

1/ Trailhead is designed for founders who aren’t sure if it’s exactly the right time to raise capital or aren’t even sure they want to raise capital. Over the course of a few weeks we’ll email you a series of thought exercises based on the topics we usually cover in an investment discussion. It’s your choice to either send us back the responses, and build an ‘application’ over time, or just keep the results for your own strategic thinking.

2/ Our Application Form is for founders actively fundraising now or otherwise in a time-sensitive process.

Monthly Updates: we strongly encourage founders to start a monthly investors/advisor letter, even before you have investors or advisors. If you’d like to include us on the distribution for these, please ask first, and then send them to updates@earnestcapital.com (which Tyler and the team check).

Odds and Ends

  • βœ… Docsend is fine
  • βœ… Calendar links are great (we use them a lot)
  • βœ… Sending a deck, memo, or video are all fine
  • βœ… Sending us monthly updates is great (see above)
  • βœ… Sending a beta invite, demo account is great (send to updates@)
  • 🚫 Demanding a reply is not cool. We go to great lengths to create as many open open channels as possible, but the trade-off is we have finite bandwidth and no control over how many inquiries we get. We do our best but do not guarantee you’ll get a reply to everything.

Investment Discussion Process

Following cold outreach, finishing Trailhead, sending an application, or a series of monthly updates, we may kick off an investment discussion. Typically this is a question of if the business broadly fits in our thesis and is in the right stage for our fund model.

Calm, remote, asynchronous: We don’t reply to emails instantly, we don’t accelerate every discussion to “let’s hop on a call asap” and FOMO-based tactics like “the round is closing soon but we can squeeze you in” will probably not be effective with us.

Generally Tyler will follow-up by email and start by clarifying or asking quick direct questions. Our process is clarify anything that’s unclear via email -> then go do our own research & homework -> then get on a call with the founder. This helps make sure we don’t waste everybody’s time working through basic questions on a call that could have been better handled over email.

The investment discussion process will either end with a “no”, a “let’s check-in in X months and please send us monthly updates”, or a term sheet from us. Term sheets typically use our Shared Earnings Agreement structure, although we can and sometimes do use other financing structures.

Investing Authority

At Earnest Capital, Tyler Tringas is the sole General Partner and has sole investing authority at the firm. Nobody else can write checks and there’s no committee that needs to sign off on his decisions. (This may change at some point in the future and we’ll provide a clear update).

Too many firms make this indecipherable to founders so we thought it was worth stating clearly.

Diligence Process

A term sheet from us outlines our intent to invest and on what terms. As with all firms, it is not a legally binding document but just a way to make sure we’re both broadly on the same page.

Negotiation: our terms are negotiable. We see a wide array of companies at very different stages so our terms can be very different from company to company. We don’t have a “take it or leave it standard offer.” However, we do try to take care to make a fair first offer and most of our deals close without negotiation. This isn’t a “high ball, low ball, meet in the middle” kind of situation.

Due Diligence: the last phase is due diligence where we will primarily focus on verifying any claims you’ve made about the business through the investment discussion. Because we do this 100% remotely, we often need to be somewhat invasive (temporarily). We may ask for access to your payment processor to verify revenue, CRM to verify customers are real, as well as any legal documents showing the company exists and you own it, etc. We keep anything we learn in the strictest confidence, but it is necessary for us to operate 100% remotely and prevent fraud or misrepresentation.

Quirks and Nit-picks

1/ Please try to use specific numbers when describing quantifiable things:

“growth was slow for a bit, but it’s picking up lately” πŸ€·β€β™‚οΈ ->

“MRR growth was averaging ~5% monthly from Sep 2019 – Jan 2020, but is averaging 11% monthly for the last 4 months which is around $900 in net new MRR each month” πŸ™Œ

1b/ Please please don’t use cumulative figures (like “we’ve done $700k in total sales since 2017”). Talk about monthly and annual numbers as well as the trajectory over time.

2/ Please reference how you know what you know.

“Our customers love this feature and don’t care that we don’t have this other one” ->

“We ask all of our users a one-click poll when they sign up and >80% of them select {feature} as the main reason they signed up for a trial”

3/ We don’t care about quadrillion dollar market sizes. Please focus on traction, what you’ve learned about the market demand and how you are de-risking your business, not on how massive the business could be if everything goes perfectly.