How to Raise from Strategic Investors: The R3 Playbook

Raising over $100 million is an incredible feat. Raising it from 46 different investors is a logistical nightmare. Raising it from 46 investors who are mostly direct competitors—some of the biggest banks in the world—seems impossible. Yet, this is exactly what R3 did.

The story of R3’s $107M Series A in 2017 isn’t just a tale of a massive fundraise. It’s a tactical playbook for any founder trying to sell a paradigm-shifting technology to a conservative, entrenched industry. Co-founder Todd McDonald’s journey from Wall Street trader to fintech founder reveals a masterclass in de-risking a venture by turning your first customers into your first investors.

This is how they did it, and what you can learn from their unorthodox approach.

From Wall Street Insider to Startup Outsider

To understand R3’s strategy, you first have to understand the insight that drove it. Todd McDonald wasn’t a fresh-faced coder with a novel idea; he was a Wall Street veteran who lived through the transition from analog to digital trading. He saw firsthand how slow, bureaucratic, and resistant to change the financial industry could be.

After years in the trenches, his curiosity was piqued by the 2013 Bitcoin price chart. But it wasn’t the price that hooked him—it was the underlying blockchain technology. He and his co-founder, David Rutter, recognized its potential to rebuild the financial market’s plumbing. But they also knew that no single bank would—or could—do it alone. The industry’s core challenge is coordination.

This insider knowledge was their unfair advantage. They knew the mistake most enterprise startups make: building a product in a vacuum and then trying to force it onto the market. They decided to do the exact opposite.

The R3 Playbook: Turn Your Customers Into Investors

Instead of writing code or building a pitch deck, R3 started by identifying their customers. They went to the world’s largest banks with a novel proposition that wasn’t an investment pitch—at least, not at first.

Step 1: Don't Ask for Investment, Ask for a Membership Fee

R3’s initial ask wasn’t for venture capital. They asked banks to pay a membership fee to join a consortium dedicated to exploring and co-developing enterprise distributed ledger technology (DLT).

This is a critical distinction. It reframed the relationship from a high-risk equity bet into a more palatable R&D or consulting expense for the banks. You aren’t asking them to bet on your company; you’re inviting them to a joint research project to solve a shared problem. This lowers the barrier to entry and gets you paid to validate your market.

Step 2: Get Paid to Find Product-Market Fit

With an initial group of banks on board (starting with just eight employees), R3 didn’t build a product and present it. They built it with them. This "pay to co-develop" model is a powerful GTM strategy for deep tech startups:

It guarantees relevance. The product, Corda, was purpose-built for regulated markets because the regulated markets themselves were designing it. · It de-risks the technology. By focusing on the specific needs of finance—like privacy and scalability—they avoided the generic, public-blockchain pitfalls that made banks nervous. · It builds deep relationships. McDonald and his team weren't just vendors; they were partners. This trust became their most valuable asset during the fundraise.

Step 3: "Flip" Members into Equity Holders

The masterstroke was the plan to convert these paying members into equity investors. The membership fees were essentially a down payment on a future funding round. Having already invested time and money, the banks were now deeply embedded and incentivized to see the project succeed. They had skin in the game long before the cap table was even drafted.

A Masterclass in High-Stakes Fundraising

With dozens of banks in the consortium, R3 kicked off its formal fundraising process. Their goal was always to be an independent software company, not a bank-owned utility. This created inherent tension and led to one of the most complex funding rounds in startup history.

The Challenge: Herding 46 Competing Investors

Managing a round with 46 investors is a full-time job. When most are competitors, it’s a diplomatic crisis. The key mistake to avoid is treating every investor equally. In a round this size, you need anchors and followers. Without a clear lead investor setting terms and whipping votes, the process descends into chaos, with each investor trying to add their own self-serving clauses.

The Near-Death Moment: Surviving Signaling Risk

Every founder fears a key investor pulling out. For R3, this threat became reality when Goldman Sachs, a high-profile consortium member, reportedly considered dropping out of the funding round.

This is known as signaling risk . When a "smart money" investor walks, it signals to others that there might be something wrong with the company, triggering a cascade of doubt. So, how did R3 survive what could have been a fatal blow?

Deep Trust with Other Investors: They had spent months building real relationships. Their other backers knew the team and the technology intimately. They weren’t just relying on Goldman’s judgment; they had their own conviction. · An Anchor Strategic: They had a crucial long-term supporter in SBI, a Japanese financial giant. This "anchor investor" provided stability and commitment, bridging the gap and holding the syndicate together when it could have fractured.

The lesson is clear: never let your fundraise hinge on a single name. Diversify your relationships and cultivate a true anchor investor who believes in the long-term vision, not just the momentum.

Ultimately, in May 2017, R3 closed the round at $107 million with 46 backers, including strategics like Intel Capital and Temasek, proving their model could succeed.

Common Founder Mistakes When Raising from Strategics

R3’s story is a powerful guide, but it also highlights the dangers of strategic-heavy rounds. Here are the common mistakes to avoid.

Mistake 1: The "Frankenstein" Cap Table

A cap table filled with competitors is a recipe for disaster if not managed carefully. Your board meetings can devolve into arguments as investors push for features that benefit them at the expense of others.

How to avoid it: From day one, establish a strong, independent product vision. Your job is not to serve the needs of one strategic; it’s to build a platform that serves the entire market. Grant board seats sparingly and ensure governance is structured to prevent any single strategic from hijacking the roadmap.

Mistake 2: Becoming a "Captive" Company

When your customers are also your owners, it’s easy to lose your independence and become a glorified R&D arm for them. R3 was adamant about its goal to be a standalone software company.

How to avoid it: Be explicit about your long-term vision. Your narrative, legal structure, and financing must all point toward independence. Use the strategic capital as a launchpad, not a long-term home.

Mistake 3: Underestimating the Management Overhead

Strategic investors require more management than financial VCs. They will want regular updates, partnership meetings, and internal briefings. Multiplying this by 10, 20, or even 46 is not sustainable.

How to avoid it: Designate a clear lead investor. Even in a consortium, someone needs to be the point person for communication and major decisions. Otherwise, you will spend all your time managing your investors instead of building your company.

How to Apply This This Week

You don’t need to raise $100M to apply the lessons from R3. If you’re building an enterprise startup, you can act on this playbook immediately.

Map Your Dream Customers: List 5-10 companies that would be dream customers. These are your potential consortium members. · Draft a "Paid Discovery" Offer: Sketch out a one-page proposal for a "Consortium Membership" or "Innovation Partnership." What would you give them for a fee of $25,000 to $100,000? Think early access, a seat on an advisory council, and the right to co-develop features. · Write the Outreach Email: Draft a concise, non-salesy email to a champion at one of these companies. Frame it as an invitation to a joint exploration of a critical industry problem, not a pitch for your solution. · Identify Your "Anchor": Look at your target list. Who is the most forward-thinking, long-term player? That’s your potential "SBI"—the anchor you should focus on building the deepest relationship with. · Stress-Test Your Vision: Imagine your top three strategic targets are on your board. What conflicts would arise? Thinking through this now will save you from a Frankenstein cap table later.