We’re not gonna lie. Fundraising is a time-consuming experience. As you can see in the chart below, entrepreneurs typically spend more than 4 months in fundraising mode, but to be honest, you should treat it like a permanent activity or full-time job. At least this is what we learned from our fundraising consulting experience.
There are no shortcuts. Nevertheless, we will show you tips and tricks on how to fundraise for a startup so as not to waste time during the process.
Venture capitalists or angel investors – know the difference, start fundraising early!
Before you start reading our tips and tricks on how to fundraise look at our previous article about fundraising. You will get to know the difference between VCs and Angels, how you can gain a VC database, and how to introduce only relevant investors. You may also check our startup consulting services.
What is important, in both VC and Angels fundraising cases you should build relationships early and try to nurture investors more and more. You are about to find out why this is so crucial.
One starting point for the investors
Here is my tip for the beginning if you haven’t started contacting investors yet – you have to be the one who controls the process! When founders are able to create the same starting point for a large number of investors, the investors are forced to operate in parallel. This means that any piece of information investors get has less time to spread through the network, which forces investors to make decisions on their own.
What’s more, investors are not able to get a sense of whether or not the market is moving quickly, so they need to make decisions under the assumption that it is. If they don’t operate under this assumption, then they’ll lose their chance to invest in what they’ve come to believe is an outlier because someone else will grab it.
Show investors the progress
Well, saying that, we didn’t really reinvent the wheel, but take this as a general tip – investors would like to know if you are capable of making progress. Going forward, they have to know if you are able to execute all your statements. This is another reason why you should build relationships with investors from the very beginning.
Let’s say I’m a VC – I meet you for the first time and you are a single data point for me. A dot. I have no reference point from which to judge whether you were higher on the y-axis 3 months ago or lower. Because I have no observation points from the past, I have no idea where you will be in the future. Thus, it is very hard to make a commitment to fund you.
So as an entrepreneur, most importantly tell investors what you plan to achieve by the next time you see them. Hopefully, by then you’ve made good progress. You’ll be able to give them an update on key hires, pilot customers, key tech innovations and more. Keep these interactions low-key and short. Quick coffees, newsletter, etc.
It’s a chance for you to build a relationship and for the investor to see how you think and how you respond to adversity.
3 steps to attract investor attention
Ok, now you know why it is important to get in touch with investors as soon as possible. Now it’s time to wonder how to get their attention.
Step 1: send an intro email
Why email? – you ask. It’s for one simple reason only – the guys you want to reach are very busy and don’t have time to read the long brochures, presentations, not to mention meetings. Something different when it comes to reading a short email. So, what should you include in it?
First of all, you should write max. 2 paragraphs about your startup. It must be briefly like an elevator pitch. Then, present a relevant statement. Show recipients why it’s relevant for them, what are the main arguments in favour of you, and at what stage is your product (if you have an MVP it’ll be your great leverage). Another important thing is a simple question i.ex:
- Can we have a quick call?
- Do you want to know more?
- Can I send you more information about the product?
Step 2: show your 5-slides deck
Be ready when investors answer so you can send them a teaser in the form of the so-called 5-slides deck. In that short presentation showcase 5 main issues:
- Problem – why people/users need your product.
- Solution – how it resolves the above problem.
- Market – who are your future clients and how big the market is.
- Traction – what is your business traction. The higher the traction, the more investors are attracted to the organization.
- Team – present your team, their competencies, and experience in what your startup does. This is very important and can determine whether you will be considered a credible startup.
What is the desired reaction for that teaser deck?
Step 3: full deck for a meeting
Whether you meet face to face or online, you have to be well-prepared. We advise you to create a full deck in which you include the following 10 positions:
- Team – team background with logos, what you did, why did you start this?
- Vision – why do you exist?
- Problem – what problem do you solve and why?
- Demo – show how you product work.
- Traction – customer / user / revenue growth.
- Marketing / Sales – how are you selling / intend to sell, what are your metrics?
- Business Model – how do you make / intend to make money?
- Differentiation – how are you better from your competitors?
- Opportunities – market & growth potential in $$.
- Funding – milestones in the next 18 months and how much you raising.
Preparing for the meeting, put yourself in the role of an investor. Think about what and why is interesting for them. Talking about an idea, vision, problem and its solution is important because it shows that you have learned your lesson and can be taken seriously. But don’t be under any illusions that the idea is more important than the ability to execute it. The most significant thing, however, is the money and opportunities that your startup offers in this aspect.
Take advantage of automation
Perhaps you are wondering how to build a list of potential investors and how to contact them all at the same time. Fortunately, we have for you another tip on how to fundraise.
The most important information is that you can easily automate your VC’s list! Follow the instructions:
- Go to LinkedIn Sales Navigator and buy a Premium account. This is where you can filter a list of all VC’s existing in Europe and the United States.
- Download Skrapp.io Chrome addon and then you can export all your LinkedIn prospects with a simple click: you’ll get their email address, company name, position, website and so on. It’s easier to prepare a funnel when you have a CSV list.
- Upload them into your CRM or email marketing software to run it through. Now you can manage your automated campaign and measure the results!
Easy, right?
Tell your story – get the excitement!
So, you have a meeting… During or right after that the investors will have to answer 3 seemingly uncomplicated questions:
- Do I understand that idea?
- Am I excited by it?
- Do I like the team?
Do you want the answers to be favorable to you? Hard selling is not an option! Remember one thing: it’s easier if you could build your pitch deck as a narrative. Use the fact that people love to hear stories! Moreover, there’s no definite guide on how to build a pitch presentation – you can freely arrange all these topic areas in a different manner. The most important thing is that you should feel comfortable telling your story.
What’s more important during the meeting? Stick with the script and your story which you prepared, but be flexible. Let the audience ask you questions. And it’s ok to share things that you don’t know. It’s ok! Just be honest and do not lie. Lying will put you out of the current investment and potentially other investors.
Questions you should ask!
You finished your pitch and answered all the questions. Now, it’s your turn! After all, you want to know what impression you have made, right? So, what are the questions to ask investors?
- What are the next steps? – you have to know when you could expect an answer from them.
- What concerns do you have? – this will give you a hint of what they’re thinking.
- Do you lead or follow? – so it’s a tricky question and will determine the time spent with that investor – if someone’s saying they’re leading, make sure that they have an early commitment and push for Termsheet right away.
- How do you think you can help our company and how does your firm think about following investments? – funds that can follow on with the next rounds will generally support you through the next rounds or even lead the next rounds, the really great ones will have their own team supporting you through the journey.
Be patient
Remember not to be discouraged! According to data most of you will have to pitch more than 11 investors (which isn’t bad at all) during a single fundraising round. Consider it as a great number of opportunities to establish business contacts and substantial, valuable feedback.
Do not exaggerate with the valuation
Last but not least – always start lower with your valuation. It’s not like it’s gonna be set and stone during the whole time of your fundraising process – all the big headlines of multiple investors, large round size, incredible roster of business angels, and sky-high valuations are just the after-effects of the ability of the founder to control the process and create FOMO (fear of missing out).
Determine the round size early – you may set your round size to $1 mln but depending on the demand and FOMO skills – it may rise to $1,5 or $2mln.
What are the factors that affect demand and FOMO in your case?
- Outstanding team with strong product sense
- Strong domain expertise
- Excellent, convincing founders
- Product loved by early adopters
- Strong engagement.
Build your ecosystem
As you know for sure, relationships play a very important role in fundraising. It is not only about keeping them with current and potential investors but also about the network of contacts. Try to build an ecosystem that also includes mentors, advisors, promoters, partners, supporters, journalists, etc. Why is it crucial? Not only because of mutual help opportunities, exchange of knowledge, but also because of the fact that investors check who you cooperate with. This way you can point out and make them look at you more favourably.
TL;DR – tips and tricks on how to fundraise
- Start to fundraise as soon as it possible.
- Show investors that you are capable of making a progress.
- Do not sale, tell your story.
- Use 3 tools: intro email (automated), 5-slides deck; full deck presentation.
- After meeting ask your potential investors what’s next.
- Do not exaggerate with the valuation.
Update: Startup fundraising during the recession might be a challenge! Check our thoughts on that topic!
