In the previous blog post, we discussed preparing for the seed round - bootstrapping vs. fundraising, knowing your investors, understanding terms like valuation and dilution, and deciding what to focus on before fundraising.
Now, it’s time to get to business - let’s go out there and fundraise! In this post, we’ll walk through the fundraising process, from the first meeting to having money in the bank.
The basics
- Why is it essential to control the fundraising process? The first and most important thing to understand is that you must control the process. If you don’t own the process, it will control you, which reduces your chance for a successful seed round.
- When are you ready to fundraise? Ready for fundraising means you’re prepared to tell your story to the world and investors. The story should be coherent, consistent, and convincing. When you think you have the story in place, try practicing on other entrepreneurs, friendly investors, and domain experts.
- How long should a seed round take? Ideally, from the first investor meeting until you have a term sheet takes up to a month. However, if the process takes too long, the chances of getting a term sheet decrease significantly. Therefore, block 10-14 days for the first investor meetings.
Preparing a list of potential investors
So you think you’re ready to start fundraising, the story and deck are ready. What now?
First, you need to identify your potential investors. Prepare a table with the following columns:
- VC name
- The specific person you wish to meet in the VC (usually a partner’s name)
- Who will introduce you to that person
We recommend at least 30 names. With 30 VC names, you can expect 15 meetings. Don’t be picky at this stage. Generating a critical mass of investors is essential to take off the momentum.
Decide on a timeframe
The goal is to create momentum and intensity in the fundraising process. We recommend choosing a date, i.e., October 1st, to start the fundraising process. That means you will take the first meetings only from October 1st to October 10th, with a buffer until the 14th - two weeks. You created a process:
- Week 1: first meetings
- Week 2: first meetings and follow-up meetings
- Week 3: follow-up meetings and, hopefully, first term-sheet
- Week 4: you have a signed term sheet
You want to be careful not to bring in new investors too late in the process. Sometimes it will simply be too late for them, and they will drop since they wouldn’t be able to meet the timeframes you want.
Scheduling
If you’re planning to meet the investors within a 10-day timeframe, you will have about three daily meetings. That might seem like not much, but don’t forget that each session is exhausting since you will pitch non-stop and highly concentrated. In addition, you will need to work on the pitch deck between the meetings. Finally, and most importantly, you will have follow-up meetings with interested VCs that will quickly stack up and create a hectic schedule. You will also have commute time if it’s not all virtual. Don’t underestimate the intensity of this process!
Meeting the investors
It’s “money time.” Come to the meeting 100% ready. If it’s a seed round, all the founders should show up. If the team is 50% of the investment decision, how can an investor decide that half or two-thirds of the team is missing?
In addition, the founders should play very well together. Be careful not to show any signs of disagreements in the team in front of the investor.
First investor meetings are not the time to be shy. You need the investor to understand that this is the best team he has ever seen. Don’t spare praises. Highlight the good stuff about the founders.
Start with an introduction about what you do and your status: “we are company x, doing y, we’re raising $4m”, and we are currently taking first meetings.” It means there is still time for a new investor to lead the round, but since you’re already in the process, they can’t wait too long.
The deck
The first thing to understand is the nature of the investor’s deck. The deck is not just presented - it is sent via email to various people in the VC firm. Therefore, everything you said in the meeting should appear in the deck, which leads us to the second point: the deck should not be short, nor should it be “clean and pretty.” Instead, the deck should be detailed and complete. Unlike a TED pitch deck that is more academy-style, the deck for the investors should be more similar to an executive summary, organized in slides. A reasonable number of slides is 15.
Hidden slides are a helpful tool to come prepared for questions. When a topic is beneficial but not essential to the story, prepare a slide and make it hidden. When the investor asks, “what is your product roadmap in the first 12 months?” instead of mumbling, show a slide. It will also show the investor that you’ve thought about it and came prepared for the meeting.
Should you send the deck in advance of the meeting? Our recommendation is to refuse politely. If someone is genuinely interested in learning about what you do, they should spend an hour with you to hear the story directly. On the same note, if someone only has 30 minutes to meet you, they’re probably not interested enough. After the meeting, sending the deck is common, and we recommend doing so.
The structure of the deck is straightforward and contains the following part, in this order:
- Team: This has to come first. It doesn’t make sense to put the team in the end. The person wants to know who you are, first and foremost.
- Market: Convince the investor that this is a large, fast-growing market. Use examples like market data and customer stories. Be specific - the market is not just “cloud computing” but “troubleshooting tools for cloud-native applications.” When the market is well-defined, you can calculate how much companies (or consumers) are spending on these solutions today instead of throwing random numbers on the slide. The team and the market are the two most important sections. If you did a good job, the investor is excited to hear what you have to say next, and you control the conversation.
- Problem: What specific problem are you tackling, and why is this big and challenging (possibly technologically) one? Don’t forget the “Why Now.” If the problem has been around for five years and no one has solved it, there is a reason. (Generally, not having a “Why Now” is an excellent way to rule out potential startup ideas.)
- Solution: What is your approach to solving the problem? Why is it unique? Why is it defensible? Why wouldn’t Google/Amazon/other big companies do it themselves?
- Competition: No matter how you present your competition, it’s crucial to be aware of them and know what they do as detailed as possible. If you choose an X/Y presentation of competition, choose the axes wisely so the investor won’t lose interest. In addition, choose things fundamental to your solution (e.g., manual vs. automatic, not a specific feature). Learning about the competition is also an excellent way for the investor to learn about the market.
- Market Validation: Speak to 30 companies (rule of thumb) that have the problem you’re addressing and show their logos in addition to specific quotes is the best way for the investor to get conviction about your market. It also offers the founders’ capabilities to reach out to actual customers and get on a call with them. Keep in mind that ideally, 2-3 of these customers will be referenceable, i.e., willing to talk to the investor.
- Financials and roadmap: Some people forget that fundraising means asking for money, usually millions of dollars. It only makes sense to explain what you plan to do with this money. Show the company’s roadmap in milestones. Don’t get too specific, but show that you have a general plan.
After the meeting
If the meeting went well, it wouldn’t take more than 48 hours before you get an email asking for the next steps. We don’t suggest following up proactively unless you have a term sheet, which means you have leverage that will likely trigger an investor to act.
Following this process in your fundraising will significantly increase the chance of getting a term sheet!