We often work with first-time entrepreneurs here at Corigin Ventures. They bring a certain hunger and a unique perspective, and their ignorance to the difficult road ahead can be a weapon. But with that comes inexperience — not just in building a business (which is hard enough), but in navigating the process of fundraising. They have read TechCrunch, watched SharkTank, witnessed their buddies go through Y Combinator and raise money by snapping their fingers — often leading to many taking a way-too-casual approach.
But fundraising is hard, especially if you are not a white male in his 20s. Many deserving companies never get funding, and you really only get one bite at the apple. We have found ourselves coaching first-time founders again and again with consistent themes, so figured best to provide a one-to-many approach. Many repeat founders could probably value from a refresher as well. While many of these tactics apply to any round of fundraising, it is specifically targeted at the first institutional round, often a Seed Round.
I am not going to design your pitchdeck for you, as they are nuanced for each company, and many good templates already exist (NextView does a great job here). I am going to talk about the actual process, with a simplified, 11-step process. So without further ado …
1. Remember the goal.
Raise the funds needed from the right investors at fair terms and as efficiently as possible, so you can get back to building your business.
2. Prepare yourself.
Know what you are getting yourself into, before embarking. This is not the time to feel your way through it. Talk to every founder you know that has been through the process him/herself. Read blog posts, listen to podcasts. Ask questions. You should familiarize yourself with the time it takes, the process, and the current climate. Do all this before fundraising. Give yourself 2-to-3 months to prepare.
3. Do not stop growing.
It is often said that fundraising is a full time job. Unfortunately, you do not have the luxury of ignoring your other full-time job as founder/CEO. Unfortunately, neither can be outsourced (please do not have your biz dev person run fundraising). You will have to work harder. If you have a co-founder, one should focus on fundraising, the other on the business. This is imperative for 2 reasons: 1) momentum is everything in startups, and it is hard to pump the gas immediately after the brakes, and 2) the fundraising process can take months — investors will be following along, and any hiccups in the business can scare them away.
4. Know your business.
See ‘Goal’ above. How much you raise is very important, not only to your strategy, but to how investors view you. Enough to really move the needle and hit those next milestones, but not too much that you will be inefficient and the pricing does not make sense. General rule of thumb: plan to raise 18-to-24 months of runway, and give up 15-to-25 percent of the business. You should also reflect on where you are in the market: will this be a hot deal? Are you a first time founder? Are you well-connected and/or respected? Is seasonality a factor? Do your numbers stack up? There is confidence, and then there is delusion.
5. Set your sights.
Make a list of target investors. For first time founders, I would suggest a minimum of 30-to-50, to start. It is important to be thoughtful about the rankings, so do not just list the 30 biggest funds — it is about the right fit for you, whether that is size, sector, strategy, etc. Do your research. Leverage resources like Mattermark, CBInsights and Pitchbook. Keep in mind, it is not just the ‘fund,’ but the specific partner.
You are then going to segment/rank them, as you want to go out in short burts. VCs talk to one another, so do not blast them all at once. Go to your first tier, hopefully garner some interest (maybe a commitment), then leverage that with your later tiers.
6. Be organized.
While we applaud founders for being “scrappy,” you still need to be organized. It will save you time, and lead to a higher hit rate. We have created a template that we give to our founders — feel free to use it as it (just copy/paste) or use as a framework. This will act as a hacked-together, shareable CRM for your fundraise. It will keep you on track, ensure you do not drop the ball, and leverage your network.
Basic instructions on the first tab below the pre-filled rows. I will follow up with another post that goes into this tool a bit deeper.
7. Leverage your network.
See ‘InvestorX’ to the right of the spreadsheet? This is for your network to participate in the process. Fill each column in with your close network — advisors, investors, etc — and share the document with them (Google Docs works just fine). Here they will enter any relevant notes adding context to a firm/partner, and whether they have or can get an intro. This is one of the most valuable things an investor can do for you — do not be shy in asking.
This will also save you a ton of time in that investors will be in the loop in the process, and will not need constant updates.
I am skipping ‘the pitch’ itself, as that could be the topic of a post by itself (and has been many times). But the follow-up is often ignored. As a founder, you want to maintain control over the process and the cadence — try to gauge an investor’s interest at the meeting, and get a real understanding for their process. Set up the “next steps” before leaving, whether that is sending certain info, a follow-up call with a colleague, etc. As always, be honest and transparent about where you currently are in the process.
9. Make it easy on them.
Investors see hundreds if not thousands of pitches, so they are looking for reasons to say “no,” not “yes,” Do not give them that reason. This is where the ‘data room’ comes into play. You will have to gauge when to give access, but it can be an incredible tool to a) save tremendous time in setting everything up just once, as opposed to sending piecemeal to individuals, b) allow you to keep them up to date, c) answer questions before they are asked and d) show that you have your shit together. Doreen Bloch, founder of Poshly, does a better job than me explaining the process and value, and opened up the kimono here. I have recently been seeing founders leveraging an evolving document around investor FAQ — basically writing out the questions (and answers to) that they keep getting over and over, so they do not have to answer them individually. Seems to work well.
10. Always be closing.
Sorry, I try to incorporate one Boiler Room reference in every post. But it is true — many founders play things too cautiously, figuring an ongoing email dialogue will suddenly turn into a signed term sheet. It does not work that way — ask for it!
11. Have fun.
Just kidding. It is not fun. Do not go into it thinking it will be. Prepare for it, create a plan and execute it. Then go have fun building your business with your newfound partners.
Many of the above-mentioned topics could undoubtedly be further fleshed out. I would appreciate your thoughts as to where you would like to see a deeper dive.
Image credit: CC by Matthew_Anderson