How to fundraise: 5 steps to successful funding for your startup
Superheroes are made, not born. Startup founders such as yourself are one of those rare breeds whose perseverance and multitasking abilities are one of the best developed. Apart from setting up the company’s vision, growing the team, devising marketing and sales strategies, founders are fundraising all the time during the startup’s lifetime.
Here are 5 steps to close your funding round without breaking (much) sweat.
Know your enemy – define who are you raising the funds from?
There’s a difference between pre-seed/seed funding and later A/B/C… Rounds – here’s a short comparison between VC’s and Angels/3F’s (Family, Friends, and Fools):
|Objective||Returns||Experience / Returns|
|Decision making||Partners / Investment committee||"Checkbox"|
|Investment strategy||Defined||Flexible (& typically local)|
When there’s no universal advice on how to approach these both groups, the Founder must know the advantages and disadvantages of VC and Angel fundraising. When starting out with a fresh project, founders need flexibility and speed; thus, Angels/3F’s are a much better match than VC’s. They typically invest in a matter of weeks, with far easier legal structure (e.g., convertible notes) and different motives. Angels generally are people who are both financially and career-wise successful – they often value the experience, the thrill of joining an early-stage venture rather than expecting pure returns from their investment. VC’s are different kinds – they expect founders to meet their KPI’s / milestones and have a much more complex legal and funding structure. The fundraising process with VC’s can take months and could as well lead to failure in negotiations, thus hampering startup growth or even means its death if handled incorrectly.
Get introductions to relevant investors.
There’s no better way to approach your potential investors than getting that warm, fuzzy introduction from mutual contacts. You can download a VC database from Techstars, which is publicly available here. Alternatively, you can effortlessly search through LinkedIn Sales Navigator (or even use tools like Skrapp.io to have a complete CSV list generated from Sales Navigator). Identify investors who are:
- Actively investing (if they fully deployed fund)
- Are investing in your area of expertise – their investment focus should match the startup’s vertical
- Matched based on geographical focus, stage/ amount of investment
Move them through the pipeline.
The fundraising pipeline should be approached in the same way as a Sales Pipeline. A “No” doesn’t always actually mean “No” forever; keep the investor in the loop and build long-term relationships, but be decisive about when to close the round (remember, the longer your runway, the better you can fundraise). Try to qualify or disqualify as quickly as possible and try to move them through the pipeline swiftly.
Automate the fundraising tools – your weapons in fundraising.
Your best tools are the ones automated. Be prepared with:
- A forwardable intro email
- 5-slide Teaser Pitch Deck
- A Full-Slide Deck
Close the deal!
Startup’s valuations can vary greatly depending on the timing. Once you have your first Termsheet – use it as a FOMO (Fear-Of-Missing-Out) weapon. This is the time to close and onboard as many investors as possible. The ones that said “No” will eventually come back and ask you for a slice in the pie if they see that other well-known investors are involved. Use it as your negotiation edge and to leverage to your startup’s valuation.
Fundraising shouldn’t be hard; if you successfully manage your startup into growing revenue, there will always be potential investors. It’s just a matter of speed and timing to successfully close the round and drive your venture’s valuation. Your first “No” will hurt a bit, but if you have a couple of hundreds of VC’s down along the list – then you should treat this as your sales process – the larger top of the funnel, the greater chance of closing the round.