10 things you’ll learn when fundraising
Over the past 10 years I’ve helped a number of startups raise over $20m in funding. During this time, I’ve learned a few lessons which should help stack the odds more in your favour.
- It’s a numbers game — even Amazon’s Jeff Bezos had to meet with 60 investors to raise his first $1m; more recently Brian Chesky released 7 Rejections. Don’t take it personally when they say no — this will happen a lot. It can be hard, but just get back up and keep on pitching. Be methodical about finding investors who you think will reasonate with your mission. And as always, a warm intro is best (hence, spend some time building a network and helping others).
- Iterate on the deck (and the business) during the roadshow — did the first 3 or 4 investors say the same thing? Are they stopping the flow half way through confused or asking the same questions? Time to go back and work through the story, the flow, the images or whatever else might be confusing them. Similarly, are your revenues based upon some estimation, with no data? I’d recommend spending a few days or weeks on getting some data — even exploratory / rough data — something to validate CTRs, interest in a product, propensity to buy etc. Anything you can do to reduce “risk” or “unknowns” will help you defend the pre-money valuation you are pitching.
- Be strategic in when you start — as with everything, it’s best to have a strategy. There’s no point in waking up one day declaring that you’re going to start fundraising there and then. You’ll most likely have to start planning a couple of months in advance. What KPIs are you currently hitting? What are you going to be hitting when your presenting? Are you going to be able to show constant improvement and learning? Does your industry have seasonality? Are you going to be pitching when the majority of investors are going to be on holiday? Of course there’ll never be a perfect time — all I’m saying is be smart about when you plan to start (plan for the raise to take 5 months)
- Related to (3); have milestones & achievements planned during raise — “Hey Todd, great to meet you and the team on Monday. I’ve attached the financial model we were running through. By the way, we just got featured on the front page of Techcrunch for our Partnership with Acme Co”. If you’ve got a couple of aces up your sleeve, be sure not to use them all up prior to starting your roadshow. Product launches, news coverage, internal milestones, etc. will all help demonstrate progress and success.
- Know your numbers inside out — having planned your startup’s strategy (and the underlying KPIs, cash flow, etc.) you should know all figures inside out. Prepare for questions such as “what are you burning now?”, “when are you going to break even?”, “what are you going to spend the funding on? And how many months runway will it give you?”, “what’s your GMV/CAC ratio?”. Nothing will damage your reputation more in the meeting than fluffing your numbers.
- Think about using a broker / specialist — for two of my previous deals I’ve used two different corporate finance boutiques. They can be expensive; however, they can also be useful in terms of helping you create presentations, refine financial models, introducing investors, assisting with the legals. Overall it allows you to focus a little more on running the business during the whole process than you would have been able too had you managed it yourself. They’ll typically take a cash % of the deal as well as an equity / warrants component.
- Try to cover as much ground with investors before handing it over to the lawyers — depending on the structure of your round (e.g. VC cornerstoning, angel network, or a group of HNWs) it always pays to thrash out the most common causes of friction within the Term Sheet / Investment Agreement CEO to Investor rather than having the lawyers play email ping pong — they’ll be charging you handsomely for it.
- Meet with the decision makers — Paul Graham explains this one better than I ever could: “Associates at VC firms regularly cold email startups. Naive founders think “Wow, a VC is interested in us!” But an associate is not a VC. They have no decision-making power. And while they may introduce startups they like to partners at their firm, the partners discriminate against deals that come to them this way. I don’t know of a single VC investment that began with an associate cold-emailing a startup. If you want to approach a specific firm, get an intro to a partner from someone they respect”.
- Ask them for feedback at the end of the meeting — VCs will typically have their own defined process, which they’ll have to follow regardless; however, I’ve always found it useful to ask for thoughts at the end of the meeting. I usually get a more candid and raw insight into their thought process, in addition to insight about what (if any) flags there are, as well as how it fits in with their investment thesis.
- Relax and enjoy the process — I’ve certainly fallen victim to being stressed during fundraises, it’s easy to view the whole process as a “sink or swim” moment. As most of us refer to our companies as our children, and dedicate the best part of our waking lives to them, it’s super easy to get stressed when you think through worst case scenarios. Just always take a moment to take a step back and keep it all in perspective. You’ll come to enjoy the process, talking about your accomplishments, your awesome product, team etc. Ensure you get plenty of rest, I find when I do more than 2 pitches a day, the third is usually quite poor because of exhaustion — that might just be me.