Lessons learnt from raising $5.7m funding — For Founders!

**2024 Update: I now publish Aussie capital raising content on Substack here **

We at Nutromics just finished raising an oversubscribed $5.7m round. We learnt so much and said many times during our journey that we would share all the lessons we learnt along that way with other founders.

Headline Raise Stats

Total Time Taken to Raise: 11 months
Raise planning: 3 months (data room prep, modelling, strategy etc)
Actively Raising: 6 months (investor meetings, learning, iterating)
Closing: 2 months (due diligence, docs, settlement)
FTE Used to Actively Raise: 1 to 1.5 for 6 months (1 founder + 0.5 me)

No. Investors Researched: ~500 (US & Aussie)
No. Investors We Attempted to Contact: ~200
No. Investor Meetings: ~100
No. Investors Committed: 19
No. Cornerstone Investors: 2

Total Raise: A$5.7m
Runway: 18 months
Company Age: 4 years
Sector: MedTech, Medical Device
Stage: Pre-revenue

Australian Financial Review article on our cap raise 27-Aug-21

Want to know more about Nutromics and our cap raise? Check out these articles published in…
- Australian Financial Review
- Startup Daily
- Mobi Health News
- AuManufacturing
- Crunchbase

Before we get into it, a quick FYI — I curate a free list of 100 Aussie startup investors and debt providers on startup-funding.com.au and have selected a list of resources for founders to learn about capital raising.

Startup-Funding.com.au Resource Page Snippet

I also write article for founders, here are some of my previously published reports:

• Australian Seed Funding Analysis April 2021
• Pre-seed to Series B Analysis in November 2020
• Various other articles

Raise Prep

1. Learn the basics of social network theory — Learn the basics of social networking theory which will help you to penetrate investor networks. This is especially important if you don’t have a good investor/founder network or are trying to enter a new jurisdiction that you don’t have networks in (like we did with the US). Listen to this two-part episode of Funded
2. Prepare your data room — Data rooms can take a while to build if you haven’t done one before so start before you open your round. Here is an article on what to include in it. For the software, we used DocSend but others include Ansarada and Secure Docs or you can just use Google Drive or Dropbox.
3. Create an investor FAQ doc — Keep a shared document where you write down frequently asked questions from investors with your best answers… but don’t forget to iterate your FAQ doc and pitch as you test answers.
4. Know the difference between retail and sophisticated investors — This is fundamental to raising in Australia, you must know the rules around capital raising, the types of investors you can accept funding from and how you can approach them (if at all). This article is a good start and this article on the Small-Scale Offering Exemption
5. Learn about the Takeover Provisions act — This piece of legislation may apply if you have 50 or more investors on your cap table which can make life difficult later on. Learn about it and be aware when working out your cap table. Summary here
6. Run your cap raise like a sales and marketing funnel — Read this article. You’ll also need some software to help you manage the process, what we used wasn’t appropriate and it made life hard, in future rounds we will be looking at Foundersuite, ActiveCampaign (try to find the startup discount!) or Visible VC. But if you are budget conscious then I’ve seen founders use Airtable, Excel and even Word/G Doc.
   These are the stages we used for our funnel:
   1. Researched (Ready to Contact)
   2. Contact Attempted
   3. Investor Replied
   4. First Meeting Set
   5. Continuing Discussions
   6. Due Diligence (DD)
   7. Outcome — No go (not interested)
   8. Outcome — Next round
   9. Outcome — Ready to invest
7. Build a multichannel cap raise strategy — To fill our funnel, we ran a multichannel strategy that comprised of inbound and outbound investor leads. Outbound was made up of cold contacts, warm intros and events. Our inbound channels included an investor contact form on our website, referrals and PR (podcasts, pitch comps, industry awards, blogs, LinkedIn, Twitter, news etc). It will likely take experimentation to figure out what mixture of channels will work best for you but remember to keep applying network theory. Inbound investor enquiries were always the most fruitful so make sure you are easy to contact.
   The best way to create your initial investor hit list is by using a Crunchbase Pro account and searching funding rounds of comparable companies by tech, sector and business models. Make sure you create alerts for new comparable deals so you can stay up to date with new active investors and deals. Eventually, as you gain momentum and your network grows then the top of your funnel will naturally start to fill itself.
8. Send monthly investor newsletters — Start this before you start raising, show investors that you can communicate with them. The monthly investor newsletter is extremely useful to current and prospective investors but equally as useful to the founders and broader team as you are forced to reflect and communicate. Make sure you ask every investor you talk to regardless of the outcome (yes, no, maybe) if they’d like to be on your newsletters! Here is a good article on it
9. There is no perfect pitch deck — Because every investor is different, I don’t believe there is a perfect pitch deck or structure but there are some generally accepted structures that can guide your first iteration. However, your deck should be constantly evolving as you progress with your raise.

Raising

1. Cold intros rarely work — Yes a lot of investors say that cold outreach works with them but unfortunately it is rarely true (it also may be that we just weren’t good at it). Our reply rate for cold outreach was <5%. Every cold email we sent required 30mins — 1 hour of research on the investor, their portfolio and the best partner to contact. If you do the math on the amount of emails we would need to send to get our required 80 investor meetings then that would require 1,600 contact attempts requiring 800–1,600 hours of research before sending the emails…. not scalable. However, it doesn’t mean you shouldn’t do it but just make sure it isn’t your only strategy.
2. Be persistent, like really persistent — It is an investors job to find good investments and it’s your job make them discover you in the sea of deals they see everyday! Sometimes this means attempting contact many times in many different ways.
   Sometimes we attempted to contact strategically important investors 3+ times during our raise. Eventually we got through, we may start with a cold email and end with them discovering us or us finally finding the right warm intro.
3. Go after a lead — To make your cap raise pop, you really need to find a lead investor first. Ask investors in the first meeting if they lead rounds. You will invariably discover non-lead investors as you hunt for your lead so stress less about them.
4. Control the narrative — When asking for warm intros, make it super easy for the person doing the intro by providing them with a deck as well as some text that details your company, problem space, team, traction and solution. This will ensure that you have a higher warm intro success rate as you control the story you are communicating (no one knows your business better than you).
5. Strategically approach investors — Not every investor is right for you, do your research before attempting contact.
6. Practice on small and non-strategic fits — It’s likely that cap raising doesn’t come naturally to you and therefore you should practice before you go after the big dogs.
7. Start raising 12 months before you need the $ — By this I mean start talking to investors and building relationships 12 months before you need the capital. Early-stage funding is very relationship driven and it takes time to build those relationships. If your business will continually need capital then always be meeting new investors and building your network.
8. Ask founders for investor intros — Other founders just get what you are going through which makes them your greatest allies. The most useful founders are those who are ahead of you (and have raised capital before) which can warm intro you to investors that they have already built relationships with. We also found cold founder outreach was extremely effective if you have a compelling story and reason to be contacting them (investor intros isn’t one of them).
9. Allocate your time proportionally to investors based on their cheque size, availability of funds and your round size — There are a lot of investors in the world but they aren’t all equal for a variety of reasons such as cheque size, availability of money, experience, objectives etc. So allocate a proportional amount of your time to each investor considering these variables. For example, if an investor can only manage a $5k cheque and you are raising $2m then don’t spend 10 hours in meetings and responding to due diligence questions. Make sure you qualify investors early on by asking their cheque size.
10. Every investor is very different — Don’t attempt to predict and generalise investors as they all have different levels of knowledge, objectives, experience and motivation. Interestingly enough, every time we attempted to forecast the outcome of an investor meeting, we were wrong.
11. Take every meeting — As every investor is different there is no way of forecasting where the meeting will lead (if at all). For example, some very experienced deep domain investors in our space had negative experiences with similar businesses to ours which meant they were reluctant to invest in the space again but on the other hand some investors had been personally affected by the problems we were solving (and they hadn’t publicised it) which made them extremely passionate about our problem/solution space.
12. Have weekly cap raise meetings — If you are raising with a team then hold a weekly hour-long meeting where you review cap raise progress such as meeting outcomes, tricky questions, new warm intros, PR ops etc.
13. You’ll know when they get it — A lot of the time it can feel like you are pushing shit up hill but you’ll know when an investor gets what you are, why you are doing it and your potential. When you find those investors it is one of the greatest feelings.
14. The best investors are usually the best for a reason — There is a reason why some investors are top tier. In our experience they usually have clear websites and well defined processes that give you an answer in a timely fashion.
15. Investors are humans too — Sometimes investors have shit days but it’s hard for you to know that so try to give them the benefit of the doubt and push through. If they continue to be hard to deal with then move on.

Math

1. Angel investor math — To understand what likely motivates an angel investor we need to understand the math behind their decisions so let’s do some back of the envelope calculations.
   Let’s say that an angel investor invests $25k per investment and completes 4 deals a year which would equal $100k per annum.
   Now let’s assume that that investor needs to talk to 120 companies per year to make those 4 investments and it takes 1 hour per initial meeting (120 hours) plus the time it takes to carry out due diligence on interesting opportunities as well as mentoring and the like. Maybe they spend 200 hours a year on angel investing.
   Now let’s assume that they angel invest for 7 years straight at $100k per year which equals $700k and they allocate 5% of their net worth into startups which would give them a net worth of approx. $14m.
   So the question must then be asked, why would someone worth $14m spend 200 hours a year to invest only 5% of their portfolio?
   Whilst we found that angel investors are definitely financially driven, they are also driven by ulterior motives like impact, passion, using their domain experience, wanting to get involved in something exciting and a whole range of other reasons. But as I’m sure you’ll come to realise, every investor has a different reasons. But understanding this math and their motives should help you when talking to angels.
2. VC math — This will help you figure out what kind of venture capital funds you should be targeting based on what kind of business you are building. Check out this article
3. Cap table math — Learn as much as you can about what cap tables are, how dilution works and what future raises will do to your ownership stake. This can get messy when using SAFE Notes and Convertible Notes. The easiest way is to just start modelling out approx. future raises. Also, learn what “fully diluted” means. Here is an article to help you get started but Cake Equity does a great job at automating a lot of this.
4. Carve out an ESOP — Make sure you have an employee share or option scheme setup for future employees, somewhere around 10% would probably do the trick. This article by Cake Equity details the basics of ESOPs and ESSs.
   Also, be aware of the math for employee share schemes and how they influence cap table dilution and share pricing (including it pre or post money).

Other Tips

1. It’s a full-time job — Be prepared to allocate around a full time resource for capital raising. We had between 1 to 1.5 FTE at anyone time working on it.
2. Have a good support network — Fundraising is full of extreme ups and downs. When investors reply, take meetings or start DD it is electrifying but when investors stop replying, contradict themselves, don’t value your time, are rude or give you a no then it can send you into a spiral of self doubt and negativity. You need a good network of people that you can lean on to vent your frustration and talk through feedback but also share the highs with. This network can be made up of your team, existing investors, external founders, community groups and the like. Trust me, you will need it.
3. VC Course — Look into doing a course on the basics of capital raising and venture capital. You’ll learn lots of tips and tricks as well as meet some interesting people. I did the VC Catalyst Programme in Melb but there are a lot out there like Venture Deals, VC University and others here.
4. Read “Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist” and “Angel: How to Invest in Technology Startups” — These two books will give you much needed insights into the world of capital raising. Venture Deals should be used like a manual for cap raising and Angel is an entertaining book that covers how angel investors think.

1. Twitter — Indulge in tech Twitter and follow @VCBrags for some LOLs to de-stress
2. Cap Raising Toolkits — Here are a few resources that might assist with cap raising… Startup-Funding.com.au resources page, Cake Equities toolkit and Adamant Ventures toolkit

I hope that you have enjoyed this article and learnt from our capital raising journey. Don’t forget to like this article if you enjoyed it and any feedback is always appreciated.

Founders, investors and startup newbies: Feel free to add me on LinkedIn, I love meeting interesting people!

Check out my list of 100 Aussie startup investors and debt providers on startup-funding.com.au

Startup-Funding.com.au Snippet

I’m the Aussie Startup Capital Nerd… My name is Warwick Donaldson and I specialise in Australian DeepTech and FinTech Seed and Series A capital raisings. To date I’ve worked on over 150 Pre-seed, Seed, and Series A fundraises. Hit me up if you’d like to chat.