Realistic Startup Fundraising Timeline
(House keeping: Updated on Jan, 28 2022)
Fundraising is an extraordinary process in the life of a startup. And as VC focus shifts from previous years, here’s how your fundraising process needs to be adapted to post-Covid expectations.
With a lot of luck it only takes 1–2 months. Sometimes it takes nine to twelve months. Over the course of 10 years — I’m including myself here too — I’ve met many founders who had no realistic idea how many steps it would take — from “We need money!” to “The money is finally in the account”.
Here’s how founders should apply this timeline:
1. Read carefully
2. Open your Google Cal or Outlook Calendar and block the days
3. Execute
4. Don’t give up!
Please don’t consider the days 1–115 as working days. Count them as productive days. Here’s a graphic that shows how long the average fundraising times take. Please do not make the mistake and think your startup is from the camp that needs 1–12 weeks to finish your round.
Day 0: Oh Shit, we need Cash!
At some point founders realize: “We need further financing.”.
Ideally, the team should know about their doomsday several months before. If you have a good overview of cash flow, burnrate and runway, you should be able to recognize early when financing is necessary. I’d say that 80% of the startups in a Seed Round have too little runway.
Day 1–11: Figuring out the Equity Story
We call it the Venture Narrative. The pitch deck is developed from this.
In a written short story (300 words), you should be able to describe the story of your venture. Don’t underestimate the effort. This takes some time.
What’s our market and the gap we want to serve? What essential problem do we solve? Why is our solution working right now? Why are we the right team? And what actually drives us? If you want to get financing, you need a strong equity story that answers the above questions. This is not the elevator pitch nor is it your pitchdeck — it’s your story from a business perspective!
Day 12–15: Your Investor Persona — find suitable Investors.
If you want to start fundraising successfully, you have to be well prepared. Founders should ask themselves: Which investors are right for my start-up? Are they investing in my vertical? Am I at the right stage?
This process is like UX Research: You investigate a set of investors, find out about their business motivations and why they invest. This provides you with enough perspective how your narrative/equity story should be adopted and how your pitchdeck should be organized.
Pro tipp: Use a tool to organize contact details and your outreach. Our portfolio startups are using Trello, Mailchimp, Hubspot and Excel.
To find the right e-mail address, you use tracing tools like Lusha.
How did you structure your investor targeting and outreach?
Startups in seed stages should start with about 300-450 investors and split them up by group, round, and priority. Then look through LinkedIn and Twitter to see any direct connections from our existing network to help make warm introductions.
Pro tipp: Organize your first long list of investors well. Keep the list updated frequently. You’ll need the details again for the next round. You need to remember what you’ve sent to whom. Investors often times remember what materials they’ve received six months ago (I keep a deal flow journal).
Don’t overcomplicate the list. An Excel does the job very well.
Day 16–37: 21 Days to build and rebuild your first Pitchdeck
Every first pitchdeck of a new venture is equal the first version of a product: It’s very likely not perfect. Honestly, it’s almost far away from perfect!
However, build your first deck by using a template or example. Find inspiration in 50 Ressources For Startups And Entrepreneurs. Again, don’t overengineer but get your (business) story across.
Day 37: Evaluating your Startup
The evaluation of your venture should be discussed within your founding team and among your first friendly investor contacts.
Some tools like PwC’s startup valuation (€149) can help to formalize the value of your company. Make sure you have your data ready!
Pro Tipp: Because I‘m asked this a lot… The image above shows a valuation of 14 million. This is highly inappropriate for a seed stage. Early stage tech startups should be in a €1.5M to €4.5M range (post money).
However, Covid made startup valuations rise. With more investors considering investments more carefully, the valuations will fall again.
Day 38–40: Build your One-Slider
A founder should never send his entire first pitchdeck to investors with his first outreach. For this reason you create a One Slider. This One Slider consists of all the important elements of your full fletched pitchdeck. With only one limit: Keep it on one horizontal or vertical page.
This task is also helpful to train your narrative adn elevator pitch. If you don’t get the important aspects onto one page, you’re probably not ready yet.
Day 40–70: Getting Intros and Attending Events
We at WSN Angels & Startups have never invested in a startup whose team we have not met before at an event or introduced ourselves to through an intro. However, the founder should consider how to get in touch with the investors of his choice.
And yes, it’s a longer process that runs in parallel with the next step. As a founder, if you look at the top your funnel (your prospects), you should consider having 100+ qualified conversations and up to 80 in-person meetings before closing a Seed or Series A round. Folks, don’t underestimate this number!
If you want to hear it first-hand, I reccomend watching this TWIST episode (jump to 1:02:00) about qualified leads and the fundraising process by jason (Jason Calacanis; discloser: we co-invest(ed) together in a syndicate in several startups) and his Launch team.
However, some of the seed stage startups had to contact only 20 to 30 investors to close their round. When I look at the type of startup then I quickly see that it’s their existing investor funnel and experience from an earlier round.
If you contact more than 30 investors and none of them agree to invest, something may be off about what or how you’re pitching. Take their feedback seriously and make changes to your pitch before contacting more investors. If you still haven’t closed investors after contacting 30 of them, you should seriously rethink either your timing in the market or the project. A few companies raise money after contacting more than 100 investors, but that scenario is rare and a big drain on your time.
Day 71: Elevator Pitch with the right Investor
Before the pitch deck is sent to various investors, the investor should be addressed personally at events or through an intro.
If the elevator pitch is right, the investor will deal with the pitch deck.
Here’s a rundown of how an investor can be contacted, by Nicolaj Højer Nielsen, Author of The Startup Funding Book.
Day 71.5: Use Software To Track Individual Investor Outreach
Generated individual links per investor, and track everyone that opened one of our links. You’ll need this to go back to investors who spent time on our pitch deck! Software recommendations are DocSend. The service helps you to understand the time spent each slide. It’s designed for mobile use and monitors how the deck is used. The best feature is that it lets you make changes to the document such as fixing errors and updating permissions even when it’s already in the recipient’s inbox.
If you don’t want to use DocSend, search for alternatives or use a simpler Bit.ly to learn if your deck was downloaded or not.
Pro tipp: However, I’m not a big fan of pitch decks which I cannot download. Often times, in later funding rounds, I go back to my archive of more than 300 decks and compare a deck with other investments or previous decks of the same startup. This is part of an investor’s deal flow.
Day 72: Contact List Fine Tuning
Sometimes startups get a rejection for a simple reason: The pitch has landed at the wrong partner of the VC firm or of the angel network. Therefore, the startup should do a good research to find out which person is responsible for which topic.
Just recently I disovered a great source to find investors in similar spaces. The website is called Signal. You can organize your lists and outreach there too.
Fine tune your outreach email. Don’t get too special. The most exciting emails are short, to the point and without longer explainations.
Pro tipp: Again, use your CRM tool of choice to organize your outreach and potential dealflow.
Pro tipp II (thanks to Ryan for writing me): Keep your potential investors informed about your progress.
Day 72–80: Responses and Invitations arrive in your Mailbox
Your story starts to work, at least in parts. The first investors find the topic exciting. Unfortunately, an invitation to a pitch does not always mean that the investor actually wants to invest. Investors invite teams, although they know that they will not invest. In 9 of 10 cases you should be prepared for a “No”. Just use every opportunity to pitch and train your investor senses.
When it comes to pitch appointments, start with the 2–3–1 rule. Your second best investor should be your first pitch. The third most important investor is your second pitch. Guess what, you keep the A-list investors for your third to 60th pitch. No joke. prepare for a long pitch period…
Day 81: The Investor Pitch
The day of the pitch has come. Now it is time to go to the meeting self-confidently and well prepared. One thing is particularly important here: Enthuse the investors about you and your topic, but don’t pretend to them anything that doesn’t exist — they would find out at a later date anyway.
Pro Tip: Please consider early stage is about trusting in you, the idea and the team. Later stage is about trusting the data.
To illustrate the process at the VC firm, I created this infographic:
Day 82–85: An Investor’s Deep Dive Into the Topic
How investors evaluate your pitch and business, is not a myth anymore. Find some details here. In most larger VC firms, the analysts and VCs discuss the market, team and potential in their weekly evaluation session or partner meeting. Sources like cbinsights.com help investors to understand market and evaluation.
Pro tipp: Try to understand how investors evaluate your venture.
By publishing about your market and the opportunities on LinkedIn, you can make your contacts understand the market as you do.
Day 86: Investor’s Decision to invest in the Startup
Typically, VCs make the investment decision during the partner meeting. This usually takes place every Monday. If an investor is very excited, he will give you a call and speed things up.
Day 87: Investors suggest a Term Sheet
The term sheet is the endgame everystartup and investor want to get into. If the investor wants to invest in the startup, he will probably propose a term sheet to start the process under his conditions.
If the startups is proposing a term sheet, it shold be simple and easy to understand. I often times saw term sheets six pages long. Our U.S. startups often use the Y Combinator term sheet example (incl. a Word download). Here’s a deep dive for terms in the EU (in German).
After the term sheet is signed, don’t get caught in a term sheet limbo.
Day 85–90: Negotiating the Term Sheet
The cornerstones of the investment are negotiated here — this is the most important negotiation of a financing round for both sides. In addition to the investment sum and the shares, liquidation preferences and pre-emptive rights are particularly important.
Key data includes investment amount, valuation, liquidation preferences, vesting, ESOP, investors’ rights, pre-emption and co-sale rights and obligations, veto rights and guarantees.
Day 91: The final Term Sheet is signed
The most important key data of the investment are negotiated and the Term Sheet. However, it is a non-binding commitment, but the fixed terms are rarely renegotiated — unless irregularities occur during due diligence.
Key data includes investment amount, valuation, liquidation preferences, vesting, ESOP, investors’ rights, pre-emption and co-sale rights and obligations, veto rights and guarantees.
Day 92–100: Legal, Financial, Tech and Team Due diligence by the new Investors
During due diligence, the investors check the startup in more or less detail. The better the startup is prepared for the DD and has all relevant data and documents ready, the faster it will be carried out.
There are four types of due dilligence documents you need to hand-over: Financial statement and annual projections (projections help to learn how a founder thinks), list of referrences (learn how customers perceive the problem being solved, key members of team, current investors, advisors), current and pro forma cap tables (for example: Founder A: 45%, founder B: 30%, existing investors: 15%, allocated options: 2%, unallocated option pool: 8%), investment documents (for example if you’ve been doing any SAFE rounds).
Pro tipp: Make sure you have all your documents structured. Hand over folders with single contracts and also the founding documents. Our latest DD was based on this folder structure: Legal, HR, Financials, Technology, Marketing. By providing access to the startup’s Dropbox account, you speed up the process by 2x.
Pro tipp II: Create another folder with important and insightful statistics, white papers and everything else that informs a Due Dilligence team. This is not needed for a family and friends round, but it will help to understand the market you operate in better.
Day 100–105: Paper Work
Parallel to the due diligence, the lawyer of an investor or start-up takes over the drafting of the contracts. This is where what is “meant” in the negotiations and in the term sheet is poured into a contract. If this is done by an experienced law firm, it rarely takes more than two to three feedback rounds to satisfy all parties and finalise everything.
Day 106: Notary Meting
The negotiations of the past weeks have been sealed by the notary. The notary reads all relevant documents and makes sure that all shareholders sign correctly. It happens again and again that one of the parties wants to renegotiate certain terms during the meeting — either because these have only just been understood or because one is not yet satisfied with the conditions.
Pro tipp: 48h before the notary meeting, make sure that all parties receive a summary with the most important facts. Make it explicit that no changes can be made during the notary session.
Day 107–110: Investors make their Capital Infusion
Ideally, the investors transfer the share capital immediately after receipt of the documents. But it can take a few days before some investors get their hands on it.
If you read some Medium articles carefully, you’ll notice that it happens that some investors delay their payments. I personally experienced a delay in payments to renegotiate terms of the deal again because certain KPIs were not hit in the past weeks.
Day 111–114: Founders report complete Payment
to the notary and the notary announces capital increase at commercial register. Only when the commercial register enters the capital increase, the investor becomes officially a shareholder. And yes, in Germany it can take a week. Same in the U.S.
Day 115–145: Now it’s Time to grow! Don’t forget to setup your Investor Relations
The capital has hit the bank. Now make sure you’re doing your investor relations right (thanks to Jay Levy). Why? Because 75% of founder feel their investors are sufficiently updated. Only 58% of investors feel their companies keep them sufficiently updated. From a angel fund’s perspective, I can confirm that. With our protfolio companies, we agree on monthly updates or 10 updates per year. In 4 out of 10 ventures, we jump on weekly calls.
And it’s easy! Simply send a Welcome letter to all the investors and continue the conversation from there.
This article was inspired by Daniel Höpfner’s timeline on Gruenderszene. Our team discussed the original article and changed the timeline according to our experiences.
About the author:
Steve Nitzschner is the founder, CEO and Head of Investments at Wildstyle Network. The Berlin, Dresden, Brooklyn and Shanghai based digital creative agency has invested in more than 20 early and pre-Seed stage startups across the globe. Steve is also a Google Launchpad mentor and has accompanied over a dozen startups for Google. Being the chairman of the AI IN AUTOMOTIVE conference, Steve has digital entrepreneurship knowledge in #robotics, #ecommerce, #socialimpact, #internettechnology #mobile and fintech. Read more here: https://www.wildstyle-network.com/angels-and-startups
