Design Your StartUp Fundraising Process — 3/3

You are sure that you should be spending time on fundraising. You understand how investors work and defined your goal.

It is time to design your fundraising process and the experience you want to create for yourself and investors.

In this post you will learn how to prepare your initial materials and how to close investors.

Preparing your initial materials

Story and Pitch-deck

The most important item to prepare is your story. An indicator to evaluate your ability to tell your story is that you are able to formulate it in one sentence. You need to understand the core of what you want to communicate. The more time you have, the more detail you can add.
For early-stage rounds, the narrative should revolve around raising funds to first build the product or, second, prove the business model. “We are raising 500k to build an investor search tool”.
One of the most important mediums you will use to convey that story is your pitch deck. A 10–15 slide presentation you will share with 100s of investors. Find some famous examples here.

You want to create at least two versions of your pitch deck. 
One is a teaser deck telling your startup´s story in the most simple terms. Simple, in this case, means it should take no longer than 2–4 minutes to go through the pitch deck.
The goal of the teaser deck is for the investor to start a conversation with you. You open gaps and then fill some of those with new knowledge. Others you leave open, so the investor comes back for more. 
The second is an extended version of the teaser deck. You can use it when meeting investors with established interest. It includes further details such as KPIs around retention, traffic or usage.

There are many guides on how to create your pitch deck. So I will not create another one. The ones we found most helpful:

Ycombinator guides ONE and TWO, Point 9 and template, Startupgrind, Reid Hoffman about the Linkedin pitch, Sequoia´s template and why not to use it.

Nevertheless, a large part of your story is determined by the business and traction you have built. A good looking website that does not work is still a bad website. The story of a good product badly packaged will always beat the story of a shitty product, even if it is well crafted.

Data to share with investors

Great, you just created the first version of your pitch deck that you will send to investors. Next, we prepare the data to share with investors. Technology businesses typically operate under an abundance of data. Everything is or could potentially be measured. Preparing sensible data for investors will require you to select and define KPIs that add insight into the current phase of your startup.

If you are fundraising to develop your value proposition, the data you share with investors should focus on user traction. The number of active users, usage and retention for example.

Once your value proposition is verified, you focus on developing the rest of the business model. At that point customer acquisition costs, customer lifetime value, revenue and many others become significant.

Create an investor shortlist

With our pitch deck and prepared data at hand, it is time to put together a list of potential leads. A google sheet or excel file will do. We prepared one for you here. I will introduce the other columns of the sheet in later parts of this post.
On average founders close 1% of the investors they reach out to. Therefore you will need to collect at least 100 leads to close one investor. Where do you find 100 investor leads?

The natural starting point is potential inbound investor interest
If there are no investors contacting you whatsoever, then you should probably not be fundraising right now.

You likely also have investor leads in your network. Start to note them down in a list as you get to know investors (if you don’t already), so you have the info available when you go out to fundraise.

Once you have exhausted these two options, there are lists and tools online that contain 1000s of Angel and VC investors. Realistically you will never be able to contact them all. Besides that, you want to run a time efficient process. Therefore make sure the investor you add to your list invest in your space, stage and location at the least.

GlassDollar is designed to make it simple and quick to find the best matching investors. Put together your list in about 10 minutes and download it for free.

Here are some other lists out there to complement your base:

Angel investor lists

VC investor lists

Prioritise your list

Once all done and researched, order the listed investors according to the `Probability of investment as lead/first investor` (Column F) and the `Expected value they will deliver` (Column E). Determining the probability or expected value does not need to be an exact science, you will keep updating these numbers. Just ballpark it with the information you have available. 
If you did not yet interact with the investor, then the match score on GlassDollar gives you an idea about the overall fit. 
You can also just run your list of investors against your user accounts, to quickly find those, likely to be more interested in your investment round. Federico Pascual, Founder of MonkeyLearn (used within GlassDollar), came up with this ingenious trick for their funding round.

You have now created your pitch deck, investor data and created and prioritized your investor shortlist. You are ready to reach out to the first investors.

Close Investors

Getting in contact

The investors you find at the bottom of your shortlist — the least likely/valuable investors — are the ones you approach first. You will iterate and improve your pitch as you talk to more and more investors. By talking to the highest value investors last, you make sure you are on your A-Game, once you face them. After you spoke with 30 investors, you will have answered most questions and find patterns in the way investors look at your business. You will have understood the common concerns. You are ready to convince the investors you really want to work with.

To create momentum and bring the first investor to commit, it is important to speak to multiple investors at the same time
On the other hand, you want to pace your outreach in such a way, that you can still provide a good experience to all the investors you are in contact with. That means responding to emails and data requests in a timely manner, being available for meetings and getting to know them.
Realistically in Europe, however, many founders would be happy to face the challenge of keeping up the dialogue with many investors. Getting in contact with your shortlisted investors within a short amount of time usually requires effort. It can easily be the most time intensive part of this entire process and a common place for funding rounds to derail. Therefore it is worth to evaluate the channels by which to reach out to investors.

1. You get an intro from another investor, portfolio founder or connector — undoubtedly the best way.

2. You meet them at an event.

3. You reach out to someone at the fund or the general email directly — founders generally try to avoid this.

If you can easily get an intro to an investor on your list, go for it. Here are some tips on how to make it simple for the connector.
Otherwise, you can only reach out to the investor directly or meet them at an event. Which one should you go for?

From the design of many investor homepages, you might conclude that investors do not want to receive or respond to direct mails. You’d be surprised, the majority of founders we interviewed, all received an answer or investment, using direct contact. Just a few did not receive an answer. Some had to send two emails or received an intro later. None said they were turned down, because they reached out with a cold mail initially.

On the other hand, countless startups die, because founders get caught up in attending events and chasing intros. Chasing intros and attending events are time-intensive activities. It is difficult to target specific investors at events and even if you know they will be present, you will first have to fight your way through 20 other founders waiting in line. 
The likelihood of an investor to turn you down is highest at the beginning of the investor´s funnel. Chasing an intro or meeting an investor at an event, therefore, has a huge probability of being a waste of time.

Formulate your cold mail and take an afternoon to reach out to the first ones. You researched your shortlisted investors well, you know they are interested in your space, location and stage if you found them via GlassDollar.

A note on sharing your pitch deck

The cold emails you write will include your teaser pitch deck. Some founders are scared of their deck being shared with others. Don’t be. Much rather than trying to prevent investors from sharing your deck, embrace it! Most often it means they are interested in your company and look for allies and confirmation from their peers. They do your lead generation and pitching for you, let them.

If you are worried about your idea being stolen, then it is about time you learn this truth. It is in the execution.

Don´t overpromise

Assuming your goal were to raise 500k, tell investors you are looking for 250k. Once you have the first commitments you can increase the size of the round to 500k. 
Your narrative changes from “we have not achieved our fundraising goal yet, join anyway?” to “we have increased the size of our round because of the interest we had.
The same counts for telling investors about KPIs you plan to achieve a month or two from now. They will always ask if you achieved them. It is not so much about the KPI and much more about you achieving what you say you will achieve.

Track interactions

With at least 100 shortlisted investors and speaking to many of them simultaneously, it will be hard to keep an overview. You will likely write more than one thousand emails and have hundreds of conversations, so over time, it will be difficult to remember who received what kind of information at what point in time. The list you put together will develop into your tracking tool. If you use the Google Sheet I introduced earlier you will already have spotted some additional columns.
Next, to the expected value of investors and their probability of investment you used to prioritise your investor list, you could include columns like: Status of each investor, documents you shared, date of the last contact, next steps. 
Some founders prefer to use Trello or Pipedrive to track their progress. Choose whatever you feel serves you best.

Keep updating the investment probabilities and the expected value of investors after every interaction. That will help you to stay focused on the right investors and ensure you naturally drift away from the ones that lead you on.

Investor Meetings

Your goal in meetings is for the investor to talk, for them to actively think vs. just passively receive information from you. At that point they are mentally committing to an investment.
To make that mental commitment a continued reality, you must be clear what the investment process with the investor looks like, where you are in it, and how fast you are progressing. Interested investors are usually happy to talk about next steps since they are already thinking about them. If they do not want to or can not talk about it, slow down your interactions with them.
This makes it simple to update the probability of investment in your investment tracker.

Short and crispy “Good to know´s”:

Try to meet investors in your office. It prevents them from putting you in a box too quickly. This way you create an immersive experience for them vs. meeting in their conference room, where they have met thousands of startups.

Some investors try to push founders to name a valuation. If you already have one or a defined cap, you can give them that number. If you have not closed an investor yet, do not mention a valuation. The market determines the valuation, that is why you are talking to multiple investors. A possible response to an investor could be:

“We are concerned with finding the right partner when we find that person we imagine we will be able to define the right valuation with them”.

Many investors make individual data requests during your fundraise. Because you can not process them all, you thought about which data you will prepare in what detail beforehand. Use the investor interactions to improve and iterate the data you prepare. However, if you are convinced the requested data is not very relevant at this point, it is ok to decline. If you have less than 100 customers in your DVD unicorn, retention data or unit economics will likely not be very insightful.

There are a couple of other investor gotcha questions worth looking over.

To increase the speed and quality of your iterations in your pitch, make sure to have someone with you in your calls and meetings. That person can give you additional feedback (especially when they have done this before) and can speak about the business from a 3rd person perspective, which can add credibility to your pitch. 
The person can either be a co-founder, team member, investor or advisor.

Term Sheet

After an investor has been scared of missing out on your startup for a while, they decide to invest. They will send you a term sheet, outlining the terms at which they would be willing to make an investment. This is the point where the negotiation starts.

These terms have become pretty standard, however, there are some mistakes to avoid outlined here.

Generally, valuation does not matter, but holding on to your equity does! In subsequent rounds, investors will still want to invest in a company with strong and well-incentivised founders. By giving up more equity, you decrease your chances of receiving investments and steering the company towards mission achievement in the future. Thus decreasing the survival of your startup down the road.

In this phase, it also makes sense for you to reach out to portfolio founders to gather first-hand experiences and opinions about working with the investor. There is now a significant chance that the deal goes through, so you are not wasting your or the portfolio founder´s time.

Due diligence

In the due diligence phase, investors will ask you for some last documents such as Management and organisation information: company structure, the team, their skills. (organisational charts, list of advisory and board members, bios and resumes for key players), articles of organisation/incorporation, shareholder agreements (or shareholder rights), intellectual property ( trademarks, copyrights, logos, details, etc.), any legal information you think is required: permits, licenses, etc.

Investors will send you their list of requirements. The point is, preparing these takes quite some time, but is a simple checklist list to cross off.

On the other hand, many founders overlook that the due diligence phase can be just as much for the founder to figure out if the investor is right for him or her as it is for the investor to learn about the founder and company. Get to know the person, build a relationship and ultimately ask yourself if that is the person you want to spend the next 5–10 years with. Formulated differently, the investor(s) will be among the 20 people you interact with most. Do you smile or cry at that thought?

A deal is done, when the money is on the bank

Once you completed the due diligence phase, which most startups do, you sign the negotiated agreements and the money is transferred. Typically in this phase, nothing goes wrong. It is especially devastating, however, when it does. 
A deal is done, when the money is in your bank account. It is not when hands were shuck or contracts signed. Money arriving in the bank account is what ends the game.
You won, if you found an investor, that is aligned with your mission.

However, all of the above has not brought you one step closer to creating real value and realising your mission. The real game to win is using the money consciously. In a way that enables you and others to create amazing experiences and products that improve real lives.
To achieve a mission worthy of becoming a reality.

Enabled by Diane Salimkhan, jan hoekman and Roel Janssen. Thank you for your lessons and feedback.