This is my take on the fundraising process, based on our experience at TitanFile; We have raised $1.5M total.
When fundraising, you need to “paint the picture” and show the vision of the company future. If you are looking for a large round (VC) your vision really has to be large enough to move a dial (often a test question is, “how big you think this can be?” and if your answer is less than 100 million in revenue within 5 years they will show you the doors).
When it comes to methodology, fundraising is a full time job and you need to approach it as such. Cold emailing investors is usually a one-way ticket to self-select yourself out. There is noting better than an introduction to an investor from an Entrepreneur that investor has already invested in, or someone that investor already knows and trusts who can vouch for you.
Do your homework. Make a spreadsheet of investors you want to go after and do research. Most of the investment firm web sites will say what kind of investments are they making (industry, size…) how involved they are with the companies (board, introductions etc)
and how the process generally goes. Be vary of those who do not have that information transparently in clear view. If possible, try to connect with someone from the companies that the investor already invested in. LinkedIn is great for that. Ask the Entrepreneur
openly what his experience with that particular investor or investment firm is, you will get frank answers.
You should count on 3 months minimum and 6 to 8 months maximum to close the round. Do not raise during summer. Just don’t.
That is a mistake a lot of people raising their first round make (we did too) as everyone is away on vacations.
Investment deals are like fruit baskets, if they stay on the open for too long they will rot. Or at least investors will think that the deal is rotten (ie. “This company has been looking for an investment for 9 months now, there must be something wrong with them”).
The first term sheet is the most important one. Investors are people like you and me. They wake up in the morning, put their pants on and go to work. Since Investors are people like you and me, that also means that they follow heard mentality. Once you get the first term sheet — rest will fall in line, no one wants to be the first there. Once you get that term sheet from Innovacorp, it’s a race against the clock and you need to keep the momentum going. Gust.com is a great way to find more investors and so is http://angeli.st
Make sure to take all the press clippings and press articles about your product and team with you as investors will always seek external validation but DO NOT include them in the pitch deck. Send them over after there is some definite interest. If you do not have clients to validate you, press is a great option B (i.e. “Someone else also thinks this is a good idea so I won’t look like a fool if I invest and this fails”) but no amount of press will replace a referenceable, paying client.
Cash-flow analysis and projections are important but the exact numbers are not that important. It’s really a litmus test of how crazy you are. Going from 100k to 500k in revenue from year one to two is reasonable. Going from 100k to 100 million in a year is not. Once you close a round It will be months before you figure out where your head is and where your ass is. Also, NEVER use words such as “our estimates are conservative” :)
You should always aim to raise 6 months more than you need.
Idea is that it will take another 6 months to close the next financing round if you need one, so it is always better to have extra cash in the bank. No one ever had a headache from too much money, but a lot of people had a lot of headaches about having too little. Keep in mind that you need to be able to explain and justify your valuation. If you say 1 Million — cool, if you say 10 million — cool. It is really up to you convince an investor that your valuation is “correct” (ie. “each engineer ads 500k to valuation, Our MBA guy takes away 250k from valuation, we have X patents that add another 1 Million, we already have signed purchase orders for Y and that adds another 5 million etc.).
Finally, deal is not closed until cash is in the bank.