6 Things I’ve Learned as an Ex-Founder in VC
I’ve been in the startup world for my whole career. While studying Entrepreneurship at the University of Southern California, I started a travel-tech company called HostelPass and, after raising two rounds of funding, grew it to a self-sustaining, profitable position.
Once my company became self-sustaining, I used my spare time to work on passion projects to help founders, specifically underrepresented and female founders, get funded (see Female Founders Weekly podcast and Founder Meet Funder events).
Through my first Founder Meet Funder event, I met Sofia Profita, an Investment Associate at Mountside Ventures. Once I started keeping tabs on what Mountside Ventures was up to, I realised that they were doing much of what I was doing, but at scale and remarkably well.
I joined the team as an Investment Manager in August of 2023 and have learned more about the fundraising landscape in these past few months than in my whole career as a founder. In this article, I will let you in on the top six things I’ve learned since entering the world of VC.
1. Venture Capital funds (VCs) have to raise money too, and your startup might be their bargaining chip
If someone tried to tell me that VCs and founders shared similar problems when I was initially fundraising for my startup, I’d have laughed and thought, “Aw, investors have problems, too? From their penthouse apartments and private jets?”
Investors seemed so much more powerful, and fundraising made me feel like a court jester doing cartwheels just for a crumb of food.
However, my time at Mountside Ventures has taught me that VC funds are not mega-wealthy individuals putting founders through hours of due diligence just for their entertainment; they are businesses and investing other people’s money.
As all founders know well, investing other people’s money means needing to fundraise.
In the same way a startup hustles to impress investors with their tech or traction, VC firms will use a hot new deal to get limited partners and high-net-worth individuals to invest in their funds.
When pitching for institutional investment, it’s always a good idea to ask if the VC has funds to deploy in companies like yours in the next few months. Sometimes, investors will take pitches from promising companies before they’ve raised their fund so that they can go to their prospective investors and say, “Look, we’ve got the golden ticket.”
So, while you’re pitching your heart out, recognise that you and the investor might have more in common than you think (and try to avoid being a showpiece in a VC’s fundraising strategy).
To learn more about how VCs operate, check out the Mountside Ventures Definitive Guide to Venture Capital Fund-of-Funds 2023 report.
2. VCs are not being greedy when they insist on a growth plan from your company that will deliver 50x returns; they’re being practical
VCs typically aim for a 3x return on their fund, which means nailing a 12% annual return over ten years. Given that most startups don’t even return their initial investment, VCs are under pressure to find those rare gems that can deliver 10x or even 50x returns. It’s a challenging game. VCs are looking for standout successes to balance out the many that don’t make it.
So, when you’re pitching, remember your ambitious growth plan isn’t just your dream; it’s a crucial part of the VC’s strategy to hit their targets and stay alive. If institutional funding is what you’re after, ensure your growth potential is clear in your pitch and financial model.
3. It’s not you, it’s them: Why VCs say no
Dealing with rejection is tough, but in many cases, it’s not you; it’s them. Remember, VCs are searching for specific kinds of startups that align with their investment thesis and can help them reach those ambitious fund return goals. So, if you face a ‘no,’ it’s often less about the quality of your idea or team and more about the fit with the VC’s current strategy and portfolio needs.
Here are a few reasons VCs say no:
- The startup doesn’t align with the VC’s specific focus areas or investment strategy.
- The startup is outside the geographical area where the VC prefers to invest.
- The VC’s fund might be fully allocated, or they could be in between fundraising cycles.
Don’t waste your time (or theirs) trying to force a square peg into a round hole. Instead, focus on finding investors whose goals and interests align with what your startup is all about.
4. The majority of institutional investors expect to be issued preference shares
When my investors agreed to ordinary shares, I didn’t realise I was in the minority in scoring that deal. Since joining Mountside Ventures, I’ve learned that most investors expect preference shares, which are market standard for term sheets. Preference shares often come with a 1x non-participating liquidation preference.
What does this mean for you? In the event of a company sale or liquidation, these investors get their initial investment back before other (ordinary) shareholders see any returns.
This key insight is among a dozen more in the Mountside Ventures report Demystifying Venture Capital Term Sheets.
Managing Partner Jonathan Hollis collaborated with over 200 global VCs with over £11 billion in assets under management, investing in over 1,000 deals per year on the typical terms they offer founders. The report aims to demystify term sheets, making them more transparent for founders and providing benchmarks for VCs. As a founder, it’s essential to wrap your head around term sheets to decide if a deal is right for you.
5. The average time investors spend reviewing a deck is ~2.5 minutes
It’s no secret that investors are busy. They are inundated with hundreds if not thousands of pitch decks and inquiries from startups every week. Your send-out deck is your ticket to a meeting with your dream investor, so you need to make sure it’s top-notch.
One effective way of making a solid impression is to add a TL;DR or Overview slide right after the Cover slide on your deck. Think of this slide as your elevator pitch, the one you’d want an investment manager to champion at their fund’s deal flow meeting. Craft this slide as if you’re scripting their words. Include essential KPIs and traction highlights to underscore your venture’s potential.
Here’s an example TL;DR slide from one of our previous clients, AutomatePro:
Investor takeaway: This is an exciting and relevant investment proposition
Your aim with this slide is to leave investors intrigued, seeing your business as an exciting and relevant investment opportunity. It’s about making every second of those 2.5 minutes count, ensuring the investor doesn’t just see your deck but remembers it.
6. Even Series A and B companies need help getting investor-ready
I successfully raised Pre-Seed and Seed rounds of funding for my company, but I was flying by the seat of my pants the whole time. I used to look up to founders at the Series A level and beyond, imagining that they must have everything fundraising completely figured out. However, since joining the VC industry, it’s become clear that many later-stage companies are still struggling with their narrative, financial model, responses to investor questions, and investor readiness and strategy. Founders are and should be fully focused on growing their businesses, no matter what round they’re at, and fundraising tends to feel like a necessary evil for ambitious founders building high-growth companies.
Once I learned about the existence of advisors (like Mountside Ventures) whose whole model is to help optimise the fundraising process for founders through pitch deck preparation, financial modelling, investor FAQs, investor introductions, term sheet negotiation, and more, I would never do a raise without them.
Mountside Ventures is a fully regulated advisory firm, and we work 100% at risk, which means that we only take a small deferred fee once you get funded.
I hope these insights are helpful to you on your fundraising journey. Remember, understanding the VC world is crucial for improving your chances of finding the right investor: recognise that VCs are raising their funds as well; know the practical reasons behind their demand for high-growth plans; realise that rejection is often not about your startup’s value, but about alignment with a VC’s strategy; get familiar with what is and isn’t market standard in a term sheet; in the few minutes an investor will spend on your pitch deck, make every slide, especially your TL;DR, count. Your deck is more than just a presentation: it’s a bridge to your dream investor.
And finally, you don’t have to do it alone. For hands-on support with your next round of funding, Mountside Ventures is here to help. Explore our resources, accelerator programme, and more on our website.
