raising a round? tips and questions to accelerate the quest for the right investors for your startups
a guide from being on both sides of the phone as founders and investors
MAY 2023
by Austin Sawyer
Whether you are a first-time founder or a seasoned serial entrepreneur in health tech, one ingredient for success in raising a financing round is to ask VCs the right questions to properly strategize your raise, identify the right potential investors, and dynamically adjust your outreach. This doesn’t mean reading a VC 101 book and memorizing what you should say. Instead, it means understanding the underlying information that will give you actionable insights you can use to improve and efficiently execute a fundraise. Every founder’s journey through this process is unique, and you need to be able to understand your specific situation. This article serves as a guide based on our experience from being on both sides of the phone as founders and VCs.
stage 0: questions to ask yourself to help curate your fundraising outreach.
While getting a list of 2000 investors off LinkedIn and mass sending generic emails may be tempting, this is not the best use of your time. Fundraising is a challenge that should be tackled with a calculated and curated strategy to ensure every conversation you have has the potential to obtain a favorable outcome.
To accomplish this goal, the first necessary step of your strategy is to do your homework on the funds you want to reach out to. Put simply; you need to screen and qualify your potential investors to determine which ones you will send a curated and personalized message to. It will take you significantly longer than blasting out a generic email to a long list of unstudied names; consider this your investment that will save you loads of time in the long run.
Below are the questions you should ask yourself before reaching out to any fund.
(0.1) does this VC invest in healthtech?
Context: On one end of the spectrum, you will have specialized funds that have and always will be focused on investing in healthcare. On the other end, you will have funds that will not touch healthcare with a ten-foot pole. In the middle, you will have funds for which healthcare is one of a few/many verticals that they invest in. This is where it gets a little more confusing. Just because a fund made 10 healthcare investments five years ago, it doesn’t mean the firm is actively looking at this sector today. The fund is fully invested, and the team may have moved on to new interests. These changes in investment strategy often come and go with the expertise of specific partners, which requires you to look deeper into the timeline of those healthcare investments and the firm's team members to identify whether it is a fit.
How to find: You should be able to find most of this information on platforms aggregating data from publicly disclosed financing rounds, like Crunchbase and Dealroom. (Founders and their investors generally like to announce their raises via press releases, from which these platforms extract data automatically. Startups successfully closing preseed rounds tend not to publish press releases as often as when closing seed or subsequent rounds; however, the most hardworking firms tend to add information themselves on these platforms.) For partners, look at LinkedIn. Occasionally, the VC will have this information right on their website, but not as often as you might expect.
Nina Answer: We are hyper-focused on investing in healthcare.
(0.2) does this VC invest in the type of technology I am building?
Context: There is healthcare and then there’s healthcare. First of all, some investors may prefer to say that they invest in “life sciences,” and this could include anything from pharmaceuticals and biotechnologies (molecules and vaccines) to various types of health technology companies, or just the first bucket. And then, just because a firm invests in health technology, it does not mean they invest in every type of technology or business model within that domain. Most firms that do invest in health technology have a specific technology and/or business model focus. They might have a bias for non-regulated digital health apps directed to consumers, be interested in software as a medical device covered by insurance, or AI-enabled software tools marketed via B2B SaaS models. Healthcare is a huge industry. Understand where you fall within the main buckets and figure out if it is a match.
How to find: Finding this information is usually not straightforward. Some firms will offer this information on their website, but again this is rare. Crunchbase and Dealroom rarely have information that is this granular. The best way is to survey several companies in the portfolio based on their websites to try and figure out what they invest in, but again this will not tell the full story. Sometimes, you will simply be unable to figure this out before sending an email.
Nina Answer: We invest in health technology only (we don’t invest in molecules and vaccines). While our priority is to always invest in the “right” solution for an unmet healthcare need, we openly admit that today we have a bias for information technology solutions — solutions leveraging data and computing. These solutions can include hardware or software. We have invested in many unregulated tools; however, we do not shy away from the challenges of bringing medical devices to market.
(0.3) stage: what stage does this VC invest in?
Context: The key here is to properly understand whether you are approaching a fund that actively writes first-entry checks in companies at your stage or one that does so opportunistically once a year. Just because you see five seed deals on Crunchbase does not give you enough to conclude that they actively invest in seed-stage companies. For example, you may be looking at a diligent angel/preseed-focused fund that makes follow-on investments in portfolio companies once they reach the seed stage; however, it will not invest in a new company if it has already raised a dollar from angels or another fund. Or, you may be looking at a not-so-diligent series A-focused fund that occasionally puts in a small ticket in a seed-stage company for fear of missing out at the later round or other reason that is not so obvious but may very well be argued on some inside information that is unlikely to turn in your favor. Knowing this may not shield you entirely from hearing the painful words “you’re too early for us” over and over again (more on it below), but it may somewhat reduce the frequency.
Where to find: In most cases, you can see which stage dominates the portfolio on Crunchbase or Dealroom or look at the news release describing the launch of that fund. However, in many cases, you will simply not be able to tell.
Nina Answer: We focus on writing first-entry checks in companies raising pre-seed and seed rounds, including some “seed+” (pre-Series A capital that bridges companies to a larger Series A down the road). Our series A capital is reserved for companies already in our portfolio. From time to time, a company will approach us from some small and under-funded European country that is raising their very first raise, “a Series A round of 2.5 M euros!” after a couple of years of bootstrapping and a few angels’ checks, we look at it as simply misnaming what is, in reality, a big preseed or typical seed round.
(0.4) geography: what geography does this VC invest in?
Context: Funds are often limited to specific geography because of their thesis and promise to their Limited Partners (LPs). This could be as narrow as a local state in the United States or as broad as the entire world. This can apply to the company’s headquarters, the primary market, and sometimes where the majority of your staff are located. As an example, just because you incorporated a daughter entity in Delaware does not mean that all United States VCs will be able to invest in you.
Where to find: To find this info, first try the website and then Crunchbase or Dealroom. Note that these websites often do not have complete datasets for this. A prime example is a fund that would be open to investing in Canada but has not done so yet. This is not a common occurrence but must be mentioned as a factor in trying to determine geographical bounds.
Nina Answer: We invest across the EU, United Kingdom, United States, CA, and Israel. Company headquarters and the market has to be within these geographical boundaries.
(0.5) who should I contact and why?
Context: As many others will say, a warm intro is always best. However, for a first-time founder, this is most often not possible. The next best thing is to research and understand whether one of the team members has a vested interest in the space you are in. Have they had a past job, or do they sit on a board of a startup in your space? You also have to factor in who is most likely to respond. Analysts and associates often spend the majority of their time sourcing and thus are often easier to get a hold of the partners, don’t count them out. Lastly, if you can’t find anything, including emails, chuck in a web form or info email. For some firms, this is a mixed bag in terms of success rate; here at Nina Capital, I can assure you that we check every single one of these.
Where to find: Linkedin for info. Pitchbook, rocket-reach, Apollo for email.
Nina Answer: Any of us! Most of the time, the first call will be with Ferran, Austin, Yahel, or Sebastian.
stage 1: questions to ask once you are on the call
Let’s say you have done your best to screen and qualify a list of 100 funds, down from your initial 2000. Once you have established a connection and booked a first call, it is important to understand whether there is a true fit as fast as possible. An obvious no is sometimes the best thing you can receive. You may not have been able to find enough information about 50% of those in your curated list, but now you know what you don’t know and need to ask first. Start from there. And then, below are the questions that are often most challenging to answer before the first call.
Our advice: don’t be scared to ask questions to VCs, but also don’t try to pepper them with 20 questions at the start of the first call, especially if the answers to those 20 questions are right there on the firm’s website (“good morning, Nina Capital team! I am here to tell you about our 20 M capital raise to finance the Phase 3 clinical trial for our exciting new drug.”).
(1.1) do you lead rounds? all the time or part of the time? do you take board seats?
Context: For first-time founders, a lead is someone you negotiate with to set the deal terms — aka the type of investment vehicle, valuation (if there is one), interest, etc. Lead investors usually request a board seat and do the bulk of the diligence work to help you bring in the rest of the investors (the “syndicate” in the round). Not every VC has the resources to lead deals: this is part of their overall strategy. Some firms lead all deals, some will both lead and not lead, and some never will. A common situation is a founder saying, “I have half the round locked in, but I just need a lead!” For example, angels and micro VCs with an “indexing” strategy (those that have relatively small teams but still manage to make 50+ investments per year) usually do not lead deals. To make things more confusing, there can sometimes be co-leads!
Nina Answer: We both lead deals, co-lead deals, and participate in rounds with existing leads. Our focus is to ensure you have the best possible syndicate that will help you build your company. We take the responsibility of leading your round seriously, and we do not take the lead position unless we see ourselves uniquely positioned to help.
(1.2) what check sizes do you write, do you invest in multiple rounds, and do you have preferred equity targets?
Context: Check size will help you understand the potential investment, calculate potential groups that could close the round, and tell you whether your round is too small for that VC. Equity targets will help you understand what kind of valuation range the firm will accept. For some VCs, your round size and valuation will simply be too large, and for some, the remaining amount left in your round is not enough for them to come in.
Nina Answer: We write checks from $150k to $1.5 M and follow on in the next round with an additional check based on the company's performance. On the low end are small European preseed rounds; on the high end are seed rounds, generally in the United States and the United Kingdom. We aim to buy between 5% and 10% equity in a new company.
(1.3) do you have revenue, traction, or product maturity requirements?
Context: When funds say they invest early, this can mean many different things. In venture, “early stage” technically means Series A rounds. More informally, “to be early” can take a completely different meaning, even for two pre-seed and seed-focused VCs with their own requirements for where they want to see companies being entirely different. This is the time to be critically honest about where you are in your roadmap and ask whether they are comfortable with your stage (hence, the unmitigated risks ahead of you in the roadmap). Over-embellishing your progress will not get you further and will come to light in deeper diligence stages. You want a fund that is comfortable with the bet they are taking, and that will believe in you even without a polished product.
Nina Answer: We often invest prior to revenue or regulatory clearance. With that said, we, too, had to tell interesting founders, “you are too early.” By strategy, we have to see a meaningful exit within the following six to eight years (at most), and that upper limit may be too far away if we are at the end of our fund’s investment cycle. You are too early if we cannot see one within this horizon.
(1.4) what part of your pitch was the most unclear, and what additional information could send you that would help clarify it?
Context: This is a great closing question. Intro meetings with VCs can range from 20 to 45 minutes, which is not a lot of time to explain your entire vision and company. The format of these meetings also varies. Some VCs prefer you to spend most of the time in a formal pitch, while others will jump straight into Q&A. Some meetings will allow you to cover all the basics, while others will hyper-focus on a specific topic. You want to leave time for the VC to answer all of the most important questions in their head, or you risk them passing based on a misunderstanding of what you do or a lack of confidence in your ability to explain things clearly.
Nina Answer: We always ask to receive decks before scheduling any first call, and sometimes a first round of questions, to make sure there is the potential for us to be a good match. If you’ve done your homework, chances are high that the answer will be yes. During that first call, we generally like to jump straight into Q&A. Pro tip: we highly encourage you to build a FAQ document that includes all common questions from VCs, and their answers. After the first dozen pitches, this will save you loads of time in repetitive email chains. Our partners are a bit old-fashioned and prefer Google Docs, which we can save in our records. Cool hipster founders seem to like Notion, which is fine too.
(1.5) after hearing the pitch, do you still think this is a fit for your fund? I appreciate your time and want to make sure I am making good use of it.
Context: Sometimes, VCs will know immediately that you are not a fit for them after learning further details about your company, but they will wait several days to send you a more polite no. Or, you might as well know on the spot.
Nina Answer: We usually ask enough questions over email to know this prior to a call, but will be happy to tell you on the spot if we can do so during our first conversation.
(1.6) what does the next step in the process look like?
Context: After the first call, VCs may be on the fence. They may be just downright confused about what you do in the first place and need time to do some research and discuss internally. They may “wait and see” if any other VC shows conviction. This is the stage where startups can fall into the abyss of databases, especially in the busiest times of a firm. It is important for you to understand when you can or should expect a reply from a firm so that you can follow up if you don’t hear anything. This doesn’t mean spamming them every three days asking for updates; it means making sure there isn’t unnecessary time wasted just because a response skipped someone’s mind.
Nina Answer: We have a pretty mature process, the cadence of which is marked by weekly dealflow meetings and weekly due diligence meetings. The deal flow team will most likely confine the week of the call and decide whether to bring the opportunity in front of the rest of the team for the initial go-no-go within a week or two from the first call.
stage 2: questions to ask after a rejection
Well, it happens. Most times. Don’t be discouraged. Instead, ask:
(2.1) do you mind summarizing the major points that led to the team passing? I realize you are quite busy, but it would be extremely helpful to understand and improve our fundraising efforts.
Context: One of the most challenging things about fundraising is the lack of actionable feedback. The classic rejection emails will say, “you are too early” or “we decided to give priority to other opportunities on the table.” While sometimes these are the true reasons, they leave a founder with limited insight to help them prepare for the next pitch. Try and ask pointed questions. It might not work.
Nina Answer: We try to offer honest feedback in each one of our rejection emails. If time permits, we are happy to go into more detail, but will likely not have time for a separate follow-up call.
(2.2) do you know any VC’s in your network that may be a good fit for us? For example, X, Y, Z you want to be introduced to.
Context: Finding suitable VCs can be a struggle for founders as they are sometimes almost invisible on Google. Every firm has a vast network and database of its own and can help point you to at least one new fund.
Nina Answer: If we have VC’s that we know may be a fit, we are happy to give you a short list of names. However, we will not do a thorough search all firms for you.
at last,
While there may be many more, we believe these questions will help you gain a deeper understanding of VCs' internal thinking when you pitch to them. Best of luck with the raise!
by Austin