Secure the Bag: The New Rules of Raising Venture Capital
[This is part 4 in a series of 4. Before going any further, you may want to read Part 1: Do I really want to do this?, Part 2: Am I ready? And how much money should we raise?, and/or Part 3: Operationalize your process. If you’re ready to start pitching, you’re in the right place.]
Congratulations! If you’re reading this, I’m assuming you’ve gotten your foot in the door and you’re in the process of scheduling investors.
I’m going to share with you a handful of final tips to get you through this final push. There are many excellent posts out there about how to write the most compelling pitch deck. This is not that. I’m going to focus more on the strategic things you need to think about as you lead your startup through its first existential challenge: raising the money you need to grow and scale.
As a reminder, you have one goal over the next few months: a closed funding round with enthusiastic investors you feel good about.
Fundraising is binary
Your mission is to get a quick yes or no answer from each VC along the way so you can keep moving forward. Don’t waste time clinging to misplaced hope or entertaining wishy-washy investor behavior.
If your investor is not moving you quickly through their process and in regular communication with you, it’s almost certainly a no.
Deliver your pitch in front of the mirror a dozen times or so and then in front of “safe” people — friends, family members and advisors. Once you’ve worked out the obvious kinks, pitch it to other founders and ask for their honest feedback. Edit as needed before going in front of VCs.
Make sure your deck impresses — but be slide independent
Like I said, this isn’t a post about how to make a great deck. (Instead, I’ll point you to Mathilde Collin’s deck for Front, which helped her raise a $10 million Series A. Learn from it and you’ll be just fine.)
Your deck is important, but you shouldn’t get too attached to it. At least once, you’ll walk into a conference room filled with a bunch of VCs you’ve never met and whose names you’ve already forgotten, and the AV won’t work. One of the partners will send for tech support but it will take an eternity. And every minute you waste waiting for them to show up and troubleshoot will exponentially erode your confidence and the investors’ patience.
What do you do then? Start talking. Learn to tell your story in an authentic, compelling way that’s tailored to the room.
Slides are a crutch. Be ready to deliver your pitch without them. The day will come when you have no choice.
The last two founders Spero invested in did their pitch sans slides. How did they do it? They won us over with an exciting narrative.
Pause to get settled before the meeting so you can manage your emotions in the moment. You can never predict what will happen. Sometimes investors get excited and pace around the table while questioning you. Sometimes they argue. Sometimes the entire room is stone-cold silent. Sometimes they invite an advisor who used to work at a competitive company.
Prepare your mind ahead of time so you can stay cool in any situation.
It’s common for founders to be nervous in pitch meetings — after all the sacrifices you’ve made to get to this point, it’s understandable. But if you let doubt creep into your mind during the pitch, you could fumble your story and your opportunity. Be confident, but not arrogant. Find the balance.
Investors want to see that you are open-minded and can take feedback, and that you’re able to remain calm and focused under pressure.
Don’t talk at them, talk with them
The best pitch presentations are conversations. The most memorable founders we meet don’t conduct a one-way dialogue. At the end of your pitch, get feedback. Ask, “Did that resonate with you? Is this something that you might see your firm investing in?” Ask about their process: “When can I expect to hear from you? What follow-up information do you need?”
Don’t forget to follow through
Your next move after the pitch is critical. Entrepreneurs sometimes don’t realize it’s on them to reach out, not the investor. It helps show that you’re interested, serious and organized, and can leave a positive impression.
A founder recently impressed me with a detailed but concise follow-up email.
Your email can include:
- Expressing thanks for their time
- Summarizing key points from the conversation
- Link or attach any additional materials or details they may have expressed interest in
- Asking what open questions they still have and what else you can share with them
If you get to the point where the VC wants to diligence your startup, congratulations! They’re seriously thinking about investing. As part of this process, they may ask for a data room — a folder or drive with important business details. Take the time to create this before your first meeting.
Once they’ve expressed interest, it’s a strong signal to say, “Great, here’s a link to my data room. Let me know if you want to talk through any questions.”
Small partnerships can give a yes or no quickly, but larger firms may require a round or two of pitch meetings to different teams. Some firms only require the conviction of one partner to get to a yes, while others require the decision of the partners to be unanimous. It’s ok for you to ask the VC how their firm gets to a final decision.
Negotiating Valuation and Terms
Get smart about venture negotiations by reading VC blogs and books, such as Venture Deals, which I highly recommend.
Unless you’re doing a pre-seed with a valuation cap, the VCs will value your company. This is part art, part science. It’s also partly about how competitive investors expect the round to be — if multiple bids are coming in and it’s a hot deal, investors may be willing to go a little higher to be more competitive.
Once the VC has issued a term sheet, you can negotiate. Venture Deals will give you a good sense of which terms are standard and why VCs care about those terms. Make sure you have a good startup lawyer that is familiar with how VCs and the startup ecosystem operates as they can help guide you through the process.
Watch out for valuations that are too high. It might be seductive but you could be creating long-term problems: Expect 20–25% dilution in every round you raise. I’ve seen startups raise huge rounds at monster valuations they couldn’t grow into and failed to raise their next round.
A smaller raise at a smaller valuation can sometimes be wise. Don’t get ahead of where you are traction-wise.
While fundraising will never be painless, it doesn’t have to be excruciating. I’m wishing you lots of luck on your path.
And now that you’ve learned how to craft and deliver a strong pitch, I hope you’ll reach out if you’re building a startup that fits our core investment areas of well-being, work & purpose, or human connection.
If you enjoyed this 4-part series but would like to go more in depth, you can watch a talk I recently gave to seed stage founders on fundraising below or view my slides here.