#FundraisingFriday Tip 1 — Reference Checks
Practical tips for founders who are fundraising
Will be publishing fundraising tips every Friday for entrepreneurs who are embarking on the arduous journey of convincing VCs to give them money.
Tip #1:
In preparing data rooms, entrepreneurs usually do a great job of preparing the standard documents such as financial forecasts, customer pipelines, cohort analyses, product roadmaps etc. However, often times, the request that catches them off guard is when the VC asks to do reference calls. They either don’t have them or it takes some scrambling to line up the requisite folks in time.
Before you begin your fundraising process, have the following references ready:
1. Customers or Users: VCs want to get a good idea of why someone is buying or using your product. If they plan on buying/using more? Why? Will they introduce to other customers and friends? Why?
2. Former Employers/Coworkers: What were you like before you started this company? What qualities did you have as an employee? Have you grown? What did you suck at before? Would someone work with you or hire you again?
3. Mentors/Advisors/Investors: More or less the same as the above. These aren’t as strong because they’re obviously going to say good things (hopefully).
4. Off-deck References: This one is tricky. So what usually will happen is a VC will ask for references from you, the founder. Then, they’ll go into their networks and try to find some off-deck references that you did not supply. Usually an ex-coworker or manager. That way, they can get an unbiased opinion of the founder. Why do I add this one to the list even though it seems to be out of your control? Perhaps it’s not. If I were an entrepreneur and I knew this was going to happen, I’d inform most of my former colleagues a few months prior to fundraising. Obviously, don’t be deceitful but make sure they know what to expect. Maybe you’ll reach the right people, maybe you won’t but it’s probably worth a shot.
Hope this helps and stay tuned for more #FundraisingFriday tips!
