Thoughts and practical tips on how to get fundraising right for A+ rounds

The past year’s roller coaster did not skip our portfolio at Vertex, but overall it has been a very fruitful year. Our companies matured, scaled and of course: raised money. Out of the 36 portfolio companies at Vertex Ventures Israel, 20 have had significant funding rounds.

Over the past few years, we’re noticing a clear trend of funding cycles getting shortened from 18–24 months to 10–14 months, making it seem like some companies are in a continuous fundraising mode. This, in my opinion, calls for a slight modification of the funding playbook.

I am lucky to work closely with ten companies as a board member, all of which raised money in the past year — anywhere from a few millions to $60M. I’ve worked quite closely with the CEOs of these companies during these funding rounds and saw up close how some things can significantly change the outcome of the fundraising, outside of the company’s performance.

A good funding process can result in better investors, more money, lower dilution, lower restrictions and covenants by new investors and of course, less time consumption. These allow the CEO to get back to executing their vision. As a result, I decided to put pen to paper and jot down a few key issues that I believe made a significant difference during the processes.

1. The CEO is the fundraiser

In seed rounds, the whole founding team should participate in the initial pitch meeting. However, fundraising in the later stages should be mostly conducted by the CEO. Usually, they should be the only ones holding the initial meetings. First, because it usually works best and second, because it minimizes management distraction. The management can enter the process later on. Hence, from now on I will be referring to the CEO.

2. Always have your investor deck and data room ready

Stretches between funding have become shorter and inbound investor interest is becoming the norm. So be ready by keeping your investor deck and data room up to date and ready to use as much as possible. Founders often find themselves talking to investors without the relevant information at hand and end up sending outdated materials.

• Investor deck: Your deck can share a lot of similarities with your sales deck. Reuse helps keep it fresh.
• Data room: Your data room can just be an organized Dropbox folder with the background information of your architecture, testimonials, SaaS metrics, contracts from major customers, etc. But make sure it’s updated so you can easily access the assets you need.

Get into the habit of continuously updating your deck and the data room. It will make the fundraising process easier for you, and will also shine a professional light on the company as you keep in touch with potential investors between rounds.

3. Make sure to connect the Vision and Performance

Your pitch should include three components. First, your company’s short/mid term vision. Second, your traction and performance that support how you’re executing this vision. Third, if relevant, a grander vision, explaining the next phase of your company down the road. This will help you and the investor align on the bigger story.

Many entrepreneurs think that performance and numbers are enough. But numbers are not self-explanatory on their own. Connect the dots to align the numbers with the vision and your audience with your grand story.

4. Design complements substance

A deck should explain your message, but it should also be visually appealing. Some founders fail to invest in design, and this reflects poorly on them and the company. I cannot emphasize this enough.

I strongly recommend for each company to have a go-to designer, either in-house or out-sourced, who designs any communication assets the company has. These include assets for the board, major events, internal presentations, website, etc. This will convey a very strong and professional message and help with fundraising and performance.

5. Who to utilize to help with the deck

While your leadership team can weigh in on the deck, in my experience it is not very helpful and can take too much of their time. Choose one person, possibly the VP marketing, to help you work on the deck. Make sure to have the abovementioned designer at hand for quick help with design on the iterations.

Next, use your investors/board members. They have the most relevant experience, as they’ve seen hundreds of pitches and are the most equipped to provide the relevant input. If possible, divide your investors into two. Work on the deck with the first part, and practice it on the second group.

A good deck is the result of a highly iterative process. In my experience, it takes ~10 iterations to get to a good deck.

6. Be open to talk with potential investors

So far we’ve talked about the founder’s deliverables, but what about the communication with investors? Founders are getting constantly approached by VCs and analysts, especially after public announcements. This can take up a lot of time, resulting in some CEOs screening these communications.

I recommend keeping in touch with a few potential investors. Keep communication lines open, and try to utilize them to get warm intros to the VC partners. That way, when you’re ready to ask for funding, you already have a connection to the partner you want to reach.

7. But don’t share your information with just anyone

That being said, don’t pitch your deck and share your numbers and plans with anyone that comes knocking on your door (inbox). Sharing these numbers prior to a concrete funding discussion can harm you. You might be held accountable for them in a future funding discussion, or they could be shared with your competitors.

When you are approached by a potential investor, for example an analyst or associate in a large VC firm, you can reply back as follows (hats off to Tom Livne for the format):

• Thank you, I am happy to hear from you.
• How did you hear about us and why are you interested in our space?
• What is the check size you are looking to invest?
• What type of traction are you looking to see before making investments (ARR, GrowthRate, etc.)?
• Which partner is likely to sponsor this deal in case we decide to move forward?
• What does a typical process look like from your side (leader/follower)?

These questions will help you screen and qualify investors, get market insights, protect your business and build a relationship for a funding round.

8. Build an investor pipeline

Towards a round, make sure to increase the number of investors you talk to. As a rule of thumb, this is what a good process looks like to ensure a good competitive outcome:

• Initial meetings with 20 relevant funds (your investors are the best at helping qualify the relevant funds)
• Getting into a deeper discussion with 7–10 funds
• Getting 2–4 term sheets

Make sure you have funds throughout the pipeline that can lead. 95% of the effort is done once there’s a lead. 5% is getting everyone else to follow if there’s room. Do not waste time on funds that don’t have an intention to lead before you get a lead.

The best way to approach new funds is (by order of efficiency):

1. A warm intro from a fellow founder, preferably in their portfolio.
2. A warm intro from an investor
3. A perfect cold email outreach. This works, but is hard to nail. There are many resources out there explaining how to cold email/call a VC.

I recommend keeping a shared spreadsheet of VC firms you are in contact with and updating the latest status with each one. This helps you keep your investors and team members involved in the loop, which comes in handy when managing the round.

9. How to communicate where you are in the process and choose investors

Beware of trying to manage the process too much. True, you are trying to align as many funds as you can to give a term sheet as close to one another as possible, but don’t misrepresent the situation. This can backfire and have significant negative consequences. If you try to rush a fund by stating that you are close to a term sheet, they might back down if they don’t think they can make it on time. If you don’t end up getting that term sheet, it will be very awkward to try and get that fund back into the process.

After you get a number of offers and need to choose which one to sign with, there are many factors to take into consideration. I won’t get into it but I do want to emphasize one factor that is not always obvious: the likelihood to close. Don’t find yourself giving up on a good fund just because another offer swooped in three days before closing. Chances are, this new fund is less likely to close, compared to a fund you’ve been working on intensive due diligence with and knows you very well.

Looking Forward

The best fundraising process is no replacement for good company fundamentals, but a good process can drastically change the company prospect. A good funding round can bring the right investors and resources to help the company execute their vision. As one of the key responsibilities of the CEO is to ensure the company is well funded, this is a critical process to get right. I hope the above tips will prove to be helpful!