Everyone in the know in the startup and investment ecosystem knows that fundraising isn't only about the money raised - though that is key and is definitely what makes the headlines. There is a lot more going on behind the scenes when a startup goes out to raise capital. Finding the right investors is a careful process of identifying the people who believe in your vision and can be long-term partners on your startup journey.
Just as the investor will do their research on you and your company, you must also perform similar research to be prepared for anything the process of fundraising may throw at you.
We break down the process into three steps:
At a fundamental level, you should prepare yourself for the world of fundraising by understanding the options available to you. Friends and family, angel investors, venture capitalists, corporate venture capitalists, family offices, and accelerator programs are some of the funding sources for early-stage startups.
Once you have a good understanding of each of these, and what they have to offer, try to identify the type of investment that works best for you, given your stage of growth, the domain you operate in, your location, and the types of products or services you offer. For example, if you are building a social app in the content creator space, you should look for investors that invest in social and are interested in the creator economy.
If you’re still early in your lifecycle and may not have enough visibility into a product-market fit to make it through rounds of VC diligence, sangel investors might be the best bet. The check size will be smaller but it can move fast if the investor knows your space and sees value in what you’re building.
Once you’ve zeroed in on the type or types of investment that might work for your startup, spend some time building a target investor list. Use resources like Crunchbase, Pitchbook, AngelList, and of course good LinkedIn to zero in on the exact firms that you want to target. Read up about their team, the expertise they offer, their track record of investments, and the network they can open up for you.
To complete the cycle of research, look for startups that have been funded by your target investors and learn more about their experience as a portfolio company. Reach out to the founders and ask them questions about the fundraising process, the expertise they receive from the investor entity, as well as the ease of working with them.
You’ve done your homework and have identified investors who will be valuable from a capital and expertise standpoint. Now comes the part of getting in touch with them so you can convince them of your company’s value.
After you have identified VCs and other investors, dig a level deeper and find the exact person you need to meet and pitch to. This will help you be uber-specific in asking someone to introduce you and will ensure you connect with the right person.
If location, location, location is the key maxim of real estate, network, network, network must surely be its counterpart in the fundraising landscape. You now know who you’re looking to pitch to, so it’s time to put the word out there to find a route to each of your target investors. Friends, family, former colleagues, and other founders are all fair game to help you get your foot in the door. A word of warning here - try to ensure that all introductions are being made by contacts who are trusted by the VC or family office or corporate VC. This will be your first introduction and will go a long way when it comes from a reliable source.
If you have connected with companies that have received earlier investment from your target firm, this is a strong way to be introduced to the investor. Make sure that the company is in good standing with the firm and you’ll be in a good position to begin the conversation. Some of these companies may also be super-introducers, where they can connect you with multiple investors in their network.
You can also leverage platforms like AngelList or Angels Den which offer ways to connect with potential investors. Although a low success rate compared to networking, direct outreach is also an option - if you can craft a compelling email or LinkedIn message or form fill on the company site, it may just attract attention and open a door for you.
When you get a highly-anticipated meeting with a VC, it’s now your moment to shine and present your company and its potential to the investors in front of you. This is a critical meeting and you and your team should prepare for it accordingly.
If you’ve done your research well, you should be well-prepared to tailor your presentation for the specific firm and perhaps even the specific investor you are pitching to. We share some ideas here on how to build a compelling pitch deck. We’ll also walk you through some tips and tricks to present your company at its best, during the meeting.
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General Partner – Studio VC
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Co-author of Blitzscaling