Recently, I was comparing notes with fellow entrepreneurs based in Silicon Valley. We have each been involved with several different startups, in part helping develop fundraising strategies aimed at venture capitalists and private equity firms. I put together this list of what we agreed are good reminders for anyone about to head off on a capital-raising roadshow.
1. Recognize that business connections are the lifeblood of any startup’s fundraising efforts. Warm connections are best, so start there, but do your homework first. Carefully examine your history (if any) with these people and thoroughly research their latest investment activities and stated areas of interest.
2. Know the process of raising money and how it changes by Series (A, B, C, etc.). Be aware of investors’ expectations for each round of funding. Determine who typically invests early and who prefers to come in at later rounds. Don’t waste time going to the ‘later stage’ VCs with your Seed Round pitch.
3. Ask yourself the difficult questions and answer them has honestly as you can. Is your concept sound? Does it address an unmet need? Can you scale profitability? You might be astonished by the number of over-enthusiastic startup founders who have not considered these questions…until a potential investor asks them.
4. Consider the relevant talents and assets your teammates can bring to the fundraising effort. Exactly how and to what degree will their efforts and dedication help find money?
5. Have a clear business plan. Define major milestones and be as realistic as possible with your assumptions. VCs have long, data-driven memories. They save the pitch decks of ideas and companies that interest them and will regularly check to see if you are meeting your commitments.
6. Be realistic about deliverables, especially about the money you expect to spend for major milestones and by when. What will you have accomplished by end of Series ‘x’ money?
7. Talk pre-money valuation. What does the VC expect? Encourage him or her to be as specific as possible, or at least share their philosophy for valuations based on previous deals they’ve done.
8. The lead investor is key and his or her timeline is of the utmost importance. Are they in it for the long haul? What language do they use about the future and expectations of projected milestones? What will adding your startup mean to their overall investment plans? Have they recently had a successful exit with another portfolio company? How many other investments have they made? What investment decisions are they predicted to make before the fund closes?
Of course, no list like this is going to be comprehensive and have all the answers to addressing what are always unique interactions between fundraisers and investors. However, we promise that learning and practicing these guidelines will certainly make you better prepared and in a much better position for success.