Most entrepreneurs focus only on the pitch deck, which is very important but is only one piece of the puzzle. Lots of articles are written on building a good pitch deck, but there are other nuances around fundraising which experienced founders know, but first-time founders often miss — especially before they initiate the process. How do VCs behave? What excites VCs the most? Along with these nuances, giving some structure to your fundraising process will multiply your chances of fundraising. This works best in the early stage rounds — seed and series A.
Disclaimer: You can’t hack your way to long-term success without any substance. The purpose of this article is to share some basic but important tips to keep in mind before you initiate your fundraise. None of the below suggestions is set in stone and everyone has their preferences but trust me - they do work.
Important facts you should know
Fundraising is very distracting. Not only in terms of your time but also in terms of your mental bandwidth. It will need your constant attention for 3–4 months.
You need just ONE yes. Rejections do not matter, you need one person to say YES.
Your first intro email is NOT to get a cheque from the investor but to get a one-one meeting. Hence emails should be crisp, rich and have a clear ask. Don’t forget you are in the smartphone era. Most investors don’t open the deck if they do not find the email compelling enough. Below is one the best email I received.
Introduction to a VC by someone (their portfolio founder or a fellow VC) is preferred but a good cold email does work. Below is one the best cold email which tempted me to setup a call.
Be prepared to go through at least 20+ meetings to get a YES
Doing homework on the partners/funds is a must. Do they invest at your stage? Do they invest in your space ? Any portfolio conflicts ? You should have a list of people/funds to reach out to and bucket them in most relevant, moderately relevant and least relevant to your domain (have done similar investments) and within that quality/brand i.e tier 1, tier 2 and tier 3.
It’s always a partner who is investing, not the firm. So do your homework on which partner — What does he/she like or dislike? How strong is he/she within the fund? Many VCs love to write blogs or are active on twitter. Read or find out about them as much you can
Make your fundraising spreadsheet and track your progress. Prioritise your meeting order
Practice your Pitch. Many founders are not good at storytelling or don’t like selling. Hence multiple rounds of internal and external practice pitching do help in refining your story. Initiate your external meeting with few moderately relevant and within that teir 2/3 to practice the pitch
FOMO (Fear Of Missing Out) — Smartly generate momentum to create pressure on other investors.
You must remember that FOMO is the biggest weakness of a VC. Even good VCs react to FOMO. They will not admit it publicly but they DO move or move faster when they see someone else is interested. To create FOMO you need to get one to show real interest in you, and once that happens, word starts spreading (thanks to the beauty of VC world :-) ). This increases likeliness of others to jump. Think of this as a flywheel, once it starts spinning — it only spins faster.
Traction — Growth/Pull is the strongest weapon a founder can have in the initial days
Nothing works better than traction to create interest among VCs. Interestingly it’s an answer to most of the tough questions you come across in the early stage — No monetization, No clear business model, Paid CAC. VCs are okay with pushing back answers to these questions when they see crazy growth on one metric.
The above table clearly shows that if you are growing 5–10% weekly (for consumer companies) or 15–25% monthly (for b2b companies ), then within a year you will have a multi fold jump in the users/customers. This means something big for sure, how real is the problem and how big is it, can probably be figured out later. VCs love acceleration (VELOCITY OF TRACTION) too much. Smart founders are able to time their fundraise along with a spurt of rapid growth.