Fundraising is hard. If you haven’t started yet, take a breath. It might be your last for a while. This shit is all consuming.
Some people are natural sales people. It’s like they were born knowing how to influence people through language. I am not one of those people. I grew up coding websites, playing the guitar in my bedroom, and dabbling with music production software. None of those skills taught me about influencing people. I’m not an introvert but for a number of reasons I did not grow up learning the important skill of spinning a yarn that keeps everyone hanging on your every word. Fortunately, fundraising doesn’t necessarily require those skills. You can treat it like a game.
1. Explaining your startup
There is a really simple way to explain your startup, which I learned from Pitch Anything by Oren Olaf:
My company is for [target customers] who are currently dissatisfied with [offerings in the market]. My startup is a new idea that solves this by [your solution] Unlike [existing competitors].
Remember an investor isn’t a customer in this pitching context. You can use more business orientated language and they’ll get it. If they don’t either you’re not clear or they probably aren’t an investor you want.
You need to keep refining this. As your company grows and evolves, you would expect this to slightly change. You’ll also frame it differently depending on whether you’re targeting angels, accelerators, early stage VC funds or growth stage funds. This leads me to my next point.
2. Which investors are you targeting?
In this blog I’m going to stick to the standard startup funding model of accelerators, angels and VCs. I’ll follow up with an alternative funding article in future.
Who to approach depends on whether you are based in the US, Europe or the rest of the world. If you are raising around $50k, an accelerator is likely your best bet. The gold standard is Y Combinator and TechStars in the US and TechStars and Seedcamp in Europe.
In Europe, if you are raising up to $250k you’ll likely go for angel investors. In the US, you can get angels that will do up to $1m and more.
You need to be sure the investors are right for you too. I wrote an article about this back when we last fundraised – that article actually worked as an intro tool for a few new investors. Get your own personal criteria down on who you want as an investor. They need us as much as we need them.
3. Where do you find investors?
You need a list of targets.
In my opinion, the easiest investors to find are funds and accelerators. This is because it’s their job to find deals and as a result they are willing to talk to new companies. There’s a ton of resources on this but a good place to start is Twine’s investor mega-list, which is a collation of a number of sources from our fundraising rounds.
For finding the right angel investors, follow this simple process:
- Ask your network if they know anyone based on the criteria of what you’re looking for
- Look at AngelList or CrunchBase for comparable companies in different sectors. For example, if you’re SAAS, find someone who has invested in SAAS that’s not competitive.
- Leverage advisors. Advisors can be great way to get influential people into your company early on.
4. Approaching your investors
Get an intro. This is key. Who is the best person to introduce you to an investor? I would order it in this priority:
- Someone else investing in this round
- Someone who has previously invested
- A founder who has received investment from them
- A respected / influential person who knows them
- A founder who knows them (who is credible)
Try to avoid founders introducing you that don’t really know them; it just seems a like a cold intro. Definitely don’t use investors who aren’t participating in the round or have never invested in you.
If you’re looking to get into an accelerator, I wrote about how we got into Seedcamp for TechCrunch.
5. Getting your deck and 1 pager ready
A pitch deck is the way startups do executive summaries. This usually takes the form of a powerpoint presentation. Ours has gone through many iterations, which is totally normal. Your startup should evolve and you should improve your clarity.
When designing our deck, first I worried about the content, then I worried about the style and quality. I felt it was very important to have a well designed deck to stand out. Full disclosure: Twine is my company, where you can hire creative freelancers, some of whom might work on your deck.
When creating our deck, we had to convey both sides of our market (buyers and creatives). We followed the format of:
- Opportunity – set the scene
- Problem – demand side
- Problem – supply side
- Solution – Twine
- Solution – more detail
- Stats – supply-side, giving validation of why we matter
- Stats – demand-side, current focus
- Business model
- Route to market
- Appendix with financials, projections, competition and more route to market
Here is our deck:
Read more about The Pitch Decks We Used To Raise Over $1 Million and how they developed over time.
Note: I removed 5 sensitive slides in the Appendix: Financials, Projections, Competition, and Marketing Strategy.
I don’t think a 1 pager document is necessary. Initially, I created a 1 pager but I didn’t really find it very useful because you are basically condensing your deck into one page. You still need the opportunity, problem, solution, stats and team in there which is very hard to pull off in a coherent way. Also, a deck is easy to digest for an investor as it’s highly visual and low in text. Finally, by having a 1 pager, you have two documents to keep up to date. Time is your enemy, so this is less than ideal. In hindsight, I wouldn’t make a 1 pager and would focus on my deck.
Quick tip: use DocSend to track an investor viewing your deck.
6. Arranging your call or meeting
You’ve been introduced. Now what, how do you approach it? This really needs to be broken down into the investor types:
Send an email asking for a meeting, but don’t be vague. Long email exchanges spent trying to figure out when you’re both free aren’t fun for anyone. Instead, send over a list of times you’re available for a meeting, or a call if you’re not in the same area. That said, if you can meet in person, you should. Be prepared to travel a fair bit during your investment round. Flexibility is key, and you want to seem willing to make the effort.
Another tip is to meet as soon as possible after the intro. Investors are bombarded with requests all the time, so you want to meet while you’re still fresh in their mind.
And of course, include a copy of your deck.
Partners are the decision makers at a VC firm, so you need to speak to them. Ideally if you’ve had a warm intro to a partner, then arrange to meet them. You can be fairly direct with a VC as they know the game. You can send them your deck attached and they should read it.
I would recommend treating them like a VC or angel if possible. Try and meet them before you fill in their application form.
This is a massive topic that deserves a lot of attention. I’m not going to give it here, but I will link you to 3 great resources on pitching.
– As mentioned already Pitch Anything is a great book
There are plenty more expert pitch tips that you can find from founders who’ve been through the pitching process. Make sure before you pitch to an investor you have practised to your co-founder and other founders who have raised money. Practice a lot. I would also recommend a coach. Confidence, language and body language are all important here.
8. Investor interrogation
You need to know this shit inside out. Some standard questions you will be asked:
- What is your runway? The longer your runway the better. They can smell desperation.
- What is your current burn rate? Are you lean and if not, why not? Are you growing?
- Where do you plan to spend the money? What are the key spends? New staff, marketing, etc.
- What is your exit plan? Personally, I hate this question because I want to focus on what we can achieve without an exit, but prepare an answer. An investor wants an exit. They want ROI.
- How are you different from x? Know your competition and be clear on how you’re different. This needs to be convincing.
- How will you grow? Demonstrate evidence. “We’re going to launch on the AppStore and go viral” isn’t an answer, (though someone said that to me once) nor is “We will use AdWords”. Everyone uses AdWords.
- Why is this team the right team? What experience do you have? Why do you know your market? Why are you passionate about this?
9. The grind
The most important part of fundraising is preparation. I could have been more prepared and it all would have been easier. Make. It. A. Process. You need to arrange all your meetings in a short time period to get momentum. If you start haphazardly reaching out to investors at random times over the course of a few weeks, this will take you months. You might get a yes from one investor, but then if you take another month to get another investor, the first might get cold feet.
On the other hand, if you squeeze all the meetings into a two week period, you’ve got the chance to create FOMO. No one wants to miss out on a hot deal. To do this, you need to get everything prepared before (see 5 to 8).
You have to be realistic and assume only 10% of angels you speak with will invest. You will get a lot of no’s which are hard to hear and easy to take personally. It’s not personal. Angels will often only make 1-2 investments per year and some VCs make less than 6 investments per year. In that same time, they might speak to hundreds of companies. So stay positive!
10. Taking an alternative approach
Being smart and doing things differently will help you get those big breaks.
Investors need to notice you. Ideally, they’ll be aware of you before the official introduction. So be where they are: events, conferences, and even engage with them on Twitter and LinkedIn.
An advanced trick is to create targeted Facebook ad campaigns just for them, so they keep seeing your brand message. Make sure your branding looks spot on. PR isn’t easy, but it can be a useful tool too.
The order you speak to investors in is very important. Start with your lowest priorities first. They are your practice. With VCs, you want 3 groups of targets. Start with the ones you’re not so bothered about as practice. Hopefully, you’ll still get some offers. Then speak to people that are “above” your level. This is just outreach for your next round, but you could hit the jackpot. The benefit is VCs speak to each other and create a buzz, before you finally hit your real targets. You ideally will have a term sheet before you speak with them, so you are creating FOMO.
Remember there is a lot of companies trying the same thing, it’s super important to think different.
I’ve said it already, but stay positive. You will likely hear the word no a lot. Or you will hear the phrases like:
- “We need to see more traction” – if I had more fucking money, I could get more fucking traction.
- “Come back to us when you have a lead investor” – if I had a lead fucking investor, I wouldn’t need you.
- “We’re not really in this space” – I’ve seen your portfolio, yes you fucking are.
Well you know what, screw them, move on. You need to. Also, do remember it’s not easy for them to choose when they’re being presented 100s of pitches every year. Even Airbnb got rejected.
Above all, keep positive. The more you practise, the more you will refine, the better you will get. You will raise.