If you’re around my age (or a bit older), chances are you have an online dating account and profile. Online dating stems either from a past “hell no” or being part of the lucky ones who meet our forever person as I did.
Swipe… swipe… swipe… oh he’s cute… Nope, can’t do a Leo. Swipe… swipe… ooh a match!
Endless swipes, boring conversations, and ghosting (or being ghosted) were the hellish experience of online dating until “the one” made his way to me.
The same thing applies to startups seeking funds!
Fundraising raises a lot of questions. What kind should I go after? Who will invest in my company? What should I do? (And what shouldn’t I do?) Time to talk fundraising, let’s get into it!
What is venture capital funding?
Venture capital (VC) funding is a type of financing that can be offered to start-ups and small businesses. It relies on “equity stakes” – meaning the VC firm will own part of your company and will be involved in business operations and decisions.
The company provides investors with the opportunity to invest in the company and reap the rewards if it is successful but also takes on some (or all) of the risk if it fails.
What are the different types of venture capital and why do you need them?
VC firms invest in startups and small companies that are trying to make it big. They will usually invest at different stages of a startup's growth either pre-seed, series A, series B, series C, or series D.
Angel investors are individuals who invest their own money in a company, generally “pre-seed” or “series A” startups. Once again, this differs from investor to investor.
Startup banks provide loans and other financial services to startup businesses. The most prominent startup bank is Silicon Valley Bank (SVB).
Different types of venture capital firms have different investment strategies and focus on different sectors. For example, early-stage venture capital firms typically invest in the earliest stages of a company’s development when they have not yet reached the point of profitability or sustainability.
How to write a venture capital pitch deck that will make investors beg for your equity
A pitch deck is a presentation that typically includes a company’s overview, growth strategy, and financials. It’s essential to include the right information in the right order to make investors interested in your equity.
A good pitch deck should have an executive summary, company overview, market opportunity, product roadmap, financials (revenue/users), and key metrics.
It’s important to present all the information in a clear and concise way that is easy for investors to understand. Investors are usually busy people with little time for reading long documents so it is important that the information is presented in an attractive way with graphs and charts.
How to fundraise without exhausting yourself
Fundraising is one of the most difficult tasks for entrepreneurs and startups. However, it’s a necessary evil that every entrepreneur has to go through in order to grow their business.
There are many ways to fundraise, but not all of them are equally successful. That’s why it’s important to know the best fundraising techniques before starting your journey.
In this section, we’ll explore some of those techniques and provide you with the information you need in order to successfully fundraise without exhausting yourself.
- Branding and company cores – I speak about your brand’s mission and vision extensively on my blog, videos, and social media pages. There’s a reason. Two of the most important keys to investors are your mission and vision.
- Research the Total Addressable Market (TAM) – Venture capital firms don’t want to invest in shrinking markets. Chances are, if you offer a product aimed at baby boomers (and no one else), you will have a very hard time finding an investor. On the flip side, mentioning a fintech startup that addresses Gen-Z and millennials in the presence of venture capitalists is like blood in a pool of sharks.
- Create a pitch deck – A pitch deck, or a company overview PowerPoint, shows potential investors the most important metrics they care about and will pique their interest for a later meeting.
- Research potential investors – Instead of going in blind (which will burn more bridges than it builds FYI), take a minute or two to get to know each potential investor. What stage companies do they invest in? Have they invested in companies like yours? Knowing all of this will help you determine whether it's worth it to chase after this investor (for now).
- Craft a messaging and connection strategy – Now that you’ve gathered your research, pitch deck, and brand core, it’s time to start creating a messaging and connection strategy. The best place to network for venture capital, hands down, is LinkedIn and closely followed by Twitter. In either case, it’s essential to network, not spam.
- Network and build relationships – Networking counts as a soft skill of entrepreneurship. Personally, I find networking to be far too important to consider it a soft skill. The main key to building relationships is to take an inch and deliver a mile on your intention.
- Pitch – After the interest of your ideal investor has been captured, it’s time to schedule time with them to pitch. Be promptly on time for your meeting, stick to your company’s mission and vision, and be authentic with them.
When to start looking for funding
It is important to know when the best time to fundraise for your startup is. The right time will depend on your business and how far along you are in the process.
It’s never too early to start thinking about fundraising, so here are some tips on what to consider before you reach out for funding.
Some of the factors that could determine when you should look for funding include:
- How much capital have you raised so far?
- What stage of development is your company at?
- How much do you need?
- Who are your investors? (If you have other investors too!)
What does an investor look for in an investment?
Some investors may look for a company that has a high return on investment, while others might be looking to invest in companies that are environmentally friendly. Investors are looking for different things in different industries.
Investors are looking for companies with returns on investment, and they may also be looking for companies that have sustainable products or services. The “what” that investors are looking for will vary from person to person.
Top seven mistakes most startups make when approaching investors
When it comes to raising capital, it’s almost as important to know what not to do as it is to know what you should do.
There’s a fair amount of mystery surrounding the process of approaching investors for money, and this creates a lot of fear and uncertainty among startups looking to raise capital.
A lot of entrepreneurs make the same mistakes when attempting to secure that first round (and subsequent rounds) of funding from an investor.
Whether you are just getting started with your business or are somewhere along the winding road, these tips can help you avoid some common pitfalls and improve your chances of securing capital.
Mistake #1: Focusing too much on the idea and not enough on the team
Ideas are cheap, execution is everything. While your concept is certainly critical to your business model and a potential investor’s willingness to invest, it’s also important to highlight your team’s track record and ability to execute.
Investors want to see that you have a team of experts who can tackle the significant challenges that come with bringing a product to market.
A course I took taught by Chris Haroun addressed this directly. To summarize the commentary, the quality of the leadership team is more important than their experience in the field.
Startups that have a strong and seasoned management team are far more likely to succeed than those with great ideas but inexperienced people in charge.
Investors want to see that you have an experienced team with the skills and knowledge needed to make the product a success.
Mistake #2: Not knowing what the investor wants to hear
One of the biggest and most common mistakes startups make when approaching an investor is not knowing what the investor wants and then not delivering it.
If a company is looking for a $5 million investment, for example, but the entrepreneur pitches for $1 million, the investor will probably walk away.
If you don’t know what the investor wants, you’ll probably fail to get funding. Startups often go into investor meetings without a clear idea of what they want or what they are trying to get out of the investor. This opens up a whole new avenue for the founders to be taken advantage of through over-dilution of equity as well.
This approach will only lead to a failed pitch and a frustrated team. It’s important to know what you want out of an investor and how you plan to use their money.
Investors are looking to put their money in a company that they believe will be profitable, so it’s important to let them know how you plan to make that happen.
Mistake #3: Trying to be everything for everybody
Another common mistake startups make is trying to appeal to everybody. When you are first attempting to secure investment, it’s important to narrow your focus to the types of investors that are likely to invest in your business.
If your business model is too broad, it will be difficult to find a niche where a specific amount of capital is available. For example, if you have a B2B product but are seeking seed funding from angel investors, it’s too broad of a focus.
It’s important to find a niche where your product will be attractive to the right kind of investors. This will help you narrow your focus, and it will also help you prioritize the right kind of investors to approach first.
While it’s great to have the backing of a Fortune 500 company, it’s also important to make sure that the right investors are on board before trying to scale your business.
Mistake #4: Failing to differentiate themselves from other companies.
In a crowded marketplace, competition for investors’ attention is fierce. Startups that have a hard time differentiating themselves from their peers are usually less successful in securing funding.
Startups are often advised to be the “Switzerland of startups” because there is a lot of neutrality in that statement. The problem is that it’s difficult to be neutral and stand out as the leader in your industry. If you come across as too neutral, you’ll be easily forgotten.
Your pitch should focus on how your company is different from the rest of the competition. What sets your company apart from the rest? How will your product be more successful than your competitors?
Investors want to know that you have a clear and concise plan for how your company will separate itself from the competition in order to be successful.
Mistake #5: Not being persistent enough with investors
While it’s important to be passionate about your company and its potential, it’s also important to be persistent. If you come across as too persistent and eager, you may come across as desperate.
Be persistent, but don’t be desperate. Investors will notice if you are persistent, but they will also notice if you are too persistent.
If you’re interested in a certain investor, try to get a meeting with them. If you think an investor would be a good fit for your company, make an effort to meet with them.
Investors want to fund entrepreneurs who are serious about their businesses, so they’re eager to meet with startup founders who are serious and want to learn more about their businesses. Be persistent, but don’t be too persistent.
Mistake #6: Giving up too soon without investing in marketing strategies.
If you receive an initial rejection or a round of no’s, it’s important not to give up too soon.
While it’s important to work on finding an investor who is a good fit for your company, it’s also important to work on marketing strategies that will bring awareness to your company and help generate leads.
Many startups go into the fundraising process with the expectation that the process will take about three months. Most successful fundraising efforts take closer to six months.
If you have an attractive investment opportunity, you’ll likely receive multiple offers. If you receive an initial rejection, it’s important to understand why you were rejected and modify your pitch and company to address those concerns.
Many investors will say no to a company before you find a yes. You just need to find the right investor and the right amount of capital to close the deal.
Mistake #7: Putting all of their eggs in one basket and not diversifying their portfolio
Finally, a common mistake startups make is putting all of their eggs in one basket. A common adage in investing is that it’s important to diversify your investment portfolio.
While you want to focus on finding the right investor for your company, you also want to invest in multiple investors.
“Investing” in multiple investors will help you to mitigate risk. If one investor backs out of the deal, it won’t destroy your chances of securing capital. It’s important to understand that not every investor is going to write you a check.
You’ll probably have to talk to 50 investors before you find one who is willing to give you the time of day, let alone the capital you’re seeking.
It’s important to keep searching and don’t get discouraged if you don’t find the right investor right away.
Whew. You made it. This guide includes the best fundraising techniques and how to successfully fundraise without exhausting yourself.
- The pitch deck is a presentation that typically includes a company’s overview, growth strategy, and financials.
- The best place to network for venture capital is LinkedIn, followed closely by Twitter.
- The company provides investors with the opportunity to invest in the company and reap the rewards if it is successful but also takes on some (or all) of the risks if it fails.
- Research your investors and be realistic on your timelines, limitations, and “soulmate investor” needs
You’re prepared! You have your business plan, marketing materials, and finances. Now you need to make the rounds with the investors that you’ve identified as “potential” and show them they’re not just potential – they’re soulmates who should be interested in your company because they share your vision and values.
Like any relationship or friendship, these pitch meetings will help you determine if you’re a right fit for each other. So get to it!
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