How can you find the right investors for your company— the trustworthy ones that are values-aligned? How can you quickly fundraise so you can get back to building your company? In this post, I share the process and psychology behind fundraising to help you:
Find the right investors (and fast).
Secure the funds your company needs.
Get back to building your company.
1: Create a Recipe to Run a Tight Process
In a previous post, I talked about creating recipes to help amplify founder efforts at scale. I define recipes as processes that are fungible, flexible, and adaptable to each person's unique situation. Recipes assist you in scaling efforts, measuring progress, absorbing useful feedback, and pivoting. You can follow the track ahead of you, move quickly, and stress less.
When you fundraise, you will need to talk to a lot of investors and VCs. It takes about 100 meetings to close your early-stage rounds of financing. Therefore, I suggest you create a recipe and leverage technologies to help you streamline your fundraising efforts. For example, Airtable allows you to create templates, information stores, and processes to streamline your fundraising efforts, tracking essential bits of information such as:
Investor name
Contact details
Last point of contact
Deal status
Having a fundraising recipe will help you focus on what you do best: pitch your company, request for funds, and secure the right deals. In the following sections, I'll elaborate on the components, mindset, and assets needed to design and execute this process effectively.
2: Create Your List of Potential Investors
Affinity.co: Relationship Intelligence Software
In effect, you need to create a CRM for the specific purpose of fundraising. Having something like a CRM will help you build your investor list, engage them, and track your progress. But before you create a list of just anyone who has the potential to invest, you must clarify the following:
Who are the right investors for you?
What companies have they invested in?
Are they actively investing, or not?
Are they an angel investor, a syndicate lead or a VC?
Do they invest in pre-seed and/or seed rounds?
This information will help you create a path of least resistance to the funds you need, and more importantly, getting funds from values-aligned investors. We have all heard of founders who found the wrong investors. The story ends badly. Do your research and understand those investors because quality decision-making depends on quality information.
Example: If an angel investor had only invested in one or two deals a few years ago, you can't be sure that they are active. If they aren't actively investing, approaching them is very likely a waste of your time.
Another example: Check that the investor or fund makes relevant investments to you. Some investors focus on SaaS, and others focus on real estate tech, for example. If you're a fashion tech company, it is unlikely that a real estate-focused investor is going to invest in you.
You aren't looking for everyone to invest. You are looking for the right founder-funder fit.
3: Get Your Assets in Order
The Pitch Snippet
The Pitch Snippet is a tight paragraph that synthesizes:
The product.
The market opportunity.
Key team members.
Traction.
The snippet isn't a pitch deck; we will get to that soon. Having a Pitch Snippet is very useful for several reasons. First, most investors are reading things on the run— between meetings and commuting— so you want to have something that's easy-to-digest. Investors can read it on their mobile device and quickly decide if they are interested in engaging you for the next step.
Second, your network can easily communicate it on your behalf as they interact with people in their networks. With a clear Pitch Snippet, your network can help you generate excitement about getting a meeting with you and your company.
It takes time and iteration to get the snippet right. You can't just type up the first paragraph that comes to mind and hope it will land with investors. Approach your advisors, existing investors, and other great founders— elicit their feedback and help to refine it. Here is an example of a snippet that led directly to a successful fundraise:
"About Qualio: Our mission is to help teams building life-saving products get to market quickly and scale successfully.
Highlights:
Modern SaaS quality management platform for the global life sciences industry;
Strong traction across entire life sciences vertical including medical device, therapeutics, and regulated contract organizations;
$XXM ARR with >12% net negative churn and $XXM in booked revenue for 2019 and 2020;
$3Bn initial target market (60k potential customers < 500 employees in the US and EU);
Quality and regulatory compliance are notoriously confusing and complicated, yet the technology used is typically limited to paper, excel spreadsheets, and email. This approach leaves companies vulnerable to costly product development delays, multi-million dollar lawsuits, and severe damage to their brand. We've solved this problem by uniting their quality team, tools, and data so that they can become quality-driven, enabling them to get to market quickly and scale successfully.
Our website is www.qualio.com, and you can view our summary deck at docsend.com/xxx."
The Pitch Deck
The next asset you need is a 10-12 page pitch deck on your vision and company. The pitch deck is a more comprehensive version of the snippet. There is a lot of content you can find online (samples here) about how to create the right deck, but these are the main pieces you want to cover.
Team
Product
Market
Traction
Larger Vision
Now, if you are particular about controlling who has access to reviewing your deck, you can use a digital solution like DocSend. With DocSend, you can control access and track how long investors are spending on reading your deck. Digital solutions can help you protect any proprietary information.
Investment Documents
There are different versions of documents used to raise capital at this stage. Convertible notes are the most common but many founders also use KISS and SAFE docs. You can download and modify the KISS documents or the SAFE notes to save yourself time. Most investors in Silicon Valley and frankly more so now the world are familiar with the KISS and SAFE.
However, it is important to note: For Angel or Pre-Seed rounds, it is common that founders set the terms. However, this does not hold true for rounds in which a Seed Fund (or an institutional Pre-Seed fund) is setting the terms.
A convertible note (or other document) will outlay the terms between investors and your company such as; how much you are raising, valuation cap, discount, % interest on the note, and more. As a founder, you want to set the terms of engagement when you can. There's a much longer discussion around how to set the terms depending on factors such as:
Geography of operation.
Product traction.
Market size.
Strength of the team.
Also another important point with regards to execution of the document, I recommend using a digital solution like HelloSign or DocuSign, something that has a template so that you can create it quickly. When an investor says, "I'm in," you can enter their information into the system, send it to them, and close the deal. You want to remove as much friction from the fundraising process as possible.
4: Create ‘FOMO’
The last half of your fundraising is typically much easier than the first half. The first 20% is usually the hardest when you are trying to get your initial investors on board. But as you work the process and secure your early investors who are committed and excited, it'll get other investors interested too. No investor wants to miss out on a promising opportunity. They will likely have a Fear Of Missing Out (FOMO) — a social phenomenon based on social proofing whereby one party is anxiously on the lookout for opportunities.
Once you have a traditional institutional Seed or PreSeed fund, you can create a lot of FOMO. FOMO is what motivates other funds to move quickly on the opportunity to invest in your company. However, before you spread the word, be sure you have investor-commitment in writing. You don't want to go off 'hearsay' or verbal commitment. If an investor has a change of heart, you don't want to appear to be making false claims in the ecosystem. Making false claims is very damaging to you and your company's reputation.
There are many other ways to create FOMO too. For example, you can use your assets to activate your network to spread your message— read on.
5: Activate Your Network
We talked about the content assets that you'll need before you commence fundraising— pitch snippet, deck, and terms. Furthermore, we discussed how to build and track your list of potential investors. Now, it is time to activate your network to get your pitch in front of them!
Network maps show that people tend to clump together. Therefore, the logical step is to first go deep with your first-degree network before you approach your second-degree network. Doing so means you can find a lot of traction early by going to folks that you know well—local investors, friends, family, and former bosses.
Engaging your second-degree network requires a different approach to engaging your first-degree network. You can use tools like AngelList, Crunchbase, LinkedIn, Facebook, and Twitter to determine the right second degree connections. To reach out to your second-degree connections professionally, you need a 'request for introduction' that stipulates your intent and purpose. I'll discuss this in more detail in the following sections.
You want to find the best referrer from within your network— the one who will provide you the most influential reference to the investors you seek. The referrer is going to go out of their way to help introduce you to a lot of different people that are in their network— people they have trusted relationships with. Furthermore, if they are a 'supernode'—someone who gets lots of requests for introduction— they are probably inundated with emails daily. So, you want to make their life as easy as possible. Again, it is all about removing friction from the process.
1) Activate First Degree Connections: Go Deep then Wide
Let's suppose you know a few hundred people (first degree). Answer these questions to prioritize your outreach efforts:
Who do you want to reach out to first?
Why do you want to reach out to them?
For example, you might first reach out to angel investors who you know have actively made investments. You reach out, re-establish context based on your last interaction with them, send them your snippet, attach your deck, and make a request for a half-hour meeting over coffee or on the phone. Depending on how strong your relationship is with your first-degree network, you may even be asking them for money.
2) Activate Second Degree Connections: Requests for Introduction
The best way to reach out to your second-degree connections is by using a 'request for introduction' email and including your Pitch Snippet (discussed earlier) within the body of the text. The essence of it is this: you are asking your first-degree connection to make an introduction to a notable investor whom she/he knows. You start the email clearly marking out:
Who you want an introduction to. In the above example, they are requesting for an introduction to Visionnaire Venture.
Why you want an introduction to them. In the above example, the founder likes the fund's focus on 'visionary ideas' and co-founder Taizo Son's advisory role in Softbank.
How specifically you align with the investor. In the above example, they use their Pitch Snippet to communicate that they are a news startup, a type of startup that Taizo has invested in before.
The above example shows that the founder has done the work. They have established their company as a relevant investment, and they have explained why they are approaching the specific fund. At the end of the email, they have included a DocSend link to their 10-12 page deck. DocSend allows founders to track who has opened the deck and what pages they're spending a lot of time on.
Having DocSend will help you understand where investors are focusing their attention. For example, an investor might spend all their time focused on the product slides of your deck.
Interesting fact: DocSend carried out a study and discovered that on average, investors would spend roughly two minutes and 33 seconds on your deck. So, you have 2 minutes and 33 seconds to capture an investor's attention and get them excited about meeting you.
You can go through all the investors on your list you want to be introduced to, and make 'requests for introduction' using the process I just shared with you. Stick to the process, and your referrers will eventually receive replies saying, "Yes, I would love to take a meeting with [your company]. Thanks for offering to make the introduction!”
6: Pitch the Investor
You want to lead the meeting. You must be active in pitching rather than letting investors lead the conversation. Don't assume the investors have read and remembered your pitch deck thoroughly. The communication can start like this:
"I am going to walk you through my deck, step-by-step. This will take about three to five minutes. Please stop me for questions if you have them. After my presentation, we can have a discussion, and I would love to answer any additional questions you have."
If an investor is committed to investing in you and your company, be sure you ask them the questions you want answers to. Some questions could be:
How does my company fit your thesis?
How do you support founders through the life-cycle of their company?
Beyond just capital, what other expertise or value-add support do you offer?
The best investors will really appreciate and respect that. Be sure to engage in this kind of dialogue because you will be engaging in a long-term partnership with your investors.
Remember: as a founder, you have just as much leverage as the investor does. I covered this in a previous post.
7: Close Fast
Fundraising is something that requires a full-time effort in short-bursts and specific chunks of time. The purpose of having capital is to deploy it to achieve your company objectives. You want to make fundraising quick, efficient, and professional so you can get back to building your company.
At the end of the pitch meeting, be very clear about the next steps. If they pass on your offer, don't dwell on it too long. Take any feedback you find useful and move on with your process.
8: The Follow Up
After you have some investors on board, you can follow-up with folks who:
Have not responded to your original request for a meeting.
Didn't want to invest in your company yet, but were neither a hard 'no' or a hard 'yes.'
Have the capacity to invest in later rounds.
By building a relationship with those investors during the early, formative stage of your company, you can reduce friction in your future fundraising efforts. So, reach out to them again, provide them an update. Again, create some excitement and FOMO! A sample statement might be:
"We have raised capital from these six investors. By the way, you know one of them well. You might have a conversation with them to find out why they invested."
In Summary
Remember: it typically takes 100 meetings to secure your first round of pre-seed or seed funding (not a hard and fast rule). But because fundraising requires some grunt work, the best way to streamline your efforts and increase your chances of success is to:
Run a tight process.
Leverage today's technologies to help you.
Thoughtfully create a list of potential investors.
Get your communication assets in order: snippets, pitch decks, and investment docs.
Activate your networks, both first and second-degree, and start creating FOMO in the ecosystem.
Pitch your company and get a clear decision fast.