There’s more to successful fundraising than most founders see on the surface. What vital factors should startups be alert to in order to raise the maximum amount of funding, and be able to enjoy the journey to the top?
1) Benchmarking Valuations & Fundraising Rounds
You cannot afford to undersell yourself and your startup. Who you apply to, how much you demand and the terms you accept can make all the difference in how far your venture makes it and how fast.
Founders need to get their hands on market research to understand at what valuations direct and indirect competitors have raised money at their stage. There can also be sizable differences in the amounts competing startup accelerators commit to each of their applicants, funds raised in additional rounds, and exits. Some offer an average of Rs.50K and have no desire to take companies public. Others start entrepreneurs out with Rs.120M or more and have a strong track record of sales to big companies like Google.
Check out this Forbes article to compare Startup Accelerators.
Knowing at what valuation direct and indirect competitors raised capital will help you understand where you fall. That way if an investor comments on how high your valuation is you can always refer them back to what the market is paying. It will be hard to negotiate you down having those data points.
2) The Importance of Being a Great Storyteller
There is probably nothing more important than storytelling when it comes to launching a successful brand and raising the money to fuel its growth. Coca-Cola, Apple, SpaceX, you name it. They are all built on stories.
If you are not a storytelling wizard, then find someone who is who can help you. The pitch deck template by Silicon Valley legend Peter Thiel is a great example of simple story telling in slides to help you get funded. The right story can help you overcome any challenge and breakthrough any hurdles. Just as this pitch deck resulted in Rs.400M in funding, even though it came late to the car-sharing economy, well after Uber was already making waves.
3) What Failure Looks Like
To leap into a venture as an entrepreneur you have to be willing to fail. You will do everything you can to avoid that. Yet, even more importantly, you need to know what failure looks like in order to be able to march through it with your head up and pivot or launch something even better. It’s only crushing when you don’t expect it, become bewildered with the responses of those around you and don’t have a plan to keep going.
When you are consumed with passion for a new idea and it looks like it is working angels and VCs will be all over you. People will want to wine and dine you and a fluffy business romance ensues. When things don’t go as planned and the infatuation wears off, people can behave very differently.
As a part of basic due diligence, founders should ask potential investors for a reference of a founder that failed and ask that founder how that investor behaved during tough times. You know, you can fail on Shark Tank, turn down accelerator programs, and even crash and burn on your first attempt, yet leverage those interactions into something even greater. It depends a lot on the relationships and people involved. Some will get hostile. Others will see the facts, the flaws in the initial venture, but will still want to see you succeed. They may even invest in you again after losing money. You just want to know who you are really dealing with and what to expect upfront.
4) Individuals vs. VC Firms
Everyone thinks they want to get funded by big names like Sequoia, Andreessen Horowitz, and Kleiner Perkins. These firms are clearly doing something right.
Having well known investors on your list of previous fundraising rounds can carry some serious street cred and benefits. Yet, more important than the firm’s name that you raise from is the individuals you will be dealing with.
If you’ve ever had a credit card, sold a home or financed one, or even had cell phone service you know how important this is. You can do business with the best known brands in the world that advertise attractive deals, only for everything to fall apart in the service. Often due to an inadequate service rep. You were supposed to have an unlimited phone plan for $150 a month, but got hit with a $3,500 bill last month. The phone rep would rather send you to collections than work on their obvious mistake and try to preserve the lifetime relationship.
A real estate agent with lots of billboards at the best known company in town may completely fail to sell your house because they are working with much bigger clientele who get all their attention. While a hungry new agent full of hustle might get the job done a lot faster, and on much better terms.
Maybe you had a bank account with Wells Fargo for eight years, but they turn you down for a business loan due to a glitch in the system, while another outside broker gets you an even better line of credit with them through the same bank’s wholesale channel.
It’s much the same in fundraising for startups. The individuals you deal with are going to determine how swift things move, how great of a deal you get when it comes to the term sheet, and how you are treated on the journey. Especially if you have this person on your board contributing at the top with strategy. Do as much research on them as you do the company whose name is on top of the check.
5) Quality vs. Quantity in Investor Meetings
More investor meetings doesn’t directly relate to better odds of getting funded. It’s a false metric. Instead of cold calling or spamming the email inboxes of investors, aim for meaningful introduction from other founders instead.
The best of your peers will know who may be the best fit for your current fundraising round, and may have the personal connections you need. All you need is one solid lead and introduction to open the money gates.
This route will also make your fundraising efforts far more efficient and more enjoyable.
If you don‘t know where to start, go on Crunchbase and search for indirect competitors in your space. Their page will list their investors. Then go on their sites to review some of their portfolio companies which they typically list as badges of honor. Once you have identified the companies, go on Linkedin to see who is the founder of them and reach out for coffee. Ask politely this founder for an introduction to their investor at the meeting. Founders always like to pay it forward and this will be the best introduction that you will get in terms of social proof.
Remember that the best introductions come from other founders.