Fundraising is a very difficult and time-consuming process, which may end up resulting in no investment. Without fundraising startups can’t source together the necessary capital to scale their businesses, so knowing how to raise your first rounds of funding successfully will ensure that you have a chance of getting a check in the end.
I have seen many fundraising rounds go by and acquired knowledge on how you can raise your first round of funding successfully, which I will feature in this article. This is not a guide on how to raise capital, but rather advice on how you can improve your fundraising, whether it be a Seed round or a Series B round. The following are 7 tips on how to raise your first round of funding:
- Talk to founders who been through it
Take the time to reach out to founders who have already raised capital (preferably recently), and ask them for any advice or tips they can give you to help raise your first round of capital. It’s worth noting that the startup ecosystem differentiates depending on location, meaning it is important that you talk to people who are in your area.
If you are trying to raise a seed round, talk to someone who just closed a deal and ask them for their advice. If you are looking for a new chief operations officer, ask someone who just hired a new executive for advice and perhaps even an introduction. Make sure that you talk to people who have raised money recently and have raised an early-stage round so that you get relevant advice.
Share your thoughts and feelings about fundraising with someone you know who has been through it, and tell them where you are and what you are hoping to achieve. By asking founders who have done it all before, you can get access to invaluable advice and have a set of guidelines as to how you should raise your next round.
2. Get warm introductions
Most VC firms will not even schedule a meeting with you unless you have made a warm introduction. If you don’t know any VCs, reach out to fellow founders and ask them to make some introductions. Or you can reach out to your lawyer and ask them if they could introduce you to someone they have previously worked with. You can also contact angel investors in the area who can refer you to a firm they have invested with. Investors want to be introduced to you and have someone put you on their radar.
3. Be a storyteller
When you are fundraising you should not just tell investors about your product, tell them the story of your company. The investors have to understand why you are building what you are building, and what motivates you to work on your startup. All of the best startups have a compelling story behind their startup that investors were interested in. Your startup is more than just statistics and product information, you have to build a deep connection with your team and product and be able to convey that to investors. If you can tell the story of your company in a pitch, it will increase your chances of a second meeting.
4. Research the investors you are talking with
Take the time to research the investors that you are talking with and understand why they invest, and how they invest. You should also be aware of how much they invest and what resources they offer, so you can evaluate whether or not they would be a good fit for your startup. VCs can offer you more than just a check, they can offer you extremely valuable advice which can help you grow and scale your company, as well as introductions to other investors and prospective clients. You can, and should be selective when you are choosing investors to reach out to.
5. Learn the terminology of venture capital
Do your homework and learn the basics of venture capital. Ensure you can study the language and details of an investment. Learn about the titles in the VC firm you are talking with so you know who you need to go to in order to get funding. Ensure you can answer questions like: What is preferred versus common stock? How does vesting work?
Make sure you take the time to learn about the basic terms in a term sheet so you know what to negotiate and what signing a term sheet will mean for your startup. After the deal is done you don’t really have the ability to change it and you will be stuck with the terms, so make sure you know what you are agreeing to in advance. Get comfortable with key VC topics so you can have educated conversations with investors.
6. Choose the right type of investor
Founders who are looking to raise money generally focus on the biggest sources of funding, like Venture Capital. However there are actually many different types of investors each with their pros and cons. For example, Angels invest their own money into startups and write checks of around $50 — $100K and can provide guidance to the business, adding value beyond the cash. Venture Capitalists have the most cash in the venture community and come from firms that invest in dozens of companies a year and can bring brand-name prestige that will help you attract great talent, serve on your board, and can bring years of expertise to the table as well as expert advice.
Don’t just automatically go for the biggest check, make sure that you spend time figuring out which investor will be able to provide the most value to your startup, whether it be a Seed VC, a regular VC, an Angel, or another type of fundraising like crowdfunding.
7. Invest time into the process
When you start raising money, you will notice that your schedule will contain many meeting with different investors that means that you have less time to dedicate to building your company. To mitigate this, make sure that your founding team understands you may have to go to meetings and ask them to pick up the slack whilst you are meeting with investors. Don’t abandon your company to fundraise, but also don’t invest no time in the fundraising process.
Take time to do dry-runs of pitches, discuss what you want from investors with your team, meet with other investors to ensure you find the one that’s best for your company. It may take weeks, or even months to close a deal, so make sure you are 100% dedicated to ensuring that you get an investment to maximize your chances of success.
There is most likely much more advice available on the internet on how to raise your first round of capital, however the above points are the 7 tips I believe are the most relevant.
I hope you enjoyed reading this article and that it gave you some insights into how you can improve your fundraising. If you have any questions regarding how you can raise your first round of capital, tweet me @jamesstewartvc or shoot me an email at james@thedisruptivevc.com and i’ll get back to you ASAP.