~40% of startup founders I’ve spoken to in the last 6 months needed help to raise funding.
I get it, startup fundraising is hard.
But I’ve raised ~$7M personally from both angels and VCs…
If there’s one thing I’ve learned…
It’s that I needed to focus on the 3 core principles of fundraising to raise successfully.
#1 Storytelling for Fundraising
Investors have to make quick decisions about moving forward or not.
For example, YCombinator decides to invest, within 10 minutes.
So let’s go with that number. You have 10 minutes to make an impression.
How do you do that?
Focus on answering 3 key questions through your founder story (fundraising narrative):
Why You: What makes you the right founder to build THIS business?
- Focus on your specific domain expertise
- Perhaps you spent years dealing with this problem
- Perhaps you just have a passion for this problem
Why Now: Why is this the right time to invest in this market?
- Show market trends that support your hypothesis
- Talk about anecdotal evidence from your customer conversations
- Talk about where the world is going, and how your startup is going to take it there
Why This: Investors get pitched with 100s of ideas every day, so why is this great?
- Tie your idea to an urgent and important that your customer needs solved immediately
- Tie your idea to a market trend that is actively affecting your customers
- Talk about gaps in the market that your competitors have not yet filled
- Talk about why your product or service is unique or disruptive
#2 Startup Fundraising Pipeline – It’s a numbers game
Fundraising is a sales process.
Anybody who knows sales knows that you need a pipeline to meet your numbers.
My rule of thumb is that you need 20x pipeline coverage for your investor pipeline.
What does that mean?
Let’s say you are raising $1M, then you should have at least 20 x $1M worth of investors that you’re talking to.
Let’s dig in further.
Let’s say you’re talking to 2 investors, investor A has the potential to write a $100K, and Investor B can write a $200K check, so your pipeline right now is $300K.
Let’s look at another example. Let’s assume an average $100K check size per investor. Therefore to raise $1M, you need a $20M pipeline, therefore you should be talking to $20M/$100K investors, i.e., 200 investors.
How to grow your investor pipeline:
- Reach out to friends and family for introductions.
- Ask every investor in your network to connect you to ONE person in their network, they will usually connect you to the richest person in their network.
- Use Crunchbase to hunt down investors. Filter for industry, geo, fund size, and stage.
- Attend local angel group meetings. Get invited to pitch. Most founders don’t leverage this route enough.
- Ask your best customers to invest. It’s easy when your customers are getting awesome value from you.
When you’re just starting out, the key thing to remember is that unless your business is growing like crazy, you will have to be patient and build relationships over the long term.
#3 Closing Your Startup Fundraising – Create urgency to get the money in the bank
Once an investor shows interest, you have very little time to get their money.
Why?
Because there are a hundred things that can happen between a verbal yes and money in the bank.
Here are a few reasons that investors gave me for backing out after saying yes:
- The stock market dipped, so the investor panicked.
- Child care duties, so I don’t have time to complete diligence.
- I talked to a friend, and they don’t think this is going to go anywhere.
- My wife and I changed plans and want to invest in house remodeling.
- We had another portfolio company almost run out of money so had to divert funds there.
So what do you do?
You focus on the investors that are a yes and drive them through your funnel rapidly.
- Send an email immediately after they say yes to confirm in writing their commitment including check size.
- Send closing docs immediately. I used Clerky to send convertible note papers right after the call.
- Do not answer questions over email, use phone calls or video calls to answer diligence questions.
- Keep your data room ready before you go out to fundraise.
- If an investor is delaying, remind them that they may lose out on the opportunity as others are moving forward. Using this last technique requires confidence and a bit of flair to make the investor feel like you have power, not them.
