The founder’s guide to raising capital


It’s no secret: Due to market conditions out of their control, growth-stage companies are struggling with cash flow and in need of external financing — now more than ever. At the same time, venture capitalists have been unprecedentedly conservative in funding. What can we do in this situation?

This white paper details six of those conversations’ most valuable insights and advice. We cover a wide range of topics, such as how to navigate a market downturn, secure funding from an accelerator, and evaluate VCs for culture fit.

Wherever you are in the startup lifecycle, you will benefit from this knowledge report.

Key findings include:

  • Rapid, decentralized investing is the new norm. Rather than running to Sand Hill Road, today’s startups understand the funding power of angel investors, party rounds, etc.
  • Investors increasingly favor resilient, adaptive teams with long-term promise — not just great ideas. This looks like a documented history of effective teamwork and efficient execution.
  • Even in recession-like conditions, do not overlook the value of founder/investor fit. Being bound to a VC with a misaligned background, objective, etc., can stunt your growth and chances of raising future rounds.

Let’s dive in.

3 Tips for navigating a market downturn

Tip 1: Stay on top of your bookkeeping

Founders are often absorbed in realizing their product vision and sharing it with the world. They’re not always obsessing over the numbers.

Mat Sherman, Founder of Seedscout, admits his accounting software setup was a mess for a while. 
At one point, a potential investor asked to see his numbers, and Mat had no other option but to send along his chaotic reports. The investor passed on the opportunity.

That experience was a wake-up call. Today, Mat swears by tools like Bench and Pilot. Both work closely with early-stage companies.

He adds that by a certain stage of growth, these bookkeeping and finance functions should be brought in-house. However, in the earlier stages, founders can get moving faster by leveraging streamlined tools to keep their books current.

A great mission plus great execution equals solid growth and retention at scale. With the right ingredients in place, startups will thrive, even in a down market. - Mat Sherman, Founder of Seedscout

Tip 2: Build a people-first team

Startup leaders must present themselves as human beings — not just cogs in the industry machine. Two low-hanging fruit in this area are:

  1. Being vulnerable about your shortcomings as a founder/CEO
  2. Welcoming, accepting, and implementing 
your team’s feedback on a regular basis

At the same time, the founder must show up every day to execute well and inspire faith. Without basic trust in your abilities, your team may believe their current leadership isn’t fulfilling their side of the bargain and turn toward a new company with a more reliable exec team.

Like many other founders, Mat admits he’s better at launching businesses than running them. As a result, he’s learned firsthand about the unavoidable pressure points that come with keeping a company afloat.

Tip 3: Over-communicate with your existing investors — 
now more than ever

In today’s market environments, founders need to proactively and regularly reach out to their investors — both funds and angels — to review business blockers and align on top growth priorities.

Leslie Feinzaig, Founder and Managing Director of Graham & Walker, makes a case for founding teams to over-communicate with investors.

One tried-and-true method is the monthly investor update, complete with top-line KPIs, an up-to-date cap table, growth highlights, problem areas, requests for help, and shout-outs. These drive three benefits:

  1. Showcase execution abilities — Once you move onto your next fundraising round, having investor updates available and in your history is especially helpful in demonstrating execution.
  2. Proof of performance — Receipts build a reputation and track record. That’s essential for founders who are “nontraditional”, first-timers, or otherwise likely to be overlooked.
  3. Damage control — Updates can also showcase hold-ups or delayed progress in a balanced manner — before they grow into larger issues — and allow investors to offer help.
"Founders should never go quiet — especially not during a recession. When things get tough, VCs can’t help if we don’t know what’s happening." - Leslie Feinziag, Founder and Managing Director 
of Graham & Walker

The state of startup fundraising

How startup investing evolved & how founders can adapt

Rapid, decentralized investing has become the norm

Startups are less likely to make a beeline to Sand Hill Road as their sole chance for funding.

According to Ross Fubini, Founder and Managing Partner of XYZ Venture Capital, old rituals of access to capital have almost completely collapsed. Founders no longer need broker-style relationships to get in the room.

Instead, you’re likely to find solo investors running to meet a potential investment over coffee or a Zoom chat at all hours. Ross sees two major results of these shifts:

  1. As our definition of what an investor looks and functions like expands, so does the funded startup pool itself.
  2. As the ecosystem gravitates toward decentralized investment routes, the velocity of the average deal has notably accelerated.
"VCs are just teeming to find great people, whether that means two founders and a dog, a later-stage company, etc. That is a tremendous shift for us." - Ross Fubini, Founder and Managing Partner of XYZ Venture Capital

Your lead investor is crucial
to building out a round

There was far less anxiety around the startup investment lifecycle in 2021 and 2022.

According to Immad Akhund, Co-Founder and CEO of Mercury, angel investors did not over-analyze a $100,000 contribution because they were confident someone else would come along to provide the next $100,000.

Today, investors are concerned their $100,000 will be the only money on the table — and the venture will fail. Lead investors complete their due diligence and provide a sense of security to future investors.

As such, many investors want (or even need) to see you’ve piqued interest from other parties as well. Or, they could be swayed by a lead investor covering most of the first round.

Immad Akhund is the Co-Founder and CEO of Mercury, the fintech platform providing banking to the next generation of startups. They’re trusted by companies like LMNT, Lendtable, and Phantom and funded by some of the sharpest VCs in the Valley, from a16z to 500 Global to CRV.

Crush the fundraising waiting game

Immad cuts to the chase: “Just don’t raise in the summer months. Just wait.” Startups usually struggle to raise in June and July because VCs prefer to wait out the summer. It’s a simple reason, too: Everyone is on holiday. It’s difficult to wrangle people.

Beyond this, investors are wary in today’s markets, so many are doubling down on due diligence — no matter how long it takes.

Waiting for a strategic time also depends on your runway.

If your runway is very short —  Do whatever you can to get the cash. It can be internal, you could cut costs, or it may be time to commit to raising your Series A.

If you have the flexibility — Many people do internal top-ups to breach larger milestones.

"Ideally, your business is excellent in and of itself, and everything else will sort itself out. But getting there is much more work now than it was last year." - Immad Akhund, Co-Founder and CEO of Mercury

How to raise VC money

Immad advises early-stage startups to score their first round of funding in 4 steps.

  1. The materials — Your deck and data must be worked out and ready. At minimum, that includes debt, projections, a basic cap table and existing stats, revenue, and financials.
  2. The rehearsal — Practice as much as possible, ideally with other founders. Troubleshoot to figure out what works, what’s missing, and what’s just falling flat.
  3. The research — Make a spreadsheet of every investor you meet and speak to. Note their unique areas of expertise and preferred communication style.
  4. The meeting — Get in front of investors. The best way to do so is to turn to the network you’ve built and set up some warm intros.

That final step is critical. Ideally, once you’re able to get in front of one investor, they’ll ask what your ideal investor looks like. If they’re well-connected and impressed by what you’ve just shown them, they’ll make an intro.

Even a slightly warm intro can work, on average, 10 times better than a cold call.

"Having all of your data in line and all of your ducks in a row — that’s the bare minimum. To get funding, you need to truly dig deep and be prepared." - Immad Akhund, Co-Founder and CEO of Mercury

Tips for efficient cold
outbounds to investors

If you require a larger pipeline, you can locate angels, VCs, and syndicates with aligned investment theses on LinkedIn and Twitter.

A rule of thumb by Immad: Always cast a wide (but thoughtful) net for successful cold outreach. To speak to 10 investors, you’ll first have to try contacting at least 100.

Send clear, short emails with something memorable that makes your product or story stand out. The bar is far higher when the recipient is still unfamiliar with you. That’s only exacerbated when you’re online.

For cold leads to work, you must tangibly demonstrate your personal expertise – and that your startup can multiply their funds.

How accelerators select their most promising applicants

With dozens of accelerator programs, Techstars is one of the largest pre-seed investors worldwide. Their portfolio spans 3,300+ industry-agnostic companies, $23.9 billion in total funding, and cities located everywhere from Silicon Valley to Lagos.

In the words of Christine Hong, a repeat founder and Investment Associate at Techstars, her team seeks out “team, team, team, market, product, traction” — in that order.

Early on, the potential of a startup is determined by the team itself. With the market downturn, only especially resilient, adaptive teams will be able to forge through and ahead.

During the interview stage, Techstars filters for four green flags in a founding team.

  1. Culture — Techstars heavily emphasizes a “give first” culture and communal generosity, and they seek out startups that align with this value.
  2. Execution — Techstars looks for teams who work hard and efficiently. Too many simply don’t want to put in the hours or undervalue delegation and prioritization.
  3. History — This can range from evidence of effective product execution in the past to behavioral history as a team. Do your co-founders have a history of trusting each other and sticking together through adversity?
  4. Coachablity — This is vital to the Techstars program functioning properly. If a company is strong but does not work well within a certain accelerator, the Techstars team will often refer them to a more compatible program.

Christine Hong is an Investment Associate at Techstars, one of the world’s largest pre-seed investors. Their global network connects startups, investors, corporations, and cities to create a more sustainable and inclusive world. Since 2006, Techstars has invested in 3,300+ companies and currently holds a market cap of $75 billion.

Select the right investors for your business

How to evaluate for the best long-term funding partner

Prioritize people > firms > terms during due diligence

If you’re a startup navigating increasingly rapid rounds and numerous investors, Ross Fubini, Founder and Managing Partner of XYZ Venture Capital, recommends the rubric of people, firms, and terms — in that order — during the earliest stages of investing.

The individuals are far more important than the firm at-large – they’re whom you’ll be engaging with on a regular basis.

Even the specific terms aren’t as meaningful as the direct relationships, Ross explains, because terms often tend to collapse in every type of market condition.

As such, to ensure founder/investor fit, your best bet is evaluating the individual you’ll be working with – not unlike a hiring scenario. Start with 2 questions to determine fit:

  1. How is your dynamic with this individual investor?
  2. Is this investor asking you the right questions?
"Personal affinity between a founder and their investor goes a long, long way. And you can feel that kind of mutual understanding in the pitch room.” - Ross Fubini, Founder and Managing Partner for XYZ Venture Capital

How is your dynamic with this individual investor?

Focusing on the investor directly in front of you will, as Ross puts it, make fundraising far more efficient and far less emotionally draining.

Whether you’re pre-seed or pre-IPO, it is exhausting to pour your heart into pitch after pitch, only to be brushed off. When a VC genuinely gets what you’re building, it feels like a godsend.

All in all, prioritize your basic personal connection and chemistry with your potential investors.

This person should be someone you want to talk to, work with, and learn from — on both good days and bad days.

Is this investor asking you the right questions?

You can effectively gauge an investor’s expertise by the quality of the questions they ask in the pitch room and the due diligence they conduct.

Again, Ross emphasizes it’s like a hiring flow: The best candidates ask the smartest questions.

For instance, Ross helped scale his investment in Newfront Insurance into one of the nation’s highest-growth brokerages valued at $2.2 billion. If he sat down with an insurtech startup today, he could ask deeper-cut questions, such as: “How much of this business are you BOR’ing?”

When the founder inevitably asks, “How do you even know what that term means?”, Ross can assure them he’s already lived in this particular market.

Of course, your investor will never know your business better than you, the founder, do.

However, if they demonstrate that baseline expertise and a strong knowledge of how you (should) operate, they may be the angel or firm for you.

How to find investors who align with your values

Tracy Barba, former Global Head of ESG and Stakeholder Engagement at 500 Global, knows most founders and VCs start by asking the same two questions:

  1. Will this partnership lead to a high-growth, profitable company?
  2. Can this firm introduce this startup to the right partners and customers?

However, VCs like 500 Global and many modern-day startups aim to raise in alignment with their mission and values.

At the end of the day, you’ll likely have your pick of firms that can boost your bottom line. But Tracy reminds us it is far rarer to find a partner who totally sees and grasps your vision. She emphasizes optimizing your cap table for investors who can (ideally) both:

  1. Directly contribute to your bottom line and growth function
  2. Augment your mission values, whether they’re social, environmental, etc.
"The personal connection between brand and VC is where you really get to determine values. It’s an important but often overlooked part of fundraising." - Tracy Barba, former Global Head of ESG and Stakeholder Engagement at 500 Global


To stay competitive and attract investors, today's startups must simultaneously:

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