Fundraising can be exciting but at times hectic and stressful. In order to maintain the momentum you need to secure favorable terms, it's helpful to keeping track of where you are in the process with each investor, from introductions to subsequent meetings.
Founders can streamline this by being proactive about both their process and organization. Here are some techniques that can help.
Identify compatible investors
Before reaching out to an investor, do your homework to find investors who are the right fit.
Start by gathering basic information, such as the name of the investor’s organization, the type of investor they are (for example, an angel investor or a venture capitalist), or the type of organization they invest for (such as a seed fund, or a venture capital firm).
One data point that is so simple but critical to success: is this investor/organization currently investing? If so, continue with the research; if not, then it’s probably best to move onto other prospects.
Keeping an info spreadsheet up-to-date will help you stay organized when researching, scheduling, and following up on investor meetings. It also helps you prepare for meetings and showing investors you are really interested.
Seek out strategic information
Investors have more to offer than just capital. They can offer insights or access to networks. As you identify investors, look at which firms or funds may be an ally to your business.
What is it about this investor, in addition to their capital, that might offer your company an edge? For example, perhaps the investor shares a similar go-to-market experience. If an investor has been involved with a startup that’s executed a similar go-to-market strategy—as a board member, observer, or adviser—they may be able to provide insights that could help your company navigate some of the challenges that come along with the go-to-market strategy you’re pursuing now.
Or maybe the investor has contacts with potential strategic partners. Strategic partnerships are often more art than science; having an investor making intros on your behalf may lead to better outcomes than cold-calling these potential partners down the road.
Also check whether an investor’s approach to investing—commonly referred to as their thesis—aligns with your company’s profile and goals. An investor’s thesis will typically be included in the “about” section of their website, and will state the stage of companies they invest in (seed, early, mid, growth, late), as well as the sectors, industries, and specific areas of investment focus (e.g. social media, technology, software, computational medicine). Other places to look for their thesis, and what they’ve been focused on lately, are the investor’s Twitter page, CrunchBase profile, and recent news coverage. This will allow you to focus time on the investors who invest in companies like yours.
If your company matches the investor’s thesis, dive into the investments in their portfolio. Before reaching out to an investor, you want to find out if they are currently invested in any companies that your company is, or would be, competing with. Some investors may not want to invest in a company that threatens the success of their other investments. There are plenty of exceptions to this rule, so use your judgment. Either way, this is valuable information for you to have before reaching out to any investors.
Set up investor meetings
Before you start setting up investor meetings, you need to make connections with the investors. Do research to see if you might have connections or a network that helps you get a warm intro. Keep track of the outreach and follow ups so as not to lose track over time. By tracking this in a central place, you will know the status of your contacts with each investor and avoid letting any go by the wayside unthinkingly.
Aim to generate leverage before a meeting
In the beginning, these meetings are essentially sales pitches—selling the potential of your company to produce returns for its investors. If your pitch works and the investor decides they want to invest, a negotiation of terms will follow.
Negotiations are all about leverage, which comes from having options. Having options, in the context of fundraising, means having multiple investors interested in investing in your company. The more options you have, or the more investors you have to choose from, the more leverage you’ll have to govern the terms of these investments in your favor. But how do you maximize the number of investors you have to choose from?
Creating a market for your startup
Your goal is to create a market for investing in your company—one in which there are several potential buyers, and the spread between the ask and the bids narrows, to help you obtain investment terms you’re looking for.
Aim to engage with as many suitable investors as you reasonably can within as short of a window of time as possible. Try to book these meetings two months in advance so that investor’s schedules are more open. Then schedule as many of these meetings as you can in a two-week window so that, during those two weeks, you can effectively operate as a seller in as much of a liquid market as you could engineer. During those two weeks, you will then enter each meeting with more demand and leverage than you would have if you took meetings gradually over the span of two months.
Scheduling meetings with investors
When you start to schedule meetings, log each meeting and partner meeting/pitch date in a meeting calendar. The target two-week window is something to aspire to; in practice, things don’t always go exactly according to plan. The goal is to pack your meetings into as narrow of a time window as you can.
Meetings with prospective investors typically run an hour, so you can schedule a few in one day if the times and locations work out. Don’t overdo it. You don’t want to be rushing to these meetings and you need to have the right energy and focus going into each one. Make sure to then follow up after your meetings within 24 hours to thank the investors for their time. If the investor asked for any information, such as metrics or your pitch deck, send it as soon as possible the same day.
Before signing a term sheet, try to find out what it’s like to have this person as an investor in your company. You’re making a long-term commitment. You’ll want to make sure that you share the same values, align on strategy, and can collaborate well together.
An investor should be an asset to your company, and you should feel confident in the partnership. Get in touch with past companies they’ve worked with—both the successful ones and, perhaps more importantly, the unsuccessful ones. It’s easy to be supportive when things are going well, but things don’t always go well with startups, and you’ll want someone who can support you through good times and bad.
Closing the right deal
Fundraising isn’t over when you’ve convinced investors to invest. It’s over when the money shows up in your bank account. So you want to complete the closing process quickly. Even though most of your legwork will be done by now, continue to pay attention to detail. Keep track of which investors have been sent paperwork and which ones have received and signed it. Also keep track and record which investors you have sent a confirmation of receipt to once you’ve received their signed paperwork, and, finally, which investors’ funds have actually transferred to your bank account.
Like any skill, fundraising takes practice. The more experience you get with it, the more natural it becomes.