So you are ready for your first round of fundraising? First, let’s dispel a myth, and get one thing clear straight from the start: there is no fun in fundraising. It is a lot of hard work, and you will likely find it frustrating at times. What is the best way to navigate this stage?
This startup early stage fundraising survival guide is a great place to start. If you follow these steps and are prepared for each one, things will go more smoothly, even if they are not enjoyable.
We know you’ve already taken the first steps and obtained some business cards that set you apart from the crowd. You’ve had your morning coffee and breakfast, rolled up your sleeves, and you’re ready to get started. Here are the things you will need.
Creating an Investor List
First of all, and perhaps most important, is who you plan to pitch to. Your investor list is of vital importance. But who should be on it?
- Investors should have a history of investing in your niche, or an investment thesis that focuses on what you do.
- Be sure you have done your homework and know everything you need to about the investors, including their current interests.
- A warm introduction is better than a cold one. If someone in your network knows your investors, get an introduction to them. If not, welcome them personally to your list based on research you have done.
Remember, you need a large list. Not everyone you invite or pitch to will invest. Be prepared to hear some “no” answers before you get to some yeses. Also, don’t take a no personally. It may just be a “no” for now, and that investor may be interested in your company or a new project somewhere down the line.
Elevator Rides and Pitches
Nearly every startup knows you need to have an elevator pitch, but it is perhaps the hardest thing to write. While you may be able to present well and showcase your overall business plan and strategy, summarizing it in just a few sentences that entice the investor to say, “Show me more” is a much greater challenge.
The truth is, if you understand your business well, you can summarize it quickly. If you can’t, you likely need to understand it better before you approach investors. If you have no elevator pitch, you likely will not get a meeting where you can pitch it in more detail, let alone a check from the investor.
The simplest way to do this is to work from the complex to the simple. Combine your more complex ideas by what they all have in common, and summarize them with your “why” rather than what you do.
Include a hook in your elevator pitch. This is a term used in fiction writing and movies most often, and it is what compels you to turn the page or watch the rest of the story. A dry elevator pitch with no hook is as bad or worse than not having one at all. Need help? Don’t hesitate to hire a professional consultant or writer to polish your pitch.
The One Page Pitch
Guess what gets read next? Before the investor reads your pitch deck, they will look over your executive summary. This is a one page summary, longer than your elevator pitch, but with headlines, high points from your deck, and light text. Save the detail for your full pitch.
Again, one of the most vital parts of your executive summary is the hook. The investor sees many pitches, and they won’t move on to your deck unless you can pique their interest. How do you do it?
- Tell them what sets you apart from your competition.
- What is new or unique about your idea?
- What is new or unique about your approach to your idea?
- How will your idea result in a profit?
Remember, pose questions that make your investor want to know the answer. But give them enough information so they know you know what you are doing, and you can and will execute your plan.
Don’t Sit on Your Deck
There are a lot of pitch decks out there, and they all have one thing in common: they are unique. And you will need more than one deck. What an angel investor wants to see will be different from a venture capitalist, and the one for an institutional investor will be less appealing to smaller potential investors.
Shuffle and modify your decks for each situation. You don’t have to re-write and re-do it completely, but you can’t present the same pitch deck to everyone. In short, you can’t sit on your deck, you need to constantly revisit it.
Be sure you have extra copies of your pitch deck when having a physical meeting, and leave them laying behind for investors who want to look at them. Even in the case of a virtual pitch, offer extra PDF and digital copies to investors, and make it easy for them to download and study them.
Digital Data Rooms
Digital data rooms are a little more advanced, but they are becoming increasingly common. If you want someone to invest in your startup, there is certain information you may want to share with them. Much of that information may be proprietary and confidential. The easiest and most secure way to do that is through the use of digital data rooms. Data can be password protected, encrypted, and secure.
You can even password protect individual documents, making them available on a need to know basis. This step shows your technical sophistication and your transparency. While not required, we recommend you utilize digital data rooms to their full potential.
Your Board of Advisors
One last pro tip: investors are excited to see that you are consulting with advisors in your industry with proven success. But make sure your board of advisors compliments each other, and their skills do not overlap. Your board of advisors should not be paid at this point, and they should own no greater than .5 percent equity in your company.
Investors will reach out and talk to your board of advisors, so be sure that 1) the people you list are actually on your board and 2) that your board backs your idea and is excited about it. The wrong board members, or anything less than 100% transparency will finish your pitch and your startup before you even get started.
Remember, assemble your startup funding survival kit early and reevaluate it often to make sure you always have everything you need. Your fundraising journey may not be “fun” but it’s vital to your ultimate success.