Startup Fund Raising Notes

This is a collection of suggestions and recommendations from several successful startup founders who have raised investments for their companies. The source of this information is coming from various websites, podcasts, books, and personal interviews. I thank everyone of them who has contributed to this large collection.

Note: The terms “investor” and “partner” could be used interchangeably in this article. They refer to the person or company that is investing in the startup.

Investor Selection

  • It’s not the fund. It’s the person. Choice is yours not the investor’s.
  • Partner selection is extremely important.
  • Set up a Q&A process for investors. Find signals to detect if they are truthful.
  • Take the fund out of the equation. Focus on fit.
  • Research your partners. Talk to back channel.
  • Try to get a meeting with GP/senior associates ( they have influence). Check their number of years with the fund.
  • What does the investor like to see in your product.
  • Does the investor care about your product ? Does he ask a lot of questions related to the product and come up with feature suggestions?
  • Ask what value can the investor bring to your company.
  • Ask what value the investor sees in your product.
  • Do they share your long term view.
  • Push and ask if the investor wants to do it not. Be assertive.
  • Interview their portfolio companies.
  • Senior partner, principal, and analyst are normally in the conversations.

Preparation

  • Be locked in on fund raising. No distractions. It is time consuming task.
  • Don’t go to fund raising too early. Build a team before you do.
  • Get an executive coach. It helps tremendously. Helps bring essential traits.
  • Get your data room ready for the investors.
  • Customer calls, reference calls are done by investor.
  • Useful to have other founders with you while raising fund. They work like sounding board.
  • Wear something that reflects you as a brand.
  • Listen to earnings calls of public companies.
  • Founder psychology, investor pressure tactics read about them.
  • Don’t work up for validation. Be realistic optimistic. X times previous round…

Closing the deal

  • Term sheet is just LOI. Cash in Bank is when the deal is done.
  • Takes 60 days more days to get cash in bank.
  • Work with a good law firm. Negotiate a cap with your law firm to do the legals because it will go over and it will end up being 30 days or maybe even 60 days.

Memos

  • Review the fund raising memos of successful companies.
  • Speak to VCs and ask for their favorite memories or how they think about putting a memo together. Use that as a foundation to structure your memo.

Recruiting

Establish company culture. Values you care. Scoring people on the culture fit.

  • Right founding and leadership.
  • Recruit executives who were early in the founding. Not those who joined in later stage of the company forming. Did they go through the frustration that you are facing.

Board Meetings

  • Learn conducting board meetings. Running productive meeting. Send agenda early.
  • Establish the frequency. OKRs? Set realistic, measurable, and have team buy-in.
  • Conduct regular all hands meeting. Gather the notes. It makes it easy to send investor updates.
  • Board meeting should be focused on enabling the board to make decisions.

General

  • Don’t put the cart before the horse.
  • If there’s one number every founder should always know, it’s the company’s growth rate. Use growth like a compass to make almost every decision you face.
  • To grow rapidly, you need to make something you can sell to a big market.
  • Your niche both protects and defines you.
  • Rapid change in one area uncovers big, soluble problems in other areas.
  • A good growth rate during YC is 5-7% a week.
weekly yearly
1%1.7x
2%2.8x
5%12.6x
7%33.7x
10%142.0x
  • A startup, making $1000 a month, that grows at 5% a week will in 4 years be making $25 million a month.
  • Having to hit a growth number every week forces founders to act, and acting versus not acting is the high bit of succeeding.
  • Nine times out of ten, sitting around strategizing is just a form of procrastination.
  • Raising money lets you choose your growth rate.
  • Identify your ‘earned secrets’ – proprietary insights that you’ve discovered that no one else knows yet.
  • For ‘why now’, think about change events that relate to new technology, new regulation, or new shifts in consumer behavior. Explain why no one could have successfully built your business in the past as well as how a particular change event has created a window for new possibilities.
  • The best founders are the authentic ones who care more about solving the problem than they are about building a unicorn business.

Fund Raising Tips

Focus on explaining the problem. Investor has to recognize it is a problem worth solving. Explain with an analogy/anecdote. Understand at what level the person you are talking to understands your space. Solution is less important. “Communicate clearly and adjust depending on the situation”

Investors love to hear about your background and how you evolved to become a founder. They look for the chemistry between founders.

Create a process – who to speak to, when, why, etc. Dedicate yourself to it. Create a spreadsheet with schedule and probability of success. Track conversations/results. Find balance between a hyper-critical investor and an all-is-well investor.

Raising too much too fast will hurt the company. Identify the milestones and the runway you need to meet them and go from there.

Find what GREAT is and means. Investors love to see you rub shoulders with other successful founders/investors/leaders. Personal connections and network matters. Find a sparring partner and not a best friend who doesn’t challenge you enough.

Avoid investors who are too involved and those that are not involved at all. Do not take office space in your investor’s building. You need room to grow and not someone overseeing you.

Can you take a big hairy problem and break it down into simple smaller problems? Condensing is a skill.

Tip 1: Lead Investor

Investors care more about who else is investing than the business plan and team. So, don’t go broad until you have a lead investor lined up.

Tip 2: Set a deadline

Deadline keeps the momentum going and keeps you running towards closing the fund raise.

Tip 3:

Resources:

How to raise Money? http://paulgraham.com/fr.html

https://www.sequoiacap.com/article/writing-a-business-plan/

How to prepare an Investor Pitch Deck?

One of the most frequently asked question by any founder is how to prepare a pitch deck? It can be very painful process and experience to create a winning pitch deck, especially if you are raising an investment for the first time. A lot can however be learned from pitch decks from startups that successfully raised and grew their companies, some that went IPO. Following below are few valuable recommendations that can help you cut the time in research and spend more time in putting together the slides. Since the goal is to pitch an investor, the focus here is on content and not the graphics. Graphics may be a necessity for a public presentation like a demo day presentation, but do not matter for an investor meeting.

The style and content of a pitch deck depends on the goal – meeting an investor, presenting to large audience, etc. The purpose of the deck could be to introduce and showcase your business, demonstrate your product, sell your vision and business model. The delivery method – presenting on stage, in a room, or emailing will also factor into the style and type of content to include.

While the investors normally fall under different categories, depending on their investment size, criteria, goals, etc., there is still a common expectation from most investors when they read your deck. This article covers some of the salient points to keep in mind when preparing an investment pitch deck.

  1. Start with the Purpose: The pitch deck should aim at grabbing the investor’s interest by giving enough information to open their minds to your vision and excite them to know more. Avoid giving over-information as it complicates your story and investors lose attention. Make sure your presentation is self explanatory, i.e. one can go through it in your absence and still be able to follow and understand it.
  2. Keep it concise: Not more than 10-13 slides. Guy Kawasaki has a 10/20/30 Rule that can help you in this context. Never include too many details on your product/marketing/finance.
  3. Make good Assumptions: You should be able to justify your assumptions and defend them, but that doesn’t mean you can include irrational assumptions.
  4. Acknowledge Competitors: Competitors success should be credited. Avoid overreaching arguments against their success.

After reviewing tens of pitch decks that are publicly available, I noticed the following slides to be the common ones across 90% of the decks:

  1. Purpose – The hook, elevator pitch
  2. Market Opportunity – market size (TAM and SAM), your customer base
  3. Problem & Current Solutions – market gap
  4. Your Solution – your offering
  5. Why Now – why hasn’t your solution been built before now?
  6. Traction – any numbers, momentum, expertise
  7. Marketing Plan: Strategy and Tactics
  8. Competition
  9. Business Model: Key revenue streams
  10. Financials – focus on key metrics
  11. Investment – your need, usage, past investments raised if any
  12. Team – your team, investors, advisers

Some of the not so common slides that can be added to the appendix are:

  1. Product/Service Features
  2. Product/Service Demo
  3. Existing Sales/Clients
  4. Partnership Agreements
  5. Risk Factors
  6. Value Chain/Food Chain
  7. Competitive Advantages
  8. Case Studies – clients, user engagement,
  9. Product/Service road map
  10. Competitive Advantage
  11. Milestones
  12. Use Cases
  13. Testimonials
  14. Key Differentiators
  15. Exit Strategy

Helpful notes while working on these slides :

Purpose/Elevator pitch – Define your company in a quick one-liner summary that combines your vision/product and the mission of your company. Keep it short and memorable.

Traction – Show your timeline and milestones to date. Growth metrics are key at early stage. Highlight press, partnerships, accolades. Customer success stories and/or testimonials.

Market Opportunity – Define Your Market: What business/space you are in. Total Market Size (Dollar Size, Your Place/Niche). Customers (Clearly define exactly who you serve). Macro Trends & Insights. Invent your own markets if that is possible. TAM (top down), SAM (bottoms up) and SOM.

Why Now? – Describe historical evolution of your market space and category. Highlight the macro and micro trends that make your solution possible.

Problem – Describe the real problem/need you’re solving, and for who. Who else is already doing this, and how are they going about it and what are the shortcomings to current solutions?

Solution – Why is your value proposition unique and compelling? How does it solve the problem? Why will it endure? And where does it go from here?

Product/Service – Tell the story of your customer and how customers use/value your product or service. Images and visuals are better than lots of text: show don’t tell.

Business Model – Who is your primary customer & how do you make money. What is the pricing / model. Revenue and # of customers to date. Show basic math on revenues and conversion rates. Life-time value of an average Customer (How many months, how many dollars?). How do you intend to thrive? Sales and distribution model. Customer/pipeline.

Marketing – Where are your customers looking today and finding help? Where will you get in front of them? How will you achieve your target growth rates? What are the most important and unique channels and methods you will use to find and win customers? How are you doing it differently than others in the space?

Team – Highlight key team members and their prior positions, successes, domain expertise. Demonstrate relevant experience. Which roles are the keys to success in your company/space?

Financials – Include 3-5 years of financial projections. Mention key & critical assumptions in your model of expenses, customer conversion, market penetration %. Highlight each of these Yearly for at least 3 years: Total Customers , Total Revenue, Total Expense, EBITDA. Sources: P&L, Balance Sheet, Cash Flow Statements. Show cap table if you have one.

Competition – Where do you exist in the larger overall Market Space? What are your Advantages? How is your place in the market unique to you, and the right one for your company growth and customers? Who are the competitors, why have they succeeded, and how do you truly differentiate from them? Who are your direct and indirect competitors. What is your plan to win?

Investment – State how much Capital you are raising, and with what general Terms: Equity, Debt, Convertible Note. What is the timing of your Capital raise? Who are your existing & notable investors, if any? What are your key Use of Proceeds (as % of total raise) : Founder salaries, Sales & Marketing, New hires, Technology / Product or Service development, Capital expenses / equipment.

References:

https://www.sequoiacap.com/article/writing-a-business-plan/

https://piktochart.com/blog/startup-pitch-decks-what-you-can-learn/