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.