When you are fundraising, you are not building and selling your offering. This is why the opportunity cost of fundraising is very high. Because of this, when you decide to do it, it’s crucial to be as efficient as possible.
The goal of this checklist is to help you concentrate your fundraising efforts in order to get the best possible results for the time that you invest.
Table of Contents:
1. Research and Define Your Fundraising Goals
Nothing will slow you down more than entering conversations without a clear understanding of what you are looking for and what you are offering.
✓ Why do you need funding?
What exactly are you going to invest the money in? Can you survive without it by
bootstrapping and growing organically?
As mentioned, fundraising is an expensive use of your time. Make sure you have a
good idea of why you’re doing it.
✓ How much do you need?
Be precise and realistic depending on the stage of your startup and the needs of your business.
Pre-seed/seed/series A rounds have certain norms attached to them regarding the
size of the round and the progress of the business.
✓ What type of investors are you looking for?
Are you looking to raise from friends and family, professional angels, or venture capitalists?
Make sure your business profile fits the investment criteria of the investors
you are targeting.
Also, try to prioritize investors with an interest in your industry and your specific
developmental stage.
✓ Are you looking just for money or also for direct involvement?
If you are a first-time founder, it’s recommended that you find a mentor (even by giving
up some equity) with experience in the field. This will not only increase the
chances of success of your startup but will make fundraising a more realistic
option. Warm introductions are one of the most important parts of a successful
fundraising process.
✓ Who is in charge of the fundraising process?
Fundraising takes a lot of work. Make sure one person takes ownership of the fundraising process and the results. It’s a mistake to involve the whole founding team because you should never stop working on your actual business. This way, you will always have progress to show to interested investors.
2. Make Sure Your Startup is an Attractive Investment
Startup investors aren’t driven by a selfless desire to help founders. They want to make money. It’s easier to convince them to invest when you have something of high quality to offer.
✓ Clarify your idea & general narrative
Make sure your idea is clear (what are you selling and to whom), and your narrative of success is convincing. If the path forward isn’t clear to you, it’d be hard to convince anyone to risk their hard-earned money.
✓ Make sure you have a complete team
Make sure you have the right people to realize the idea – а founding team with the required technical and marketing experience, high-level of domain knowledge, and possibly a highly-motivated early employee team.
There are a lot of investors that invest in people rather than ideas. A high-quality team is often worth more than a high-quality idea.
✓ Validate your idea and assumptions
Besides friends and family, few people are likely to invest in a naked idea. Sophisticated startup investors need proof – the more convincing the better. Because of this validating your idea before fundraising is mandatory.
✓ Gather some traction numbers
Traction figures are the most convincing form of validation. Use KPIs that indicate progress. Investors are looking to invest in ventures which are moving in the right direction, and nothing is more convincing than interest from customers.
✓ Show product-market fit
If you are a later-stage startup, you’d need good evidence of product-market fit. This can come in the form of traction numbers in addition to user testimonies.
✓ Business model: scalability and unit economics
Startup investors are exclusively interested in companies with a very big upside (a business that has the potential to be valued at $100M at the minimum). This is because successful investments need to compensate for unsuccessful ones. Because of this, companies that can’t scale exponentially (e.g. consultancies in which you are selling your own labor) aren’t very attractive to investors. You need a scalable business model, low enough customer acquisition costs, and high enough customer lifetime value combined with good customer retention numbers.
✓ Have a long-term vision
What’s your end game? Ideally, it would be to dominate a new (large enough) market niche and either to IPO or to be acquired by another bigger company.
It’s OK if you are small at the moment, but you need to have the potential to be big. Also, you need a realistic exit event in your future.
✓ Unique Selling Proposition and defensibility
You need some way to prevent bigger companies from simply copying your offering and business model. E.g. network effects are a huge barrier to entry of other businesses, but you can also defend your business through differentiation and by building a trustworthy brand.
✓ Build social proof
Good PR efforts before the funding round would make fundraising easier. Try to attract media attention and combine it with good user testimonials.
3. Create a Professional Pitch Deck
A quick and efficient way to communicate what makes your project an attractive investment opportunity.
✓ Start with a template
Don’t reinvent the wheel. Investors expect to hear certain key pieces of information in your pitch deck. Trying to be overly creative in the structure of your pitch is a mistake.
✓ Make sure to emphasize your strengths
After creating a solid base with the template, make sure to emphasize the things that make you stand out from the rest. Investors see hundreds of pitches, so you need to show them something interesting. For example, if your team is your main strength, make sure not to say one sentence per person – be more exhaustive. If your traction is impressive – spend the most time on that, etc.
✓ Run test pitches and get feedback
You’re not done after finishing the pitch deck – you need to test it. Practice it in front of a test audience (friends, family, etc.) and ask for feedback. First, this will make you more confident when you are pitching in front of real investors. More importantly, however, this will tell you if some parts are not clear or convincing.
✓ Make sure you have a prepared answer for common investor questions (which aren’t covered in the pitch)
Make a FAQ document, and write down convincing answers. Keep in mind that the QNA after a pitch is often just as important as the pitch itself.
4. Run the Startup Fundraising Process
It’s time to get to work. Keep in mind that this process on average takes from 3 to 6 months, and for first-time founders, it usually takes more than 6.
✓ Establish the outlines of the round
How much are you raising? How much equity are you selling? When does the fundraising round start/end? Create a cap table.
✓ Create an investor “CRM” system
It doesn’t matter what you use – Trello, Notion, a Google sheet, or an Excel document, a CRM system will help you a lot.
E.g. you can organize it by columns: research/contacted/pitched/diligence/interested/committed. In each column, you can put the name of an investor and information about your communication with them. Your goal is to move them to the columns to the right.
✓ Research and make a list of possible investors
Go online and find out what investors and funds are most active in your industry and niche. Make a list. Order it based on how likely they are to pay attention to you.
✓ Start reaching out
First, try to get a warm intro. If you have a connection to other founders or any people involved in the startup real, reach out to them and tell them you’re fundraising. Ask them to introduce you to people, and once they do put these people at the top of your potential investors’ list and start talking. Even if these people are not interested, ask them for further referrals.
Second, try cold out-reach. Generally speaking, adding a specific person on linked-in and trying to talk is better than sending a cold email, but it’s not a mistake to do both. In any case, keep in mind that cold outreach is orders of magnitude less likely to have an effect than warm introductions. Startup investments are about trust.
✓ Attend events locally and digitally
Meeting people from the industry organically is a great way to build your network and get warm intros. Networking is a crucial part of the investment game.
✓ Follow-up and build relationships
Last but most importantly, very few investors would be willing to jump in after a first meeting. As mentioned, startup investing is about trust. It’s crucial to stay in touch with these people. Follow-up with everybody that showed even partial interest and update them periodically on the progress you are making.
5. Close the Round
Get an answer. Investors would postpone a decision as much as possible in order to piggyback off another investor leading the round. Don’t let that happen.
✓ Show progress
With the last item on the checklist, we recommended that you follow up. To make these follow-up emails/calls interesting, however, you need to be able to show actual progress. So, we circle back to the fact that while you are fundraising, you need to do actual work on the project and you need to be hitting new milestones.
✓ Create fear of missing out
Investors are more likely to pull the trigger if they are afraid of missing out. Your main weapon in this case is a deadline to your fundraising round. Keep in mind that getting a no on a preset deadline is better than not getting any answer indefinitely, so don’t be afraid to use it.
Be realistic –make sure your deadline is at least three to six months in the future. This would give you enough time to build actual relationships with your potential investors, but it would also let you get a definitive answer at the end of the period.
Additionally, it’s better to set a smaller funding goal for the round. This will create a feeling of scarcity if you are over-subscribed. You can always decide to increase the round if there are more candidates, but it looks bad if you can’t fill the round before it closes.
✓ Get an answer
The first yes is the hardest. Try to judge who is most excited by the project, and try to convince them to lead your round. Once you do, use your lead investor and the approaching deadline of your funding round to get other investors on board by forcing them to make a decision.
6. Summary
Hopefully, after walking through the checklist you will be able to quickly and efficiently fundraise for your startup project. In summary, the two key aspects of a successful funding round are to make sure your project is a good investment opportunity and to network and build long-term relationships with investors.
