If you are the founder of a technology company, fundraising will be an activity of critical importance for the success of your firm – whether you like it or not.
Some founders are natural talents in conveying a fundraising story and creating investor interest. Others convince with a strikingly good team, model, product or traction. Regardless of how you aim to convince investors, we believe that there are some important etiquette principles that founders should follow to make the most of this process.
In this series, we provide etiquette guidance on 1. The Preparation, 2. The Kick-off and 3. The actual Fundraising and Closing processes.
Preparation is everything
Once you have figured out the right time to raise additional funds, which is when you are able to execute the fundraising process professionally, you should kick-off the fundraising by setting a goal. Define the amount you aim to raise and the valuation you want to achieve. While it is important to define a clear goal internally, you should not so openly communicate it to the outside world just yet – we will discuss later why.
You should also think about the characteristics of an ideal partner. Some startups might optimize for valuation when choosing their VC, while others seek particular industry expertise, reputation or other kinds of support like recruiting or debt access from their investor. Always keep your “favourite” investors close, and engage in informal conversations with them along the way, even before the actual fundraise. This increases the probability that they will preempt the round, meaning an offer to invest in you even before you start actively seeking money from others. Otherwise, you can quickly warm up the conversations when the structured fundraising kicks off.
Also, define a rough timeline during which you want to have first calls, provide data room access, facilitate deep due diligence, aim to receive first term sheets and finalize the fundraise. Accurate timing is particularly important to achieve competitive dynamics by receiving multiple term sheets in parallel. If you receive term sheets within a similar range of time, you have a much better position for negotiation. However, you shouldn’t be too harsh in adding artificial deadlines. Instead, communicate clearly the time ranges for the different respective stages. Putting too much pressure on investors might push them away, and therefore might prevent them from undertaking adequate due diligence.
Next, develop a strong storyline. Creating a storyline takes time and many loops of iteration – so start well in advance of the first investor calls. Discuss preliminary ideas with the management team, existing investors and advisors to achieve the best possible result. A good story typically covers: the team’s strength, major milestones and achievements, and a grand vision with a clear roadmap to success. It can help to start formulating the story on paper during the process and develop a draft for a pitch deck. Focus on content, not on design. When the former is finalized, it is time to work on the look and feel. To be efficient, consider working with a freelancer or design agency to make the pitch deck look appealing – but monitor this process closely! During and surely by the end of this chapter, you should do a test pitch with your existing investors or business angels. This feedback can be extremely helpful and allow for great preparation for the new investors you may want to get on board.
Before going out into the market, it is essential that you also arrange the data room to avoid not having all relevant information accessible to investors. You can set up the data room with a certified data room provider, or by using a normal cloud solution. The data room should include at least the following documents:
- Deck / Memo
- Financial model
- Traction data (revenue growth, retention, customer pipeline, CAC, etc.)
- Cohort data
- Cap Table
And, if applicable, you can also add:
- Recorded product demo (e.g. via Loom)
- Customer testimonials
If you have done all of the above, you should be ready to kick off the actual fundraising! In the next segment of our Fundraising Etiquette series, we talk about how to build a strong investor pipeline.