For early-stage technology companies, the fundraising process can be a very opaque one.
Whether you are engaging with angel investors or VCs, your approach should be fairly similar. The purpose here is to shed some light as you enter these discussions.
Decide on deal terms
Before you go into the process, you need to know three things well.
First, how much money are you raising? This should be based on getting you to the next milestone – I usually tell early-stage founders who are looking to raise another round in less than 9-12 months that they should look for enough funding for closer to 15 months and a healthy buffer.
Second, how much of your company are you willing to give up for this? Early-stage funding will likely be through a SAFE note, referring to the ‘valuation cap.’ For a deeper understanding of these terms, check out https://learn.angellist.com. While things vary by stage. market, and geography, pre-seed rounds can run from 10-25% of the company.
Third, when will you be fundraising next? or in other words, what is your fundraising strategy for the next couple of rounds. These don’t need to be crystal clear, but some idea can help guide conversations and signals a long-term mindset.
Assuming you’ve already started to build relationships and do your homework, you’ll need to start connecting with investors.
Fundraising should be near enough the only business priority you have for the duration of the process (at least 4 weeks).
You’ll need to keep a detailed excel and ask for warm intros. You should aim to take a bunch of ‘intro meetings’ close to one another.
Within 7-10 days, you should be able to have first conversations with as many relevant investors as possible, starting with those who are the highest priority for you, e.g., similar previous investments, experience in the industry, and comfortable with the geography.
Move lightning fast
The core of a good fundraising process is the ability to move fast.
After intro calls, everyone’s process will vary widely. If an investor asks a specific question, get back to them ASAP, definitely the same day. If investors ask for follow-up calls, make time, and aim to have these within a few days to keep the momentum going.
Leverage downtime to keep a ‘data room’ if you have high-level user data such as retention, ARPU, etc. As well as this, keep an ongoing bank of frequently asked questions as they are likely to be standard across investors and will allow you to get back quicker and quicker.
It gets harder to treat these as distinct phases as the process goes on.
You’ll have anywhere from 2 – 5 calls before getting on to discussing deal terms or getting a response.
Keep investors updated if you’re discussing deal terms with another investor, as this can force them to move faster. Try to define deadlines, e.g., we aim to close by X. We will need a response by Y, does this work for you?
Throughout this process, you should have spoken to dozens of investors with (hopefully) a few offers in front of you.
Original post. Reposted with permission.