You know the steps for startup fundraising:
- Target potential investors.
- Get warm introductions.
- Set up tons of meetings.
- Get serious with a handful of prospects.
- Make your pitch.
- Negotiate your terms.
- Sign term sheets.
Voila, you’re funded!
While this seems straightforward, in reality the startup fundraising process is much more fraught. In the best case, getting funded can take months, and in the worst, you might end your quest without a single signed term sheet. Oh, and have I mentioned that it’s a full-time job? Physical endurance is one thing, but how do you prepare yourself for the mental and emotional toll fundraising takes?
Here are 3 tips to get you from searching to funded while staying sane!
The more you organize in advance, the better your chances of startup fundraising success. What’s involved here? I’m talking about strategic preparation. Develop a high-level project plan and detailed workflow of all the steps you need to take, from identifying potential investors, to researching them, to developing a target list, to tapping your network to score referrals and warm introductions. It’s important to include timeframes to keep you motivated and track your progress, but also include a buffer because the process always takes longer than you think it will.
Once you’ve scheduled some meetings, do extensive prep beforehand. You’d be surprised how many entrepreneurs flub this step by not preparing enough for meetings. This goes beyond the basics of practicing your pitch and anticipating questions.
One way to turbocharge your odds of success is to get inside the minds of your potential investors. This means trying to understand what makes them tick and being really up to speed on which kinds of investments they like, in which sectors, their typical deal size and stage. Don’t be a stalker, but try to find out about shared interests—maybe schools, sporting activities, social or professional memberships—anything you can leverage to build rapport and give you insight into how they operate. This will help you tailor your pitch.
Despite your best efforts though, you’re still going to hear no a lot. So develop a thick skin and don’t take it personally. Be confident enough to ask for referrals to other potential investors at the end of every meeting. Do this even, and especially, when the answer is no.
The key to successful startup fundraising is to make sure you stay on investors’ radar screens, but not to appear desperate. Reach out with useful news, keeping potential investors up to date on any successes you achieve, and also letting them know if you’ve added high-profile advisors to your roster.
Don’t forget the other side of the startup fundraising equation too—the investor. If you see that the investor (or one of his portfolio companies) has had a win, reach out to say “congratulations.” Likewise, if you come across an article or some bit of news that you think would interest the investor (maybe something that references a topic you discussed), forward it to him. Basically, you want to keep a dialogue going and use it to convey your business’ desirability and viability, as an investment.
Of course investors will do their due diligence before deciding whether or not to invest. But part of the decision, particularly if you barely have revenues and have no cash flow to speak of, is motivated by whether or not they believe in you and the team you’ve assembled. This is true of all investors, but may especially come in handy when dealing with angels, who are often driven by more than numbers and may be entrepreneurs themselves.
Take every opportunity to instill confidence and convince them that you’re a safe bet for their money. If you have more than one party interested, you can try to speed things along by making sure potential investors are aware that you’re entertaining several offers.
That being said, know when to fold ‘em. If and when it’s clear they’re not biting, move on. It’s all about cost-benefit, and the more investors you can get in front of, the better.
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