As I state in my book The Art of Startup Fundraising, closing round of financing is an art as every single ingredient needs to be perfectly aligned in order to have things unfolding nicely. Normally if you are lucky it would take you anywhere between 6 to 8 months in the offline world to raise a round or between 1 to 3 months if you also use online tools.
However, knowing the ropes and how to close the money get it in the bank will help you in accelerating the process and avoiding the common stupid mistakes that would scare people away. For that reason I wanted to put together this blog post to provide some guidance on the main tips that would help you crush it with investors.
1. Connect on a personal level
No one likes the hard sell on anything. Do not try to stuck your pitch down the throat of the investor. It is a big turn off. Before jumping into the pitch try to connect on a personal level by understanding the interests of the investor and perhaps some of of hobbies. Things like the background or contacts that you have in common with this individual would help in finding the best topics that would bring the two of you closer.
Once you have connected and you feel there is a friendly tone established between the two of you then you should give a quick elevator pitch of no more than 2 minutes and let the investor drive the conversation with questions so that he or she is engage at all times.
2. The pitch deck
You want to have the perfect pitch deck with all the bells and whistles. You do not want to go over 20 slides and focus as much as you can on the problem, the solution, the market and the team. Make sure it is clear why you have the right people executing and why your backgrounds makes the team so unique. I provide a good overview on this topic on the articles Study Reveals The Pitch Deck That Will Land You Millions, 5 Startup Pitch Decks That Helped To Create Billion Dollar Companies, and 14 Slides You Need To Raise Capital.
Ultimately you will need two different sets of pitch decks. One version will be with a lot of text and information which will be shared with people via email. The other version will be the pitch deck that you present to investors in person with much more visuals. Having more visuals will contribute to having investors focused on you. In this regard, below you will be able to download for free a pitch deck template.
DOWNLOAD PITCH DECK TEMPLATE
DOWNLOAD PITCH DECK TEMPLATE
There is no doubt that sooner or later the topic of valuations will be discussed during conversations with investors. For that reason you need a clear understanding of how much you are willing to give away of your company. Note the rule of thumb is to not dilute yourself by over 25% per round.
If you are not able to secure a lead investor that would give you a fair valuation you can always go the syndicate route and establish the terms yourself. However, if this is your only option you need to make sure that you have terms that are attractive enough for people to jump in.
Note that it is a big turn off for investors to speak with an entrepreneur about valuation and having the founder not being able to answer what range of valuation they have in mind. Normally you want them to talk about valuation first but you should also know your numbers.
Moreover, when you are raising capital, make sure that you go out with ranges instead of a fixed valuation. Especially if you do not have a lead investor yet. The reason for this is because Venture Capital firms have mandates where they can not invest over XYZ or less than XYZ. As an example, if you are raising $3M, instead of going with that number say that you are raising between $2M and $6M. That way you get the attention of VCs that can invest more than $3M and also the ones than can invest only under $3M.
4. The Follow Up
More than 80% of the founders that I meet raising capital, via 1000 Angels, give up on investors after their first meeting when they don’t see a check happening or when they hear the typical you are too early, you don’t have enough traction, etc. What entrepreneurs don’t understand is the secret to closing an investment is to kill it on the follow ups.
Basically an investor will invest when the dots of your story connect over time. Lets say when you meet for the first time with the investor you explain your vision and where you would like to take your company in X amount of time. If a few months down the road you reach back out to that same investor and demonstrate that you accomplished many of the promises you are one step closer to getting that investor REALLY excited.
Some other ways to follow up is when you are in a position to share new exciting product/feature launches, getting covered on notable media outlets, or perhaps making introductions to other founders that could meet the investment thesis of that investor. It is all about being top of mind but please don’t be annoying. Leave at least 2 weeks between follow ups.
5. Under Promise Always
This section is a good follow up to my point above. When you meet the first time with your investor they will ask you for your projections and the type of revenues that you anticipate within the next couple of years. They will also ask you for the current financial statements and other data points that would give them a better picture of your venture.
With that being said, the projections that you share with them should be extremely conservative. There is nothing better than crushing your projections and some months down the line to follow up with an update where you state how well you are doing and how well above the initial expectations your company is performing.
By over delivering on your promises people around you would get really excited and investors will beg you to jump onboard with you to share the journey.
6. Become a Story Teller
Whenever you tell your story you want to be very detailed and have people understand the main reasons that drove you to starting up your company. This applies to why you started your company, why you chose your current name, how you met your cofounders, etc.
In the end, the best founders at raising capital are the best ones at telling stories. You need to understand that at an early stage people are for the most part investing in you and also in your story. You may have an awesome product that is generating good revenues month over month. However, if you are not able to present this in a clear and concise way you should forget it.
7. Team & Market
The team and the market are probably the two most important points when you are pitching to an investor your company. Your team needs to have the right background to execute. Investors want to know why your team is suited to do things better and faster than the rest of competitors. In fact, you should know that they are probably meeting and speaking with all of your competitors as well.
Make sure there is alignment with you and the other members of your team. This means that you should create a unified voice with your vision and mission so that if any of your team members meets with such investors they respond questions in the same way you or anyone in the team would answer.
Without a market there is no lucrative exit for investors. For this reason you want to explain why your market will grow over time and certain factors that explain and guarantee there is a high chance for it to happen. Perhaps you can cite here important research studies to back your facts showing progress year over year in the past and also potentially in the future.
8. Your Competitive Advantage
Investors want to know why they should invest in you. They will arrive to such conclusion with having a good understanding of your competitive advantage. Some factors that determine the competitive advantage of a startup could be:
- IP with certain copyrights and patents
- Incredible partnerships that help with distribution
- Very big and engaged community
Do not underestimate your competitors or put them down. As I mentioned above, you should know that investor is most likely speaking with your competitor also. Investors don’t appreciate this and most likely your competitors either. The road ahead is a long journey so stay friends with everyone and be diplomatic.
9. Do Your Research
Before developing the relationship with the investor and perhaps before even reaching out you need to know everything about that investor. With this in mind, you should understand what is the investment thesis of this investor and other companies the firm has invested in.
Moreover, you should know some hobbies and things that you can talk about that not necessarily are strictly business related as I stated on the first point. This could be the school the investor attended or if they have any kids and perhaps share some stories.
Additionally, you should be aware of any potential restriction the firm might have. Restrictions could be in the form of location, stage, size of tickets, etc. When you are raising capital you need to optimize your time so avoid wasting it if there is no cheese at the end of the tunnel.