How to master the art of startup fundraising
12 September 2019
Kjartan Rist for Forbes
Startup founders would be forgiven for thinking that their biggest job is fundraising. There is such a focus on investment rounds in the startup community and the media, that it is now seen as one of the primary measures of success. If you’ve raised a load of cash, the perception is that your business will automatically be successful–regardless of whether you’ve got a viable product or you’re making any money.
But, while fundraising isn’t everything, for a business that is looking to develop something very new and innovative, and/or that is looking to scale fast in an established market, then waiting for cashflow from sales is probably not going to cut it. Hence, these businesses use the startup equivalent of “doping” – in the shape of venture capital – giving them the time and resources they need to make their ambitions a reality (legally!).
As such, many founders do inevitably become ‘chief fundraisers’, meaning they spend more time writing pitch decks and meeting investors than actually running their business. Consequently, they have to get really good at it, both to attract the best, most appropriate partners, and also to juggle what is effectively a full-time job with keeping their business healthy and team engaged. No mean feat.
So how do you perfect the art of fundraising?
Every founder is unique, and their style and personality will come out in how they approach fundraising. Some are all about building relationships, others are execution machines, or product and market visionaries, while for some their big strength is their charisma or their brains. It therefore follows that a founder’s presentation style will be governed and guided by these individual personality traits and will naturally appeal to certain investors.
Investors too have different preferences, information requirements, and areas of focus. For some, the numbers are everything, whereas others focus on broader themes and trends, and for many, it’s all about the people. There are investors who are not necessarily seeking close relationships with their founders, while others thrive on building these close bonds, with approaches ranging from very hands-off to very hands-on. So, when meeting investors, try to be aware of where your style and strengths lie and understand how that will match – or not – with their personality and preferences.
Should you try to tailor your style to the investors you’re pitching to? Only up to a point. While you need to understand what different investors are interested in, and how they like to work, there is no point trying to fit a square peg into a round hole, when it comes to personality fit and ways of working. Remember, if they choose to invest, you will be spending a lot of time working together over the next few years, so it makes sense to be authentic from the word ‘go’, to ensure you truly do get along.
The best thing you can do is try to ascertain fit in advance so that you don’t waste your time on investors who don’t match your style and what you’re looking for. That’s one of the reasons why referrals can be so valuable, as it makes finding the right fit more efficient as well as more likely.
Be a storyteller
Making a success of fundraising has a lot to do with your ability to tell a story, so this is something you’ll need to perfect in your role as chief fundraiser. Yes, you might have a cool product and cutting-edge technology, but unless you’re able to bring it to life and answer the all-important ‘why?’ then investors are likely to switch off pretty quickly. Stories are great because they spark engagement, enthusiasm, and emotions, and make your investors care about what you’re building.
We don’t expect you to be the next JK Rowling or Charles Dickens, but every business has a story behind it, and the best ones are personal to you and your business. For example, you should start your presentation or pitch deck with the background to how you came up with your idea, the problem you’re solving and how this drives your purpose as a company. Then once you’ve hooked your audience, you can move on to how you’re doing it and more about how your product works.
Try to bring the investors into your story too if possible, by painting a picture of how their capital will drive growth and help the business achieve its vision for the future. As an example, one of our entrepreneurs always talks about the next funding round, rather than solely focusing on the current one, instilling confidence and helping us to visualize the roadmap ahead. He also regularly highlights ‘this is only the tip of the iceberg’ to excite and create momentum amongst the investor team.
Understand the key factors that VCs are looking for
Of course, a good story isn’t everything, and when writing your pitch deck and presenting, you should always be mindful of the key factors that investors will be looking out for. These are:
Macrotrends: Where do your product and service fit in with broader consumer trends?
People: Do you have the skills and experience to deliver? A strong background can help you to shortcut many discussions, particularly if you have run similar businesses in the past.
Uptake: Can you show that your target market is interested in your product? Even if your numbers aren’t huge at the moment, we need to see traction.
KPIs: Are there any other numbers or trends that prove your business is going places? These don’t have to be numerical, as factors like consumer reviews, product reviews, visitors, statements and media coverage are all important.
What problem are you solving: This is critical and a big part of your storytelling as outlined above. We need an ‘ah-ha’ moment.
Technology: Are you using new technology? How does it work, and how does this provide you with a competitive advantage?
Gut feel: Not much help to founders perhaps, but most investors place a lot of importance on their gut, and whether they have a good feeling about something. Once you find the right chemistry fit and align all the pieces, this should naturally follow.
Investors can be pretty unforgiving to founders, annoyingly acting like ‘Mr. Know It All’ when you’re throwing all your energy into delivering your pitch. That’s why this last piece of the puzzle is so important, as you will inevitably get knocked down while fundraising, and it is vital that you get back up again and keep going. In fact, a few knockdowns should improve your chances with investors, as they show us you have the real resilience needed to go the distance.
Remember, in most VC firms, just 0.25 to 1 percent of deal flow leads to investment, so if you’re not the particular ‘flavor’ that an investor likes, this can be for any of the reasons listed here, or simply come down to the wrong timing. The most important thing is to take what you can from every meeting, to hone your pitch to perfection, and move closer to finding the right investor match for your business.