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Raising the bar: How to crush your next fundraising round?

April 26, 2023

Securing investment is like rocket fuel for a startup’s growth. But preparing for a fundraising round is not just about having a great pitch. It requires careful planning, relationship building, and strategic execution. From creating a hit list of investors to laying the groundwork early, we’ve got the insider tips you need to prepare for your next fundraising round and drive your startup forward. Buckle up and let’s dive into it.

When to start?

The truth is, you must start planning your next round as early as during your previous one. Investors at different stages have different expectations regarding key milestones reached, KPIs and traction. Hence, you must prepare every round with the clear idea of what are the milestones you’ll need to achieve so you are fundable at the next stage as well, what is the amount that will bring you there, and what needs to happen in between the rounds.

When planning for an investment round, make sure to allow for at least 6 months from the moment you start approaching investors until the deal has been finalized. This means you should have sufficient cash balance to sustain you for at least 6-8 months. In certain cases, it is possible to close a round faster – usually, but not necessarily, if:

There is a very strong chemistry between you and a prospective investor.
You have built an extremely clear case and have all information in place to move through the due diligence faster.
There are certain market dynamics that increase competition among VCs and put pressure on investors to close deals faster.
You have a strong lead investor in place who’s able to bring on board other reputable VCs.

For the purpose of this guide, and given that we are in a bear market, we’ll assume that none of the above holds true.

Why is it critical to start approaching investors as early as possible?

You’ll come from a stronger position, not appearing desperate for money in front of investors.
It allows enough time to incorporate investors feedback within the investment process and improve your pitch on the go.
You could have more than one discussion with the same VC, and still be able to show how you progressed within this period.
It will lift some of the pressure off your shoulders, being able to push your business simultaneously and not overstressing that you are this close to bankruptcy, or you need to think of layoffs.
And finally, approaching investors when you only have 1-2 months of runway looks bad in their eyes. It signals lack of planning and underestimation of the efforts required.

How to build your list with investors?

When thinking of creating a list of potential investors, “the more the merrier” does not always hold true. In fact, you should be careful in evaluating your potential investors upfront and only approach investors who are relevant and can bring value to you. A simple initial filter you could apply is based on the following information (most of it is usually available on the VC’s website and/or Crunchbase):

Geography – is the VC investing in your country/region?
Industry – is the VC investing in the space you are operating in? Do they have vertical focus or previous investments?
Stage – At what stages and round sizes does the VC typically invest in?
Competition – has the VC invested in any of your direct competitors? This might be a roadblock for them to invest (not necessarily true for US VCs) on one hand, on the other you should be wary of what you may disclose to them.

Once you have your pre-qualified list at hand, it’s best to identify the partner/team within the VCs with the most experience in your industry. They will be more likely to understand your product and become champions of the deal. Some funds with vertical focus would have their team clearly assigned and likely announced on the website. For more generalist funds, it helps to do a bit of research on the individual partners and see what deals they have led or what boards they are sitting on.

Within this research phase, it would be ideal if you speak with other portfolio companies of the funds. On one hand, this will help you understand the investors’ processes and the value they can bring much better. On the other, you can later rely on this company for a warm intro with the fund. Plus, keep in mind that VCs love referrals coming from alumni!

*Here is a short guide on choosing the right investor by our Partner, Daniel Tomov.

Start building relationships early on

Even with the best list at hand, cold calling would not work. If you randomly approach VCs, chances are you won’t even get a response as most VCs would prefer to have some reference on you. Think of it as sending random marriage proposals and expecting a positive outcome.

There are couple of things you could do to build relationship with VCs:

Approach them even before you are fundraising, looking for advice and not money.
Get to know their LPs, portfolio companies, junior employees, mentors, etc.
Say hi at events.
Once you’ve been introduced, ping them from time to time to update them on your current progress.

Structuring your process

Once you have all the information in place, it is time to structure your process and make sure that all your investors and relevant employees can easily participate in the fundraising. For this purpose, we strongly advise our founders to use Trello and we provide full support in setting up the board and including all key elements. You do not want to constantly exchange excel sheets or forget which investors you’ve approached or were introduced to you!

Approaching investors

Once you officially open the round, be prepared to spend significant time of your day on investor calls, sending additional information, following up etc. As a founder, one of your key roles now will be to close the round and ensure that your business will be able to continue growing.

Key points to keep in mind:

The founder & CEO shall lead the process. Leaving non-founding team members organizing and having investors calls leaves a bad impression.
Be able to tell your story in up to 5 minutes, making sure it is clear and everyone can understand it! Rehearse, ask for feedback, pitch in front of friends and family. If the VC is not able to understand your business within a short call, chances are they won’t move on with the process.
Know your industry inside out – it makes a bad impression if a VC asks about a competitor you are not aware of. Make sure you know your market better than anyone else.
Know your numbers by heart. You’ll likely be asked about specific metrics, KPIs, projections etc., and answering that you can check in the projections file is not good enough. Even if you don’t know the exact numbers you should know the bulk stuff and how it relates to your vision. Knowing your historical performance and state of the business is even more critical!
Have a couple of references at hand to suggest if the VC enters into a Due Diligence. These are usually existing customers, advisers, or industry experts.
Respond quickly to any requests from the potential investors, some of them might test you this way. Not answering for 2 weeks gives a bad impression, no matter your reasons.

To sum it up, start as early as possible, focus on relationship building, and keep in mind that you cannot be overprepared. Do not get discouraged by the “no’s”, rather try to learn from each and every one by always requesting feedback on why investors decided to pass. And finally – be patient and remember that some of the greatest companies received hundreds of rejections before someone believed in them.