Managing Your Fundraising Process Like Your Sales and Marketing Process
Mark Suster of Upfront Ventures wrote a fantastic piece on Medium about the importance of creating a process around fundraising. The full piece is definitely worth taking the time to read, but here are 10 key takeaways:
Think of fundraising as a sales and marketing process. In sales, you have to qualify your leads. Ask yourself whether an investor has interest, authority, budget, and a willingness to engage further with your startup. Then create a pipeline stack ranking the VCs into groups, with no more than 8 to 10 A group investors, 8 to 10 B group investors, and around 25 C group investors. These groups do not signify the reputation of the investment firm but rather the firm's fit with your specific company.
Have 2 meetings with your B group investors before hitting your high priority A group investors. This will give you a chance to understand the questions that may come up, hone your pitch, build in ways to address common concerns before they come up as questions in your following pitch meetings.
Reach out to all similar firms at the same time. You do not want to receive a term sheet and then have to put the process on hold because you are still reaching out to other firms who you would like to engage. Investors may rescind a term sheet if they feel slighted because you are not taking them seriously.
Remember that it's not hard to get a first meeting with VCs. Don't get overly optimistic if the meeting goes well or if the investor seems friendly or engaged. You can get excited or cautiously optimistic when the investor sends "buying signals," such as asking you to meet with their portfolio companies, asking to speak with your customers, and meeting with your team members. Basically, anytime the investor appears to be doing their own diligence and putting in the time to learn more.
Do not give up on outreach to a VC just because they have not responded to your last two emails. Investors, like everyone, are often busy with managing their existing investments, attending conferences and events, and responding to requests from LPs. They may even be raising their own fund at the same time. You should push the investor until you get a soft no or more engagement.
Create reasons for investors to keep you top of mind. Suster lists some hacks for doing this:
Have the investor meet with key team members
Show them new product features or new demos
Pre-plan your meetings to hold back some compelling bits of information, and then use this information as a reason for a subsequent meeting
"Land and expand" within the venture firm. Ask to meet with other members of the investment team when it makes sense to do so.
Realize that due diligence meetings are the hardest to secure but the most promising. Doing diligence is an obligation for VCs, so they do not initiate this process easily. Don't give up. Suster states, "Many entrepreneurs take the easy route of taking new first meetings because they’re easier to get, easier to prepare for (you already have a deck) and the feel like progress. Frankly, this is like running a sales campaign and when the last big push to persuade four disparate departments to back you and it starts feeling difficult, you instead start working on selling to different customers.
Realize that PR works as a nudge to investors. Getting an article published about your product in TechCrunch or the WSJ during fundraising can be the catalyst for an additional meeting.
Keep feeding the top of the funnel (your B and C group investors). You do not want to put all your eggs in one basket by only contacting your A group. Never assume that a term sheet will come through, even when you are negotiating that term sheet.
Shift your mindset to view fundraising as an activity that never ends. This does not mean you have to allocate all your time to fundraising, but it does mean that you should be allocating some time to it on a consistent basis, as opposed to just doing it during a few months before your runway is coming to an end. Suster recommends at least 15% of your time each month should be spent on fundraising/investor relations.