How do you know when you're ready to raise?
- You've achieved $1M ARR
- You're growing faster than your peers
- You can show you've convinced a slice of your market that your product is valuable enough to pay for and that the user base is growing
How to prepare
First, gather the following information:
- growth rates
- revenue numbers
- customer testimonials
- user feedback
- achievements
Then prepare these materials:
- Prepare a short blurb about your business, including a couple of headline numbers that indicate the business is doing well
- A short teaser deck (3-7 slides)
- A longer presentation deck (12-15 slides)
- A 2-3 year forecast with assumed fundraise secured
- Optional: Metrics deck or a data room. Sometimes you will get asked for this at Series A, sometimes not. It helps if you ask your prospective VCs in the first meeting whether they’ll ask for it.
How long should it take?
It should take 2-4 months from starting preparation to term-sheet.
“If you can’t tell a credible and compelling story about your vision and how your plans will capitalize on broader societal, market, cultural, economic or other trends, you’re dead in the water. I believe my own secret to fundraising success was that I always spoke to the broader changes I saw happening in the world and my conviction about the opportunities they presented.” — Eoghan McCabe, co-founder of Intercom
Creating leverage
First, don't be desperate for money. Have at least 8 months of runway. If you have less, consider raising a bridge round from inside investors.
Maintain customer traction during the raise. Investors ask for updated numbers as you get close to the end, you'll have less leverage if traction dwindles.
Put together a list of 50-60 funds you want to talk to and meet with all of them within a 2-3 week period. That's 4-5 pitches a day. This no VC has time advantage relative to another to gather information and do diligence.
Get a strong intro, the best being from a successful founder from within that fund’s existing portfolio.
If you're meeting with an associate, ask if they have autonomy to make investments or if there’s a partner at the fund they recommend you start building a relationship with.
The world of venture capital actually closely mimics enterprise sales in this manner. Once your 'inside sponsor' has gotten over the line, then you are actually on the same team. — Delian Asparouhov, Founders Fund
Information to gather
At the end of each meeting you should be asking your prospective partner:
- What kind of diligence do they need to get through to build confidence?
- What is their next step in moving this process forward?
- When might that next step happen?
- What parts of the business resonate with them?
What does success look like?
You just need 5 VCs still interested in investing after the diligence phase is over.
Expect to fail with 90% of the funds on your list. Partners only 1-3 early-stage investments per year, and the success of these investments impact their career success, so they're naturally picky.
These are notes on Marc McCabe's post "A playbook for fundraising" in Lenny's Newsletter, all credit goes to the author.