Fundraising is as much an art as it is hard work. Most startups quite literally stumble into their first investors. No wonder as business angels are usually deeply rooted in the startup ecosystems and used to discover young talents in very early stages. Venture funds are different – unlike business angels, they won’t necessarily hunt you.
Professional investors (like venture funds) will have much higher visibility and will market their brand with at least some effort. A strong brand has several advantages for venture funds. It generates additional deal-flow, increases the visibility of their portfolio companies, and notably also attracts LP’s to their funds.
Don’t get fooled by stereotypes of fund-managers. People told me a thousand times that investment bankers make bad VC investors in comparison to former entrepreneurs. However, I have experienced that former entrepreneurs are not as founder-friendly as they tend to market themselves! Look at funds with former startup founders. They hire bankers and consultants to fill a gap and bankers do the same with founders. Amy Lewin from Sifted wrote an excellent article about this topic. If you want to know how it is to work with them, ask companies that have received an investment of the fund.
Venionaire is committed to supporting startups in fundraising and scaling their businesses for almost seven years. The landscape and experience of investors substantially changed in Europe and the US during those years. Today, there are many new investors out there. New funds, investment networks, family offices, foundations and high net worth individuals started to invest in startups. Crowdfunding kind of vanished, as this approach seems to work much better for real estate than for startups.
90% of founders end up doing fundraising themselves although they should focus on their products, develop their teams, and seek support for fundraising from their investors and experts around them. We like to share some advice with you today, to make this hustle a little bit more productive with a brief 10 Step-Guide for you to find the right investor:
10 Tips for better Fundraising
- Build a funnel for investors, just like you do for your users at least six months before your next round (e.g. landing page & newsletter via HubSpot and MailChimp).
- Build relations to a maximum of 10 investors whom you like and learn what they look for (KPIs, Traction, Team, etc.)
- Communicate your company development through investor mailings (incl. the pipeline of future investors).
- Be active and professional with press, social media, and conferences.
- Motivate and feed your “fan-base” (existing Investors, Co-Founders and Employees with Stock-Options) to invite as many investors as possible to follow you.
- Concentrate on the best investors, which show active engagement with your product and team through your channels.
- Always have your pitch deck and documents ready for investors (nobody interested should wait for you to send them).
- Be reasonable regarding valuation and terms – professional investors will not take advantage of you as this will hurt them in up-coming rounds.
- Invite your existing investors early to join a bridge round. If you run out of liquidity, your position will get extraordinarily hazardous. You will lose energy, shares, and confidence of your stakeholders.
- Don’t wait or negotiate to long – close your deals within three months maximum!
If you have the luxury to choose, we recommend asking for some ratios and parameters to qualify the investors interested in joining your company:
- Number of Portfolio Companies / Investment Managers
Why? You want to know if they have resources to support your company in its next development phase.
- International Network of Experts
Why? It is easier to join an existing network than to build one from scratch.
- Support Network (Public Relations, Human Resources, Growth Hacking, Developers, etc.)
Why? You will need services to boost your company. While marketing usually is rather easy to solve, hiring talents with international experience will sooner or later become a real pain in any hub.
- Active Co-Investors with Portfolio Companies
Why? The better an investor picks and structures their investments, the better their relations to highly reputable co-investors will be. Some investors will even invite co-investors to look at a company during due diligence.
- The runtime of the current fund and de-investment pressure on previous funds.
Why? Most funds run for ten years, after 3-5 years of investing and five years of harvesting, they need to sell off their portfolio. You do not want to end up in a fund that is under selloff pressure by its LPs.