7 Tips for Early Stage Fundraising From a Venture Capitalist
For early-stage founders, fundraising is a crucial, nuanced process. To help dispel some of the myths and shed light on what goes on when pitching investors, here are a few tips and best practices that can help demystify the process.
1. Offer a solution to a problem
This is a critical point when pitching investors, especially if your product leverages disruptive technology. Companies that have developed innovative technology in search of a problem often have a harder time finding their path to commercialization and raising capital. Your chances of securing a VC’s attention are much better if you have created a solution to a large and acknowledged problem. Lead with the business problem you are addressing when articulating your value proposition, and then showcase the technology. This approach demonstrates the clear value of your product right from the start of the meeting.
2. When pitching investors, it's okay to say “I don’t know”
Inevitably when pitching investors, a question (or questions) may arise to which you do not have an answer. Offer to come back when you have had a chance to think about it, or acknowledge that it will take more time to get that answer. Also, offer your approach on how you may go about tackling that question. Investors appreciate a genuine response and know there are many answers you do not have — especially in the early stages of building a business — whether it be around product-market fit, what the right pricing is, etc. A founder who can say, “I don’t know,” earns respect because that response shows maturity, self-confidence and the ability to acknowledge where the startup is at that point in time.
3. Craft your story and share your vision
While it is perfectly acceptable to not have all the answers, you should have a clear sense of your vision and passion and be able to convey that to investors. Craft your narrative and explain why you are uniquely suited to harness the opportunity. Practice your delivery and be prepared to be interrupted. Investors want to know how you envision the future and how well you are able to communicate that vision. This includes knowing your target market and the competition you will be facing. Address questions succinctly.
4. Demonstrate execution
Equally important to articulating your vision is being able to execute on that and demonstrating traction, real results. Investors are looking for founders who can point to having attained what they said they would achieve (and then some). Founders need to be able to show the ability to execute — this includes sharing examples from your past, demonstrating the ability to pivot, course correct and pursue the right opportunities.
5. Know your round
How do you define the round you are raising? In recent years, the nomenclature has shifted from what used to be the old series A to being called a seed, and the old seed now called pre-seed. Seed money tends to range between $2 million and $6 million, while pre-seed is from $100,000 to $2 million. Be clear on what you are looking to raise and how you will put the money to work to avoid confusion.
6. Having the right customer references is key
It is crucial to build strong sales references to the extent it is possible. Make sure the customers you showcase are also the right customers. If you are a midmarket solution and you are going after a massive enterprise with all sorts of security requirements that you just cannot comply with easily or immediately, then pursuing that big-name account might take up all of your resources and bring you to a screeching halt. Pursue targets that can succeed with your product and become shining references.
7. Actively ask for feedback
Take the time to touch base with investors after each meeting and actively ask for feedback. The information you receive can help you refine your pitch. But remember, it's your company. Although you should weigh the feedback, do not make changes based on every single piece of input. Only adopt what you believe is the most valuable feedback for your company and your vision.