Eat, sleep, RAISE, repeat
The fundraising journey
PART 1 -- The standard fundriase approach
You’ve successfully launched your startup and got your seed funding sorted. You’re now ready to move to the next step.
It’s time to start planning for Series funding.
I won’t lie; getting Series A/B funding takes time and effort. You have to network with the right people, tell them why your scaleup is worth investing in and make sure you get the deal your business deserves.
And even then, there’s no guarantee you’ll get an investment.
The one thing I always tell the businesses I work with is to treat fundraising like a B2B sales campaign. By doing your research, monitoring the results and having a contingency plan, you’re more likely to see success.
In the last article, we looked at the myths behind getting VC funding. We’re now going to dig a little deeper, looking at what you need to do to get that all-important funding.
Grab that shovel, and let’s start.
Step 0: Getting a timeline in place
When you work on a sales campaign, you always have timescales and goals in place to help you focus. The same needs to apply to your fundraising.
When you’ve got your previous investment in your bank account, sit down with your team and map out a path to your next fundraise. Your key anchor date needs to be the three-month window when you plan to pitch. Agree on this first and work the rest of your timescales around it.
Your plan of action should look a little like this:
ADD IMAGE FROM SLIDE 7
Don’t forget to revisit your timescales – at least every quarter. Are you still on track? How do these timescales align with your other OKRs? That way, you can see if you need to move faster or look at alternative funding options.
Step 1: Planning and relationship building
This is the longest part of the fundraising journey and is often the one that everyone is too busy to invest time in. However, the more time you put in here, the more you get out.
Think about how annoying it is to connect with someone on LinkedIn, and they send you a spammy sales DM straight away. Building relationships takes time.
The first step is to build a list of VCs you’d like to work with – your fantasy football list. The list doesn’t have to be perfect, and you can add to it as you go along – you’ll work out the exact number of VCs you need to get in touch with later.
If you want to know more about building a target list of VCs, you’ll want to check out this blog.
Then it’s a case of finding the best way to get in touch with them, whether on social media or face-to-face at an industry conference.
My top tip? Build up your business’ online presence. Post regularly on Twitter. Start a blog. See if you can guest on webinars and podcasts. The larger your digital footprint, the better.
Step 2: Preparation
Everyone thinks this part of the process is easy to do. Spoiler alert: it’s not.
There’s a lot you need to consider at this point, and it’s important to make sure your board and team are all in agreement. You don’t want anyone going rogue at this point.
How much money you need to raise
What your positioning needs to be
What you’ll do if you don’t get the amount of funding you need
How many VCs you need to contact. In my experience, you need to reach out to about 50 VCs to get two term sheets, so you’re going to have to target a lot of companies. It’s always good to break your VCs into waves:
Wave one: the ones you really want to work with
Wave two: the ones that would be nice to work with
Wave three: the ones you don’t know too well, but you’d still work with
If you haven’t got in touch with your VCs already – now’s the time. Qualify your leads, identify the key players (ideally senior partners if you can) and see who you can reach out to for an introduction. Don’t be shy.
You’ll also need to start working on your pitch slides so you’re ready to email your deck over to your VC contacts. Not sure where to begin? Don’t worry; I’ve got your back.
Things are about to get busy, so plan on delegating most of your tasks to the rest of your team for the next one or two months.
Step 3: Pitching
This is the exciting bit where you get to talk to real-life people! Oh yes.
The pitching process can be an exhilarating but draining time. I’ve had three-week stints where I’ve pitched three or four times a day. Get your beauty sleep, stock up on snacks and push through – it’ll be worth it when you get that investment.
I always say to treat pitching like buying a car rather than dating. It’s okay to pitch to different VCs at the same time. It keeps your timeline short and means VCs can’t collude or share info. OK, I suppose some people say you can do that while dating as well (I am not judging), but that’s a different post.
Your first few pitches will not be great, and it often takes five or so presentations to hit your stride. If you have a handful of VCs that you *really* want to work with, pitch to them a little later. Get into your groove first.
Who should attend the presentation? The founder always needs to be present (that’s you I hope). Typically this is enough for Series A funding, but as you move onto Series B or C+, it’s okay to bring support in the form of a technical co-founder, CFO or Chief-of-Staff. Just keep it tight.
You don’t need anyone to hold your bags or click through your slides. That just makes you look like a diva. Nobody wants to work with a diva.
Pitching: what happens next?
The good news is that you’ll get a decision fairly quickly. If it’s a ‘no’, that’s that – time to move on. If a VC passes, they’re probably unlikely to say yes in the next one or two quarters, so hold off from reapproaching them for a bit.
If you get a probable ‘yes’, your work isn’t done yet. Each VC is different, but you can typically expect a second meeting as well as a request for more information. Don’t be afraid to ask what the process is, as this will help them and you with expectations.
Step 4: DD and closing
You’ve pitched, and the VC loves what you do – so much that they’re willing to make a deal! It’s not party time just yet though.
When the VC is ready to move, they will provide you with a term sheet, a document that details their investment terms and conditions. It’s important to remember this term sheet isn’t legally binding – it’s there so you know what to expect before you sign on the dotted line. It’s worth saying that again; a term sheet is not legally binding and the VC can walk away from it for any reason at all. Sadly this happens way more often than you would think.
If you get a term sheet, it’s always good to let other investors you’d like to work with know – you don’t have to say who it’s from. It can be a good way of getting leverage and making faster decisions.
This is the time to get a good lawyer with entrepreneurial experience on board – not your cousin Jane who saw Legally Blonde twenty times at the cinema (great film btw).
Your lawyer will be able to go through the term sheet with a fine-tooth comb, help you decipher the legalese and negotiate for a better deal. The best lawyers are expensive, but trust me, they’re worth it.
Your VC will advise they will carry out due diligence at this stage, but the reality is that the checks started long before now. Later-stage due diligence is more about crossing the ts and dotting the is.
I go into a bit more detail about due diligence and what you can expect in another playbook.
When the term sheet is agreed upon, and the due diligence signed off, you’ve got yourself a deal!
Contracts are signed, money lands in your account, and you get a brand new investor on your board. Exciting times! <sidebar> Don’t immediately go out and buy the whole team branded Patagonia tops, or a shiny new giant Italian coffee machine… that’s so pre-Covid.
But wait! Stop! Pre-emptive offer!
Let’s go back to step one for a moment. You’ve been connecting with a few VCs when suddenly, a term sheet appears in your inbox. You’ve not done any pitching, and you’ve only just got your previous investment.
Is this normal? Too good to be true?
Pre-emptive offers happen, but they’re rare. I estimate that only about 10% of Series As are raised in this way. Probably less.
Should you take one? The main advantage of taking a pre-emptive offer is you don’t have to go through the fundraising process. No messing around with a pitch deck, no back-to-back presentations, no having to contact hundreds of VCs. The disadvantage is the deals are usually not as good as if you went through the process.
You need to ask yourself if the offer fits your needs and if you could work with the investor. If the answer to both questions is yes, go for it. Alternatively, you could use the term sheet to run an accelerated process with other potentially interested VCs.
In summary: are you ready to start your fundraising journey?
Fundraising isn’t easy. There’s a lot to do, and you need to make sure everyone in your business is on board. Get it right though, and your scaleup will go from strength to strength.
One final thing I need to stress – no two journeys are the same. I’ve seen scaleups take months to get their Series A funding while others get an amazing pre-emptive offer right at the jump. Skill and experience are a must when getting funding, but there is a little bit of luck in play too.
The next article in this series looks at what happens when your fundraising doesn’t go to plan and you start to run out of runway.
Don’t change your name and run away to Peru just yet – there are things you can do to turn your fundraising journey around.
PART 2: What to do when you run out of runway
The route to fundraising isn’t a simple one, and there are a lot of issues that can hamper your progress.
You might not have targeted enough VCs. Your pitch might not be landing as well as you hoped. Steven in finance got eaten by an alligator, and you’ve not had any financial reporting for the past five weeks. Dammit, Steven.
If you’re burning through your cash and your runway is getting shorter and shorter, it’s time to take affirmative action. Here’s what you can do to increase your chances of survival.
Recognise the situation
It’s important to realise that you’re in a challenging situation and not delude yourself. While it might be lovely to imagine that an investor will ride in on a white horse and get you out of the financial mire, this doesn’t always happen in real life.
You might need to cut costs
You might have to lose staff
You might need to accept that investors will say no
You might even have to close your business
It’s better to prepare for the worst-case scenario and not have it happen than the other way round.
Know how much runway you have
When you know how many months you have before your creditors start banging on the door, you will know how quickly you need to move.
Your finance director or CFO should be able to get this info for you. If you don’t have an in-house accounts department or Steven in finance is still MIA, you’ll need to work this out yourself.
This tool is my recommended go-to. Just move the arrows to see how much funding you need. Nice and simple.
Move onto the next wave
In my last playbook, I discussed splitting your VCs into Waves, essentially dividing them into who you would most like to work with and who you think might be most responsive to your pitch.
If you’re still on Wave 1, it’s time to move to Wave 2. If you’ve exhausted Wave 2, time to expand to Wave 3. Start reaching out to your contacts and see if you can get a foot in the door.
You may be gutted that you couldn’t get in with your chosen investors. Don’t stress about it. I know hundreds of founders who got funding from a Wave 2 (even a Wave 3) VC and had a productive, long-lasting professional relationship.
Look at the feedback you’ve got so far
If you’ve pitched to a lot of VCs and they’ve all said no, you might want to look at the reasons why.
It might be that they don’t agree with something in your deck or presentation. If this is the case, tweak it and see if that has an effect moving forward.
However, if the feedback you’re getting is that your business isn’t ready to raise $$$, you might be in for a harder challenge. If you’re not investable and your product market fit isn’t proven, you’ll have to sort this out before moving on with the pitching process.
Yes I know that reality is hard, and you BELIEVE. But you don’t have the $$$. The bottom-line is that capitalism works (usually), and so you need to really start to be self-aware as to why others are not believing like you.
Have a plan B
So you’ve pitched to every single investor on your list and got a hard pass from all of them. What next?
You need to have a contingency in place for this situation. Ideally, you’ll have sorted this out in the preparation phase of your fundraising campaign and cleared it with your board.
Some of the strategies you might want to consider include:
Resize and reboot
There are pros and cons to each, and it’s important to decide what you will do as early in the process as possible. The right option will depend on your business, the money you need and your specific circumstances.
Should I hire a professional fundraiser?
A professional fundraiser is someone who will help you get funding – typically former investment bankers and account types. They’ll make introductions on your behalf, help you with deal structure and refine your pitch.
You don’t need one when running your basic fundraising campaign, as you can do a lot of the work yourself. However, a fundraiser can be helpful if you need fast results or have exhausted the standard options. Perhaps if you need an international network as well.
Do your research if you decide to go down this route. Make sure their values are aligned with yours, ask to see references and find out what experience they have in your niche. You’ll probably also want to negotiate pricing as their services are expensive (<gulp>).
What to do if the sh!t hits the fan
You’ve tried all the options above, and nothing is working. You’re running out of time and most importantly, money.
The golden rule? Don’t panic. When we panic, we make bad decisions. The best thing you can do is stay calm and be positive.
Deep breaths. You’ve got this.
If you’re heading for a cash crunch, there are four options you can pursue.
1. Increase revenues
Is there anything you can do to make money differently?
Take IBM for example. In the 1980s it specialised in personal computing, until Microsoft came in and smacked it out of the market. The business decided to move towards IT consulting and made a massive comeback.
Look at your offering and see what you can do to survive. You never know; this could be the decision that gets you your next investment opportunity.
This is basically BIG pivot time.
2. Alternative funding
Is there any other way you can get money?
Bootstrapping is not typically an option at this point, but you might be able to find an alternative resource, like crowdfunding or a grant. Time to get funky and innovative here.
3. Reduce burn
Is there any way you can reduce your costs?
This decision is never easy, but it could save your business. And the sooner you take it the better. Let me say that again… The sooner you can make this call the more chance you have to live.
One of the easiest but most painful cuts is staff. If you do need to make people redundant, ensure your processes are watertight and treat people with the respect they deserve. It’s inevitable that morale will take a hit with remaining employees, so be sure to take care of them.
4. Call time
Is it time to shut down your business?
This is the nuclear option but if you’ve exhausted all other avenues, it might be the only one left.
Get professional advice, pay as many of your liabilities as possible and don’t drag things out. If you decide to found another startup in the future, you don’t want this one hanging over you like a bad smell.
In summary: just keep going
The fundraising journey is hard, especially if you don’t hit your projected timescales. All you can do is keep moving onward.
I don’t want to sugarcoat things and say you’ll get that investment in the end. I don’t know your business well enough to say that.
All I can say is that if you have a genuinely investable business, and you’ve prepared for this eventuality, there will be interest out there.
You just need to fight for it.
What's next? Who you gonna call...
Next time we’ll be looking at how to create a target list of VCs to approach. How do you determine who you want to work with, and how do you get their attention?