Whether you are a new startup, a young business that is ready to scale, or a seasoned company looking to make a major expansion, raising the venture capital funds you need is not for the faint of heart. In general, as you develop your business model, acumen, and relationships, you will likely have a progressively easier time navigating your journey fundraising as a founder.
To begin, it’s of course worth acknowledging that it’s easier for some verticals (B2B tech, for instance) than others (retail) to pique the interest of VCs or angel investors.
Fundraising best practices have not changed much since 2018—your task will be connecting with investors that get excited about your concept, your business model, and, frankly, you.
Preparation for the Fundraising Journey
Asking the Right Questions
Before you begin to seek outside funds, you must assemble and optimize a pitch deck. Before approaching the task of creating this pitch deck, you and your team of co-founders need to clarify several things about yourselves and your business:
- What value are you bringing to your users, customers, or clients? Get this down in writing – you should ensure every slide in your pitch deck is consistent with your mission and the value prop within it.
- What are the similar offerings in the space? It’s incredibly important to know how your product or service will be better or different from existing players in the space. You should have a clear and concise answer to this question, and there should be airtime built into your pitch to address it — any seasoned VC will want to understand your insights in this realm.
- Who is your target audience, and how do you plan to reach your target market? Additional topics that are good to tackle include the growth trajectory of this market and demographic backgrounds.
- Who are you, and what’s your backstory? How did you come to have a passion for this business idea and industry? What is the story of the development of your product or service? It’s also important to map out the experience of your team, and the unique ways each team member’s experience complements and caters your industry and idea.
- What is your current financial situation? Are you looking for funding to begin, or have you already launched with initial capital from a seed round, and are now looking for raise to scale? If you have already launched, can you demonstrate that you are on your way to monetization and/or achieving profitability?
If you can get these questions answered and get them in writing, you are officially on your way.
Creating Your Pitch Deck
Now that you’ve asked and answered the right questions, it’s time to get started on that pitch deck. Our analysis of 200 pitch decks that raised founders $360 million shows that, on average, investors spend 3 minutes and 44 seconds with each deck that they receive — that means you’ve got just under 4 minutes to make a good lasting impression.
So, how can you best optimize your fundraising pitch deck? Let’s take a look at some refreshingly quantitative data around pitch deck performance.
The above illustration shows the percentage of successful decks that included each type of slide. All successful decks included Team pages, and most included Product pages — these are clearly important pages to include. But Financials? “Why Now” slides? Don’t fret if you don’t have anything to present at this juncture.
It’s also revealing to check out where investors spend that 3 minutes and 44 seconds engaging with your deck.
Our data shows that, if you include it, your financials are of supreme interest to investors. Your team and competition pages are also, unsurprisingly, of particular interest. (Perhaps surprisingly, you can see product pages landed at around half the viewing time of sections like Financials and Team!)
Want more where this comes from? You can check out the full fundraising report — you can also get started with DocSend if you’d like to get these and other useful metrics for your specific pitch deck!
Qualifying Funding Prospects
While there are at least 35 sources of funding to potentially evaluate, there are a few paths that are most often suggested. It’s important to note that each source of capital will require different collateral from you and in different formats — from formal business plans to informal conversations, either in person or even via video chat.
Fundraising typically requires an overwhelming amount of file sharing and document sending — from advisors to VCs, angels, and other investors to product testers, and more. It’s ironic that as you want to protect and perfect your idea, your online communication with each of these parties leaves you and your idea more and more vulnerable. Using DocSend to securely send important files like your pitch deck helps you limit distribution of proprietary or confidential materials — you’ll even get slide-by-slide, lead-by-lead engagement feedback, so you can tell which investors are engaging with your pitch deck and which aren’t. (In fact, for more on that, you can check out our early-stage fundraising guide.)
So let’s assume we’ve got an optimized pitch deck, and we’re ready to securely send it out. Let’s review the most common methods of fundraising in 2019. Before we dive in, it’s important to note that these aren’t necessarily the “best” methods of fundraising for you and your business. In order to gauge the fit between a business model and a fundraising avenue, think about the benefits and drawbacks of each fundraising style — usually one or a few stick out as especially compatible.
Funding Sources in 2019
- Yourself: All of the above may be rather moot points if you have the personal funds to move your business forward. Still, you will want to articulate your answers to the six questions above, so that you have a clear vision of your business and where it is heading (or where it will head).
- Friends and Family Members: There is a famous Shakespearian quote – “Neither a borrower nor a lender be.” While, sure, your friends and relatives may be more approachable than a VC or an angel, they can still, of course, be reluctant to invest in your new endeavor. The other caveat here is that, if your business should “go south”, you could damage those relationships rather permanently. If you do go this route, make sure that you have the details in writing and that you have clearly informed them of the risks involved.
- Find a Partner: If you have a great pitch and access to affluent, well-connected individuals who share your passion for your idea, this may be a viable resource. Again, be certain that all are laid out and agreed to in writing so that mutual financial obligations and equity positions are clearly in place.
- Collateralized Loan: This is a traditional method. You will need a formal business plan and assets that you can put up (e.g., real property) as collateral. If you have the collateral, these may be relatively easy to obtain. There are home equity loans, etc., that you can use for any purpose.
- Non-Collateralized Loans from Creditors: These come from more lenient creditors and carry higher interest rates. Move into this type of funding with caution.
- Angel Investors: Angels are a great way for a small founding team to gather the capital needed to make some serious strides. As mentioned, angels will want to see your plan, and will want to see compelling evidence suggested your idea can and will drive growth.
- Crowdfunding: There are a large number of platforms for crowdfunding, all with different arrangements and requirements. Some of the most popular ones, like Kickstarter and Indiegogo, are inundated with promising proposals, so you may want to pursue exposure on some less well-known crowdfunding platform.
- Venture Capitalists: Funding from Venture Capitalists (also known as VC) has been the ticket to the success of all of Silicon Valley’s most successful companies. While VCs can be tough to woo, you can set yourself up for success by researching venture capital leads have expressed interest in your idea and proposal. Again, check out our fundraising best practices and our guide to fundraising for more!
- Initial Coin Offering: This will require a solid knowledge of cryptocurrencies, but many entrepreneurs are going this route, in order to reach a wider range of investors, especially global ones. If you consider this, you will need an ICO white paper, and you will need it translated into the language of target foreign audiences. Don’t scrimp on this — this isn’t the tactic to try if you’re planning to cut corners.
- Accelerator Programs: Accelerators are a fantastic option for those that are lucky enough to be admitted. You must optimize your pitch deck and strike the match just right. While accelerators provide mainly short-term support, this short-term support may be exactly the thing to get yourself launched or scaled.
These are just 10 of the most common funding sources. Many of today’s most successful founders and CEOs pursued several of them at a time before and during their rise. Again, as mentioned previously, it’s imperative that you understand the co-responsibilities and obligations of all parties, and that you get those reduced to writing, so there are no misunderstandings.