As the year comes to a close, we’ve rounded up some key things that we learned about fundraising in 2019 for handy reference.
Some of this information we gathered from our research alongside Professor Tom Eisenmann from Harvard Business School. Together, we studied the fundraising techniques of 200 startups that collectively raised over $360 million. Paired with advice from experienced fundraisers like our CEO, Russ Heddleston, we’ve built a library of information on funding best practices, statistics, tips, and tricks.
So take a look at everything we’ve discovered about fundraising in 2019 to learn ways to make your 2020 more profitable.
Aim to pitch 20-30 investors
Although it’s true that the more investors you reach out to, the more meetings you’ll get, our research shows that there is no correlation between the amount of investor money you’re offered and the number of investors you contact. In other words, you may take more meetings, but you won’t raise more money. So you might as well conserve your efforts. Instead of spreading your net too wide, focus on creating solid pitches for a couple dozen handpicked prospects.
In November, Russ gave a talk at Web Summit in Lisbon, where he outlined some best practices for pitching to investors in the United States. He compared the merits of pitching seed firms versus angel investors and recommended that you reach out to, at most, 30 investors who you think are the right fit for your company. If possible, try to get another founder to make a “double opt-in” introduction with investors. That way, you know they’re interested in you and your business from the start.
Raising funds can take longer than you think
Our research shows that the average length of time it takes to complete a seed round is 11-15 weeks. Given those numbers, it’s a good idea to allow yourself six months of runway to raise funds. That’s three months for pitching and three months to figure out a Plan B if you get no takers. We found that only 17% of startups secured funding after the four-month mark, so, while it’s possible, you’re much less likely to get funding after that point.
If things aren’t going the way you’d hoped, take a step back and reassess your approach (taking on venture debt is one possible way to extend your runway while you reassess your strategy). In “The 4 things you need to know about your seed pitch deck,” Russ goes over when you may need to make adjustments to your pitch. Sometimes it’s just a matter of tweaking your pitch to tell the right story or reworking your deck to be more interesting (engagement analytics can help with this—they show you which pages of your deck get the most views and allow you to conduct A/B testing with different versions of your decks).
Keep your pitch deck short and impactful
Pitch decks aren’t just important for closing deals. Sometimes a good pitch deck is required just to get you in the door. The perfect fundraising pitch deck should touch on three main areas:
- Presenting your problem
- Highlighting your team
- Showing your product (using more than just screenshots)
We even created an outline to help you learn how to build a winning pitch deck.
After analyzing hundreds of seed-round pitch decks, we found that successful decks share a lot of similarities:
- The average deck was 19 pages long
- The average investor spent 3 minutes and 44 seconds looking at a deck, so the shorter, the better
- In fact, we found that investors spent less time looking at pitch decks for startups they eventually funded, not more
What else makes a pitch deck effective? We analyzed 10 famous pitch decks from companies like Airbnb and WeWork to identify the qualities of an effective deck.
DocSend helps keep your pitch deck secure
With so many emails to potential investors and so many pitch decks whizzing around, it’s crucial to keep track of your documents and make sure they don’t fall into the wrong hands.
Did you know that venture capitalists (VCs) almost never sign nondisclosure agreements (NDAs) for fundraising pitch decks? Most VCs receive thousands of pitches per quarter. They don’t have the time or resources to negotiate, sign, and follow that many NDAs. But you don’t need to lose sleep worrying about the security of your intellectual property. You can still maintain control of your pitch deck using DocSend links. These secure links safeguard your pitch deck with password protection, link expiration, and even viewer verification. That’s significantly more security than a password-protected PDF can offer.
You’re not as good at pitching as you think you are
Even if you’ve given your fundraising pitch dozens of times, there is always room for improvement. Your verbal pitch needs to live up to the promise of your pitch deck, or else your meeting will go nowhere. This means you need to practice—a lot.
In October, Russ joined Atrium’s Jared Verzello, managing counsel, and Nick Resnik, head of accounts, to give a talk on preparing for pitch meetings. In their talk, they stressed the importance of planning for pitch meetings months in advance, but that it’s also a good strategy to book them all during a short two-week window to drive urgency. Read on for more advice on how to prepare for a pitch meeting through practice, natural storytelling, contextual exercises, and cultivating charisma.
Understand your term sheet before you close the deal
If you find the right investor and nail your pitch, then you will receive a list of investment terms. But you need to carefully evaluate your term sheet before you accept funding, or you risk binding yourself to terms that might cripple your long-term ability to lead the company.
During an AWS Startup Growth event at the AWS Loft, Russ and Aaron Terwey, counsel at Atrium, talked through the legal and practical considerations of evaluating a Series A funding term sheet. Read on for some real-world insights into how founders can avoid common mistakes and faux pas in the term sheet negotiation process.
Still confused by all the numbers and legalese? We created an essential guide to term sheets to further break down the major terms and conditions found in most Series A term sheets. We’ve got all the info to help you get started on evaluating investor terms to make the relationship a win for both parties.
More than anything, our research shows that fundraising is a numbers game. Play it correctly—optimize your time, hone your pitch, pay attention to detail, and you’ll have a much better chance of landing that crucial funding at just the right time.
Hopefully, you now have some concrete stats (and steady advice) to help you refine next year’s funding strategy. Be sure to check out DocSend’s in-depth fundraising study and get started with DocSend for free so that we can help you make 2020 your most successful fundraising year to date.