Hacking Your Seed Round: The Fundraising Funnel
Got a startup? Here’s the first question: Do you really want to raise venture capital? And if the answer is yes, how do you go about it?
If anyone can answer this question, Nathan Beckord, CEO at Foundersuite and VentureArchetypes, can. Over the past eight years, Beckord has helped 100+ clients raise over $98 million in seed capital and achieve 5 exits. He agreed to share his funding hacks with our startups at a recent Yodlee Incubator Bootcamp.Knowing all the minuses associated with raising funds (like the dilution of your shares, added reporting duties, the loss of control, and the possibility of getting fired), and given the fact that only 5% of companies are able to successfully raise capital, if you’re still sure you want VC, Beckord recommends treating fundraising as what it really is:The founder’s job is to herd investors from leads (the top of the funnel) to close (shares sold). Beckord walked through the 7 steps:
Step 1: Build your funnel
Fundraising is a numbers game, says Beckord. You have to talk to a LOT of investors. Aim for 150+ names, minimum, to feed into the top of your funnel. Out of 100 pitches, he says it’s not unusual to only get 3-5 commitments.
You can use tools like AngelList to get names for your list, with around 24,000 investors featured there. Other tools include Foundersuite and Crunchbase. Look for companies which are similar to yours, but not competitive, and see who funded them to add to your list.
Additional places to search include:
- PEHub, Inside Venture Capital, etc.
- Conferences/conference speakers
- TechCrunch articles
- Quora, Medium
- PitchBook, Mattermark (paid)
Once you start looking, you will find plenty of relevant names.
Step 2: Filter and qualify your leads
The next step is to filter your leads down to about 100-125 targets. Cut the investors who invested in competitors, or who don’t have dry powder (funds), or who haven’t made any recent deals. Also cut the investors who are focused on the wrong sector, or who are in the wrong geographic location, or who have a bad reputation.
Screening your list now will save you precious time later, so aim at crossing 25-30% off your initial list. The more names you cut, the better your fundraising will go and the more efficient you’ll be. (For more screening tips, check out Beckord’s 7 Ways to Pre-screen Investors article here.)
Step 3: Map your contacts w/LinkedIn
Next, find out how to reach the leads on your target list, and see if you can get a warm introduction via a mutual connection.
To map your contact list, plug each investor’s name into LinkedIn to see if you have any first- or second-degree connections. If multiple connections turn up, try to find the strongest one. The very best connection is a person who has made money for the investor in the past.
If you don’t have a mutual connection, you can look at the investor’s portfolio and call or email one of the founders. You’ll want to build a rapport with them – ask what the investor has been like to work with, their value add, etc. Then ask for an intro.
If you can’t find a warm lead, you can cold-email the investor, though it’s extremely ineffective.
Step 4: Create tracking system and hone your pitch materials
With a hundred or so qualified investors on your list, you’ll need some way to manage all the names, conversations, and follow-up items. Beckord suggests loading the leads into a tracking system like Salesforce, Foundersuite, or another CRM tool, or an Excel or Google doc, so the details don’t slip through the cracks.
Before you reach out and pitch, make sure your pitch deck, financial forecast, and funding plan are tight and polished. Keep in mind that your first five pitches to investors are going to be throwaways.
Step 5: Start the conversation(s)
Once you’ve got your tracking system in place, it’s time to reach out. Email each one of your connectors and tell them that you’re starting to raise money for your startup. Mention the investors you see they’re connected to on LinkedIn, and ask if they know these investors well enough to make a lightweight connection.
For each investor a contact agrees to introduce you to, compose a clean email with a teaser subject line (like <Name>, can you introduce me to <First Last Name>? <(Foundersuite seed round, ffVC.com leading, 65% committed)>). In the body of the email, briefly, describe what your startup does, include a key metric or other teasers if possible, and add why you specifically want to talk to that investor. It’s also helpful to have a link to your deck.
This way, the connector who receives your email doesn’t have to do much. They only have to forward the email to the investor and ask the investor if he wants to be connected.
Step 6: Hustle like you’ve never hustled before
Investors can smell momentum and they can smell desperation, says Beckord. So take a blitzkrieg approach where you conduct multiple intros in parallel – like 2-3 meetings a day, 4-5 days a week. Having lots of meetings that are going well is the best way to generate momentum.
“VCs often ask you to tell them where you’re at in the round, and if you’ve had 12 meetings that week, they’ll pay attention.”
In the perfect world, you can devote yourself full time to fundraising, and shield the lows of it from the rest of your team.
After meetings, work on refining and improving your pitch deck. At every meeting, people will get hung up on certain slides, and you can go back to those slides and tweak them. Consider your deck to be dynamic – you can make changes to it on the fly, even if you’ve already sent out a link to it.
You’ll also want to send regular progress updates to the investors still in your pipeline. With investors meeting 20-25 companies a week, anything you can do to stay top of mind helps.
Additional fundraising hacks include using Facebook instead of LinkedIn to find warmer connections and exploring AngelList options (you’ll need to find a syndicate to take you on).
Step 7: Go for the close
At the end of each meeting, don’t just walk out of there. Instead, ask the investor, “What’s your interest level?” and “What are the next steps?” Making investors pitch you can change the power dynamic.
Use Paul Graham’s handshake deal protocol when you get a verbal yes.
And keep in mind that it takes multiple meetings before getting a term sheet. The more term sheets you get, the more leverage you have, and the easier it will be to get other people off the fence.
“80% of your effort will be spent getting that first lead investor, and 20% will be spent getting the other 10.”
Keep it full throttle and don’t let up until the money is actually in the bank.
Drive it over the finish line
Getting funded is just the start of what’s (usually) a long journey. An apt metaphor is jumping off the cliff and assembling your plane on the way down so you can get airborne.
Nathan provided some good “jumping off” points for the Incubator’s entrepreneurs to be thinking about as they raise money. It is important to understand that raising money is exactly like a sales funnel. How startups fill that funnel is an integral part of being successful in a raise.
If you’re an entrepreneur with an idea to leverage financial transaction data, applications for our next cohort are now open. You can learn more here.
Start the application on our F6S page HERE. Applications for Cohort 4 to be submitted by August 31st, 2017.
And as soon as you cash those checks, the clock is ticking.