How To Set Up Your Fundraising Round For Success

Fundraising is an important part of a startup’s journey. For some, it can make or break the startup’s future. For others, it’s the difference between dramatically accelerating or hobbling their growth.

No two fundraising journeys and outcomes are alike.

Some founders raise such beautiful rounds, my jaw drops. They get brilliant terms on their investment that set them up for huge success in the future. For example, they get a top VC onboard for €1 million, for only 10% of the company’s equity and the product doesn’t even exist yet! Other founders struggle month after month to close their round of 200k. Each fundraising journey is fraught with its own difficulties. It can be intimidating. Lucky for you, I know what’s going on behind the scenes of these jaw-dropping fundraising rounds. Let me draw back the curtain and show you what’s happening on the inside. 

The most common way to achieve those types of terms is when you as a founder get to the end of the fundraising process with the upper hand on investors. When there’s competition between investors, you will find yourself in a position to negotiate. This dynamic is best created by having multiple investors offering you a term sheet at the same time. 

Sounds nice! But how do you get there? 

These founders who succeeded in closing amazing investments at great terms succeeded at two things. First, some founders are simply great at pitching their startup and their future vision. But a great pitch alone won’t carry the day. You also need to manage the process correctly by doing the right things in the right order. In this three-part article series, I will reverse engineer the process behind a successful fundraising round, so you can succeed with yours! 

Let’s start with how you need to start preparing for your round months or even years before… 

The ideal situation, of course, is to connect with investors before you have even launched your startup. The best case scenario is working with investors you have been acquainted with for years. Many of the amazing rounds are raised by founders who are on their second venture but with the same investors. Another great way of achieving this is working in places where you meet investors, such as accelerators, incubators, tech conferences or startups they have already invested in. 

If that ship has already sailed for you, all hope is not lost. You can still build your investor list and raise a great round.

In other words, what you need to do is build a list of investors you have met who seem interested in what you are working on. How do you know who’s interested? Do short intro calls to network. Connections are key! 

In this phase you only want to build your network of investors, so ask for feedback from these knowledgeable people. Ask for introductions to people that could help you. This might seem a bit forward, but asking never hurts and it shows you are motivated. 

Before ending the call, explain that you will be raising at some point in the future. Ask if they would be interested in investing. If they say yes, ask what milestones they would like for you to hit to be an interesting investment. Then you can add them to your list, and little by little increase the size of your list of potential investors. How do you know when you’re done? Thanks to DocSend, there are some decent benchmarks for this! 

There should be at least 40 investors if you’re raising a pre-seed round (100k to 1 million). All 40 of those investors should be angels and micro VC, that typically invest in these deals.  You will want at least 75 investors if you are raising a seed round (1 to 3 million). These will be largely VCs. For Series A (5 to 10 million) the list should comprise at least 33 VCs.

As you can see, fundraising doesn’t have to be confusing or intimidating. Early stages primarily involve making connections and building a list of potential investors. But it doesn’t stop there. Next week, I will talk about the next stage of the fundraising process, as your startup moves within three months of closing. What do you need to convince investors to get on board? How do you keep them engaged? I’ll tell you that and more in part two of this article series.

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