Raising capital is seen as a milestone by many in the startup game. Many would argue there’s plenty of capital (and non-dilutive funding) available. But how do you go about landing it? What do you need to have in place to go out and pitch investors? And how can you make your pitch stand out from the hundreds (or thousands) of cold emails that venture capital firms receive every year? All great questions … and as we say at 321, the answer to every great question is: “it depends”!
Which is precisely why we put together an all-star panel of investing giants to answer your raising capital questions at our latest Growth Snack, hosted by Carey from Team 321.
There are so many ways in which we can apply our mad sales skills to the practice of raising capital for your startup or scaleup. Here are a few from our recent event that stand out.
Get clear on which investors are a good fit for you
“The same way you need to have a clearly defined ICP (ideal customer profile), we need to do the same thing when looking for investors” explained Carey.
Every fund will have their own unique thesis. The types of technologies they like, sectors of interest and types of investments a fund is looking to invest in can vary; no two funds are alike, nor is the way they invest. Prioritize looking for funds that match your company’s stage and focus.
Understand the buyer journey
We spend a lot of time in 321’s sales and marketing courses talking about the importance of the buyer journey. It helps you create more effective sales processes and design more intentional marketing campaigns – and it remains just as important when talking to investors!
“We want to understand what’s their process for making an investment decision. Who are the folks involved, what stage do they think they’re at in our discussion and what’s the right conversation to be having based on the audience?”
When prospecting potential investors, be sure to consider their fund’s lifecycle stage. If they are a mature fund nearing the end of their current fund’s life, they may have less capital to invest in new deals.
Have a clear message
“One of the common things I hear a lot from investors, is that founders aren’t always great at explaining what they do.”
Developing a compelling message for the market is critically important, but it’s equally as important when looking to explain your investment opportunity to investors. Investors are on the receiving end of countless (often unsolicited) communications from companies around the world, so differentiating yourself with a compelling narrative is paramount.
After our presentation, we threw the spotlight over to our panel to help us answer a few commonly asked questions. What follows are some of our favourite responses.
A big thanks to our panelists for joining us:
Mark Blackwell – General Partner, Builders VC
David Edmonds –Industry Committee Chairman A100, The Accelerate Fund III
Sandi Gilbert – CEO,InterGen
Shaheel Hooda – Managing Partner, Sprout VC
Shelley Kuipers – Co-founder The 51
321: How important is a sales mindset to you as an investor?
David Edmonds: I’m a little biased since my background is in sales, but everything is about the message. You have a few seconds to catch my eye and excite me about the vision you have. I’ve always said that fundraising is just an extension of your sales process. Founders that are very organized are the ones that will have a much easier time.
Shaheel Hooda: If we see a founder that struggles to present a clear and simple message to us, we aren’t going to have a lot of faith that they will be able to present a clear and simple message to customers. And if they can’t do that then they likely can’t be successful in driving revenue. And if you don’t have revenue, you don’t have a business, you have a hobby! So, we use a founder’s ability to communicate with investors as a proxy to assess their ability to sell.
321: How does a founder make it onto your radar?
Mark Blackwell: I would say the first thing is deep, thoughtful analysis. We put out a ton of position papers and field studies on sectors of focus. We find that entrepreneurs that face the least resistance are the ones that can go through our portfolio and can say “hey I’ve seen that you’ve invested in these companies, and you have thought leadership in these sectors, here’s where we fit into all that.”
Shelley Kuipers: We don’t rely on the constraints of your typical pitch process. We start every introduction call with an entrepreneur by saying “Wait, save the pitch. Tell us your story: who are you and why did you create this company?” Through that process, we can find out why this is the right person to make that happen. First and foremost, these founders must build credibility, because quite often we’re investing in them as founders first.
321: When you look back at your experiences, what are some common mistakes you see founders making when pitching investors?
Sandi Gilbert: I would say not asking for enough money to reach the next stage. It’s really key when asking for capital, that you understand how much you’ll need to reach the next milestone to provide value to your investors, before raising the next round.
Mark Blackwell: Not all capital is created equal. I think there is some euphoria associated with venture. It seems like every entrepreneur thinks they need venture funding without considering other ways to finance a business. Entrepreneurs need to be aspirational, but I do think now more than ever, there’s a plethora of options to raise capital through things like crowdfunding, without the need to get venture funding.
Shaheel Hooda: When pitching, most entrepreneurs are pitching their product or their technology, not pitching their business. As soon as they make the shift and start to define and describe the business they’re building, it becomes much more interesting to investors.
321: What advice do you have for founders so that they can have more productive valuation conversations with investors?
Shaheel Hooda: Show me the business you’re building, show me how big you think the opportunity is. Paint the picture for me as to how I’m going to see a return on this. That’s the problem you’re trying to solve for me, the customer!
Sandi Gilbert: What is a crazy valuation to one person, is something someone else will invest in. If you’re at the stage of your company when you have revenue traction and you can see where you’ll be in 3 years so we can do some comparison, it’ll make it way easier.
That being said, people also sell themselves short. So, it’s not always about high evaluations, or low evaluations, its about finding the right valuation from the right investor at the right time.
321: What’s your best capital raising advice?
David Edmonds: As an entrepreneur, when you’re raising capital, you’re not just taking a person’s money, you’re getting married. So you have to ask yourself,” Is this someone I want to be close with for the next 3-5 years?”
So, if you’re not comfortable right now, imagine when things don’t go well. For me, it’s having the fortitude to thank someone for their offer and being able to say “no”.
Shelley Kuipers: Value the human capital that comes with the money as much as the financial capital. If a group of investors can open doors and be your champion, and be on your side, it can be way more valuable than the financial capital. That’s what we’re trying to achieve at the 51. It’s not just capital, it’s a community that can help you go to market and sharpen your financial acumen.
Sandi Gilbert: I always ask an entrepreneur what else they need besides capital. And if your response is “nothing” then I know we’ve got a problem.
At InterGen, we bring to the table this amazing network of door-openers and experienced business leaders that can really help these entrepreneurs, so if an entrepreneur comes to us just to get a cheque, they’re coming to the wrong people. Money doesn’t solve all your problems and if they don’t know that at this stage, then that’s the wrong answer for me!