Raising money is arguably one of the most important and challenging aspects of being an entrepreneur. However, with a strategic tactical plan the\nfundraising process can become efficient and even enjoyable.
\nThe Clausehound team has supported many companies through the fundraising process with deeply annotated investor documents and FAQs.\nAlthough we’re primarily focused on the deal documents themselves, we’ve learned some key insights and tactics on the art of fundraising along the way which we\nhave compiled below.
\nTake these suggestions with a grain of salt, and as always, make sure you consult with your advisors.
\nA Ladder of Proof (LOP), created by NFX, is a mental framework for investors which enables them to\nevaluate a startup based on certain indicators of risk and success. Within the ladder, each rung represents a specific indicator (like rapid growth, powerful team\netc.) and the further up the ladder a company is, the more viable they look to potential investors. The rungs on the ladder must be customized for different\ninvestors who will be searching for certain qualities based on their funds’ objectives. Learn more about the Ladder of Proof.
\nTop Tip: Determine what rungs should be included on your ladder and how they will demonstrate your company’s value to investors.
\nIn our experience, the ladder of proof was very useful in helping us determine what information we should be sharing and, more importantly, who we should\nbe sharing it with.
\nAt one point in our own company’s journey, our team was targeting the wrong investors for our stage of funding. We mistarged seed stage investors when we\nshould have targeted pre-seed funds, based on our stage. But by carefully examining the ladder of proof and applying it to our situation, we were able to refine\nour pitch and target the right audience.
\nTo give some further insight on each rung, and how our company approached our messaging, let’s have a look at the red-highlighted rungs on the LOP:
\nSet specific goals regarding the type and number of investors you would like to engage with. For example, your goal could be: ‘I want to talk to 50 legal\ntechnology investors based in the Bay Area within the next 3 months.’
\nMany entrepreneurs will look for/research all the funds that might invest in them and then make a big spreadsheet with links - that will circulate to all their\nadvisors.
\nA challenge is then put out to your advisors, investors, service providers (and anyone else who wants you to succeed), to fill in as many warm leads as possible\nto the investor list.
\nTop Tip: The fundraising process is about matching the correct fund to the right company. Funds in the industry have a mandate to invest, so they are actively\nlooking for talent and ideas to capitalize on. Keep this in mind and market your company’s value proposition vigorously. Not every fund will be right for you and\nthat is okay.
\nWhile seeming mundane, setting up calls can be an important part of the fundraising process. Some key tips to remember while setting up calls are to:
\nConsolidate all of your calls into a short sprint period.
\nTop tip: Use a calendar tool like the Calendly app to create boundaries around the timing of meetings (for example only allow for meetings to be booked in a 14\nday period). Use this to: (1) create a sense of urgency for investors to have an opportunity to look at your company (2) avoid playing ‘email tag’ with investors\nand (3) present a professional and organized image.
\nBe careful of conversations that do not directly help you achieve your goal of raising funds. The best way to do this is to ensure early on that you are engaging\nwith the correct parties.
\nMany will suggest that you should not spend time trying to persuade a junior associate at an investment fund of your company’s value when you should be talking to a\npartner at the investment firm.
\nThat might sound like a blanket statement, however, although all conversations seem worthwhile, often a junior associate is trying to collect research to compare\nyour business to others they are considering investing in, and rather than advancing yourself in the investment process, you might merely be providing business\nmodel information to benefit another company.
\nTop Tip: Value your time at all expense.
\nAs noted in section 2 above, make sure that the fund you are approaching is interested in your company, your market, your stage and isn’t investing in a\ncompetitor, so that you have a viable shot, before wasting your valuable time.
\nYou will likely have to present investors with a plethora of communications materials like slide decks, reports and more (‘drip’ materials).
\nFirst, remember that for many investors, investing is a business, and they are looking at your company as a black box that will potentially make a lot of money,\nnot as “cool technology” or a “much-needed product”.
\nDistill down your messaging to key points that indicate how/why the black box will be successful and highlight in every subsequent conversation some new how or\nwhy development, that the black box is indeed better, faster, cheaper, etc. than the competition, reinforcing that your investment is a safe bet.
\nWhen disseminating these materials, think of yourself as methodically dripping out information regarding your company to investors. If you give too much\ninformation at once it might be difficult for them to absorb. Remember that you’re living and breathing your company while they are trying to understand the\nopportunity in a brief conversation.
\nStructure your fundraising campaign strategically. Only ‘drip-out’ materials that are pertinent to the investor you are pitching to (i.e. if an investor is\ninterested in your near-term goals, do not only talk about your long term dream (and vice versa). Ensure that the materials are conveyed in a medium they\nunderstand.
\nTop Tip: Heavily feature metrics and numbers-based information in your drip materials. Certain statistics like increased usage, customer growth, transaction\nresponse time and user retention are important in establishing your businesses base and viability. Remember: numbers are king.
\nYour goal through the fundraising process is to obtain a term sheet (a letter of intent explaining the nature of the deal an investor would like to offer you).\nIdeally, by the end of the fundraising process, you should have multiple term sheets from various investors, all vying to have the opportunity to be a part of\nyour company.
\nAction Item: Position yourself in a manner that creates a sense of urgency within the investor you are targeting.
\nLet investors know that they are not the only party that you are engaging with and that (if applicable) you have other offers already on the table. Promote your\ncompany’s value proposition frequently and confidently, even comparing your potential to other companies within your industry.
\nTop Tip: FOMO, or the fear of missing out, can be used very effectively within the business world. No investor wants to feel as if they are going to lose out\non the next big idea.
\nEdited By: Rajah Lehal
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