The turn of the calendar is cathartic for entrepreneurs — there’s something about starting a new year that inspires folks to launch a new startup, build a..
The turn of the calendar is cathartic for entrepreneurs — there’s something about starting a new year that inspires folks to launch a new startup, build a new product or raise capital.
If you’re starting to raise capital, this is your guide. Let’s get to it.
Fundraising is a numbers game, and unless you have Snapchat levels of growth or have previously taken two other companies public, you’re going to need to talk to a lot of investors.
A lot of investors.
Thus, the first step is to build a list of 150-200 names to feed into the top of your funnel.
Here’s why: A 5 percent “hit rate” — meaning the ratio of pitches to commitments — is pretty typical. Working backward from that metric, it means if you’re aiming to fill a seed round with 10 solid angels, you need 200 names on your initial list.
Free tools to build your list include AngelList and Foundersuite, where you can search by industry and location; Crunchbase , where you can search similar (but non-competitive) companies and see who invested in them; and Quora , where you can search by keywords and phrases (e.g. “Who are the top SaaS VCs/Angels?” and probably find an answer.
Paid databases include PitchBook, Mattermark , CB Insights and others, which offer a variety of search and filtering tools. Other sources of leads include TechCrunch , PE Hub , Term Sheet , Inside Venture Capital and Venture Pulse , all of which are newsletters that report deals.
Fundraising is a sales process, and as any good salesperson will tell you, you want to be selective in who you spend your time pursuing.
This holds equally true (or more so) in fundraising. There’s nothing more frustrating than driving an hour and a half from San Francisco to Menlo Park only to find the “early-stage investor” you’re meeting with is looking for $200,000 MRR — or worse, they’re not currently doing new deals.
You’ve just wasted half a day, which is an eternity in startup time.
Thus, it will save you a huge amount of headache and angst if you diligently qualify and filter your initial list. Here are several criteria for removing someone from your funnel:
As a general rule of thumb, aim to cull around 25-30 percent of your original target list. Doing so will significantly improve your hit rate when you start the outreach process.
In this step, your job is to figure out the best way to reach each qualified lead on your target list.
The optimal way to get a warm introduction is via a mutual connection (and indeed, an intro by someone who has made money for the investor in the past is the very best).
To map your contact path, simply plug the investor’s name into LinkedIn and see if you have any first- or second-degree connections.
If you don’t have a mutual connection, a “hack” is to look at the portfolio of the investor and cold-email one or two of the founders. Build a rapport first — ask what the investor has been like to work with, their value add, etc. — then ask for the intro.
As a very last resort, you can cold-email the investor. I’ve seen startups do this en masse, and it’s rare to get a response rate of more than 1 percent or so.
Let’s recap: By now you’ve built a list, qualified that list and figured out your approach to each lead. Now it’s time to get organized for the actual raise.
I strongly suggest setting up a tracking system to manage your raise. With a large funnel of leads to pursue, the complexity of keeping track of all the names, deal stages, conversations, follow-ups and to-do items will grow exponentially.
