20VC Special: How To Fundraise Like a Pro: How to Size and Price a Round, How to Create FOMO and Urgency in a Fundraise, How to Structure Angel Allocations, The 7 Deadly Sins of Fundraising Decks, The 3 Signs a Potential Investor is Bad News
20VC: Fundraising 101
Today we are going to walk through the process of raising a funding round for a hypothetical company. We will break it down by different stages in the fundraising process and at those stages I will talk about how each element differs according to the round being raised.
First, for 99% of fundraises it is a game of shots on goal. You need to have enough investors in the pipeline, it is a sheer numbers game. Miki Kuusi @ Wolt said on 20VC recently for his Series B he got 68 rejections before Laurel Bowden @83North said yes. Wolt sold in 2021 for $7BN to Doordash making a monster return for the company's investors. But 68 meetings before that yes, for the Series B. Also goes to show, you sometimes just need one true believer.
How to Create a Target List of Investors
Now we know we need enough shots on goal, we need to bring together a target list of investors, put these investors in three buckets:
Priority (5 names of people you really want.) Tier 2 (15 names of people you would like) Tier 3 (15 names of people you would take money from but would not invite to your birthday!) So how do we choose who goes in what bucket? First, founder references speak volumes and lead to warm intros, so speak to your friends who are founders, ask which of their VCs have been the best, place even more weight on their recommendation if the company has not been a success. It is easy to be a VC champion when the company is flying, you often see the true colours of the VC when a company is really struggling or fails. Get a couple of names there and then analyse the VC landscape, you can do this on Twitter or the VCs website or blog and find the VCs that resonate best with your company. Look at the types of deals they have done before, are they interested in pre-seed fintech in Europe, do they do enterprise SaaS Series A in the Silicon Valley. You can see their portfolio, make sure it is a fit for them. I get about 200 inbounds per day across channel, about 150 are clearly not a fit for me because of stage, sector or location and so making sure the obvious are aligned is crucial. Then double down on their Twitter or public profile to see as much as you can about their values and how they portray themselves. Rule No 1, never work with assholes. Value alignment is really important. Now we have the five priorities and then I would say do the same for the Tier 2 and Tier 3 bucket, make sure they invest both in your stage, sector and geography.
The Biggest Mistakes Founders Make Pitching:
So now we have our pipe of investors. A couple of big mistakes I see founders make in this next step.
They go to their priority names first. Do not do this. Your pitch both in delivery, style and messaging will improve so much with each meeting. Start with a couple where you would not be sad if they said no. Analyse in real time in those meetings what messages are hitting and what are not, where are investors spending the majority of the time, are there common questions that keep coming up. If so, create an FAQ page that is in the deck and that will prevent you from having to answer the most obvious in other meetings. With each meeting, you will find ways to iterate the deck, the messaging and the way you present. Another massive mistake founding teams make, if you are doing a Zoom call and it is a first meeting, do not have more than 2 people on the call from your team. It makes it tough to get to the core of the discussion and removes a lot of the relationship building with too many people too soon. If the investor likes the opportunity, they will ask to meet more team members but do not put too much in front of them to the point it dilutes the message and pitch. Now we have done the first investor meetings and we have iterated our deck and messaging in accordance with the feedback we got. We now progress to taking meetings with investors we want as our partners.
How to Master the Subtleties of a First VC Call:
Every investor call usually starts with each side telling a little about themselves and how they came to be the founder or the VC. As the founder, practice your intro, make it succinct, concise, break it into three chapters, a minute per one is a good guidance. In these you want to show a couple of things, founder > problem fit or in other words, why you specifically have the right experience or skills to attack this problem. I also like to understand “insight development” as taught to me by the famous OG of seed investing, Mike Maples @ Floodgate. Insight development is the notion that the best companies are founded on a unique insight that the founder has about a product or market that is different to the way the world currently sees it. Include these two in your intro. Keep the intro to no more than 3-4 mins. For the VCs intro, it is important to try and understand a little more about them. Many VCs give boring and bland intros; “we do Series A and B in Europe and like to lead rounds.” Very standard response and so you should ask them how they like to work with their founders, ask them about a company that struggled and how they worked with the founder to help. Ask them about their decision making process for reserves and pro rata. This creates more of a conversation which will instantly give you as a founder more gravitas in the eyes of the VC. Use the deck as a vitamin and not a painkiller. I hate pitches where it is read off slide by slide. I would not have the slides showing at all, I will have asked for a deck pre the meeting and I should have gone through it before. The call is for me to ask about questions I want to understand more or double click on. That said, the deck can often be useful as a crutch and so it can work well to have it ready and refer to certain slides as and when necessary.
The 7 Sins of Fundraising Decks:
So while we are on the deck, I want to go through a couple of elements that I so often see and they are killer mistakes:
Length: Keep the deck less than 10 slides. If you need a couple more to show data or additional research, put it in the appendix at the end of the deck. Introduction: First slide, company name and then answer the question; if I had a billboard in Times Sq, what would it say on it? 10 words max. From your first slide alone, there should be no doubt about what your company does. The Team Slide: where do people go wrong here. They put 12 faces on it with their names. No information about the people, where they worked, why they are the best team to solve this problem. A totally useless slide if done like this. So do not do this. Instead, take 4 of those people, break the slide into quadrants and expand on those 4 people’s backgrounds to why they are perfectly suited to do what they are doing. Fewer people more context. The Useless Advisor Slide: Aligned to the terrible pictures of many team members with no context, the advisor slide, honestly, advisor slides just carry such little weight these days, they are not worth having. Take it out, it is not needed. Market Sizing Errors: This is a massive one. I see so many make the mistake on market size slide. Say we have a CRM for hairdressers, taking a very random example here, so often I will see a $100BN market, thats the TAM for the hairdressing market or the CRM market, but we are CRM for hairdressers so that is not the right representation and is entirely misleading. It is much better to start with that, then show the slither of wallet spend that hairdressers spend on software and then show the even smaller slither that they spend on CRMs. Use the market sizing slide as a way to show your insight and intellect both into how the market is carved up today but also how it is going to change in the future. There is always the debate of what matters more, large market or amazing founders, the truth is, a massively growing market can cover a lot of operational sins and so showing how the market is and will expand and what causes this, the why now, will always be important. But do not show the massive market for hairdressing or whatever it is, I have seen more $1TN TAM for pet grooming businesses that you can imagine. So do not do that. Exit Slides are Terrible: I do not see this so often now but do not have an exit slide in the deck for your early stage company, the wrong type of investors will be attracted to you if they like this slide, it encourages short term thinking and is not the right way to present for a company that will reshape an industry so no exit slide. Why You Should Not Invest: One thing I love in startups and always have when I present my funds is a slide, why you should not invest in me. I think the most important thing for all founders is to be aware of their biggest weaknesses and then have clear action plans on what they are doing to mitigate the chances of them impacting their success. So have a slide that says, hey, these are our 3 biggest weaknesses and then tied to each one, this is what we are doing to solve it. This inspires trust in the relationship with the investor and really shows your self-awareness and strategic thinking. How To Structure The Size and Composition of Your Funding Round:
Now at some point in the discussion the size of the round and the price of the round will be asked. Use this as a chance to show your calibre as a founder.
You Cannot Sit With Us (You Get The Joke!!!): Massive mistake founders make is they structure a round that does not allow for a VC to invest. What do I mean by this? VCs that lead rounds need to own at least 8% very minimum and if you come in raising $2M on a $25M cap, that is not enough allocation for the VC and pro-rata amount and then angels as well. Do not prohibit the VC from investing because of the structure of your round. For that example, $5M on $25M would allow for the VC to have 12.5% ownership, a smaller fund to have 3-4% and then a 3-4% allocation for angels. Is This Check Mean
