As a startup founder, I frequently receive questions from friends, family, acquaintances, about how this mysterious fundraising process works. In short, raising venture capital funds is a business deal in which you exchange equity, or a percentage of company ownership, for the capital your business needs to grow, in the form of investment funds.
Rapidly just raised our Seed round in February and now I am currently in the process of raising our Series A in the midst of COVID-19 and a faltering economy. Although COVID has changed the world, a lot of things in the startup and venture capital worlds are still moving right along. Deals are still getting done, it is still highly competitive, and venture capital firms are still actively looking to do deals remotely during this time.
An Overview of the Fundraising Process
In general, the types of investors you’ll be seeking out or who are interested in your company will be round-specific.
For an Angel-stage or Pre-Seed startup with no previous institutional money, that process is generally reaching out to accelerator programs. Acceptance to a well-known accelerator can get credibility around your brand to get funded later. If you have a pre-existing network with connections to the venture capital world, you would want to probe your network first to reach investors. Angel investors are very densely populated here in the Bay Area, and it is beneficial to have physical proximity to the investors and startup culture/world, especially now with COVID. Raising in the Bay Area now has a compounding effect. Investors mostly can’t leave, so if they have not met you the best chance is being in the Bay Area.
Just being somewhere like San Francisco or Silicon Valley can help if you are calling and cold emailing investors within the Bay Area that you might want to work with. For myself, I knew that moving to San Francisco in 2017 and being surrounded by these kinds of decision-making investors and firms was necessary in order to get my startup ventures off the ground.
Rapidly is now at the stage of raising our Series A round, and we had a successful Seed round earlier this year. In my experience, having raised from great investors in a Pre-Seed or Seed stage before, a founder should have at least a couple of investors who can make introductions to 10-20 potential Series A investors. That entails your connection pre-pitching your company to a potential new investor, with an overview of the company verticals, your target market, and where the company is financially. They can get a preliminary sense of interest from the potential investor, which helps to weed out those who aren’t interested before you were to hold a meeting with them.
Once you start to get introductions and meetings booked, you generally want to have as many meetings as possible as fast as possible to accelerate your round and make the most of your time.
Some key points of research that you want to know about a new investor before meeting them are:
What kind of businesses do they like to invest in
Are they a partner?
Do they have check-writing power?
Most notably, in venture capital, you always want to make sure you’re talking with those who have check-writing abilities. While associates have an important role within the firm, this kind of first funding pitch is best had directly with the decision making partners of the firm.
Set Yourself Up for Success When Meeting Investors
You generally want to make sure your introductory calls and meetings are with a single person, and ideally with a partner. You don’t want to have an initial call or meeting with a bunch of people who are asking too many questions and distracting you from your pitch.
Best case scenario: your second call or meeting will include more people from the firm, in addition to the main partner you’ve connected with prior. The partner you met with first who really likes you and your business model can help to pre-sell the rest of their team on the deal with their continued interest in your company. This is a strong position to have because you have an ally within the VC firm who is rooting for you to move into the partnership.
Worst case scenario: if your first pitch is with four colleagues from the firm, you may have to field questions that are way too in-depth for this stage of the process. The group is distracted from your initial pitch by these in-depth questions and side conversations. Now you have four opinions of you, who you are, and your company. Immediately after, everyone is discussing the company behind closed doors about whether they should move you forward in the process. These debates can lead to confusion and you cannot control the narrative.
My tip for founders is this: if you see that your first call or meeting has multiple invitees from the firm, it’s okay to reach out and request for the first call to be with just you and the partner.
The Pre-COVID Fundraising Process
As a founder you should expect to talk to 2-3 investors per day for multiple weeks during your fundraising round. In the pro-COVID world this process typically consists of:
One-on-one sync call with a VC partner
Mutual interest (on your end and on their end)
Meeting in-person onsite
Follow-up meetings, which may include additional firm members
Receiving a term sheet
Supplying the requested due diligence documents
A signed and sealed deal
Regarding The Infamous Pitch Deck
You might be looking at the above fundraising process and wonder where a pitch deck comes in. I’m actually not the biggest pitch deck person. I’m more focused on developing relationships and building trust and rapport in a conversational manner. If you think about a Series A, that’s a relationship that will last for 7-10 years or more. It’s not just about the pitch deck that you send them today that will make much of a difference on that kind of long term decision. Quite often, investors are investing equally in the founder’s potential, and not just in the business model.
The Post-COVID Fundraising Process
In a post-COVID world, the fundraising process has some slight modifications and is not happening entirely virtually.
You can still expect to speak with 2-3 investors per day for multiple weeks, with an initial one-on-one sync call. Provided there is a mutual interest, your next round of meetings with this firm will involve either a one-on-one or team Zoom call.
Right now most firms, if they’re finalizing Series A deals with the entire process via Zoom only, have likely met the founder before. They already have that trust and rapport with this person and are comfortable with investing a large sum of money virtually.
There is a conception that everybody is doing everything through Zoom. I have found that to be false during my process of raising funds for Rapidly’s Series A this summer.
At some point in the post-COVID process with a new investor, you will likely be asked to meet in person via a socially distanced walk in a park while wearing a mask. This is why proximity and location are especially important if you are fundraising during COVID, as investors aren’t flying across the country to have meetings with founders. The reality is that if an investor has never met you in person it puts a big barrier to entry for getting funded and gaining trust.