Phase I - Preparation
Preparation is the most important part of your fundraising strategy. Don’t underestimate it. The 5 key priorities at this stage are:
- Network with VC-backed entrepreneurs
- Draft effective fundraising materials
- Build pre-qualified investor list
- Prepare the company
- Understand the fundraising market
Preparation Overview
Preparation is the first phase of a proper fundraising strategy. It is designed to set you up for success in the next phase, which is the actual fundraise, where you initiate conversations with investors with the goal of eventually signing a term sheet.
While in this stage, I recommend spending about 3 months working on the following 5 key priorities:
Network with VC-backed Entrepreneurs - developing a network that is capable of and willing to help is certainly the most important goal while preparing. You are looking for champions to review your pitch and help build your investor list, and then, during Phase II - Fundraising, make introductions, do backchanneling, and serve as references with investors.
Draft Effective Fundraising Materials - which help with pitching your startup to professional investors in a compelling way.
Build Pre-Qualified Investor List - important to put together for the straightforward reason that you can’t pitch if you have nobody to pitch to.
Prepare the Company - which helps reduce downsides due to your absence from day-to-day operations while fundraising, as well as get advantages that you can use while pitching investors.
Understand the Fundraising Market - in order to set your fundraising goal based on current market dynamics.
Why Preparation Matters
In my experience, preparation is simultaneously the most important as well as the most underestimated part of a successful fundraise. Without preparation, it is hard to run a tight fundraising process, which parallelizes investor conversations and builds momentum in order to maximize the chances of closing a funding round.
Far more often than not, entrepreneurs don’t take the time to prepare effective fundraising materials or build out a qualified investor list or even network systematically to warm up, grow, and excite their network. Instead, much of this work is either not done at all or worked on while starting investor conversations.
This approach runs into the kinds of challenges I described in Why You Need a Strategy. Here is a very common scenario:
- Most founders know a handful of VCs personally or have a good connection through an entrepreneur friend. They pitch those investors first, hoping for a lucky break, but more often than not receive lukewarm responses, such as the dreaded “I am in as soon as you find a lead.”
- And then.. founders run out of investors to pitch! For the vast majority of founders, talking to 5-10 VCs is not enough. Sure, you might get lucky and get a term sheet, but what happens if you don’t?
- The most common next step is to frantically try to get more investor intros. That typically results in unreasonable asks from your network such as asking founders you barely know to make introductions to their investors.
- Most of the time that doesn’t work because founders have to be careful who they endorse, in order to preserve the signal-to-noise ratio and their own relationships with their investors.
- Even when you get such intros, they tend to be weak (because the introducer doesn’t know you well) and untargeted (because you did not do investor due diligence in advance).
- Perhaps worst of all, these intros come sequentially rather than in parallel. This tends to prolong fundraising if not kill it outright by slowing momentum.
As an outsider, this dynamic is ironic. As a fundraising advisor, it is very frustrating. However, to a disciplined entrepreneur - such as yourself, having made it thus far in the Fundraising Lore - this can be a huge advantage. Among a sea of mediocrity, simply investing properly in preparation will increase your chances of raising a round significantly.