How to impress an investor? 10 tips for startups on how to attract the attention of VC funds
Author: Paweł Maj
Fundraising is never easy, especially nowadays. After the optimism of VC funds during 2021-2022, when it seemed that every project had the chance to attract an investor, there is no trace – the global VC activity in Q1’23 decreased by 53% year on year.
Therefore, based on my 13 years of experience (11 as VC partner/manager and 2 years supporting funders in fundraising, during which I was closing on average one round per month) , I share my 10 tips on how to attract the attention of a VCs and increase your chances of acquiring an investor.
1. Understand the investor perspective.
Investors expect founders to be prepared for the fundraising process, even if it is their first startup. This expectation is justified since now, as never before, there is a lot of material available in the form of blogs, podcasts, articles or books. It is worth starting with the book Secrets of Sand Hill Road by Scott Kupor, which is a great introduction to the world of venture capital. I also recommend my list of over 300 questions that VC funds have asked companies during fundraising https://www.linkedin.com/pulse/300-pyta%C5%84-kt%C3%B3re-zada%C5%82y-fundusze-vc-pawel-maj/?originalSubdomain=pl
2. Outline the path to spectacular success
VC funds and business angels (especially those investing in pre-seed and seed rounds) take high risk, but at the same time they expect that at least one of their startups will achieve spectacular success (increase in value 30x or more). The fund’s decision-making process and most of the potential questions will be directly or indirectly related to this topic, so the materials you prepare and the answers you provide should refer to this topic.
3. Global minset
Most likely, your local market (unless you are from the US) is too small to build scale and achieve spectacular success (also financial). That is why investors are most eager to invest in projects that have an international mindset from the very beginning, which will help them enter foreign markets, build an international team and raise funds from international investors in subsequent rounds. Unfortunately, most startups still start with building a solution that addresses local needs, selling in the local market and building a team consisting only of local employees – which in the future makes scaling and fundraising difficult.
4. Prepare documents
Before you start contacting investors, prepare not only the pitch deck and financial model, but also additional documents and materials that investors will most likely ask for after the first or second meeting (such as product development roadmap, market analysis, competition analysis, VC fund activity and M&A transactions in your market segment, sales funnel with an indication of potential customers at each stage, cap table, CVs of founders and key team members, key metrics if they are not part of the financial model, etc.).
5. Take care of the formalities
If you haven’t already done so, list the founder’s agreement (the role of each of the founders , time of involvement, non-competition clause, reverse vesting , i.e. what will happen to the shares after one of the founders leaves the startup), straighten the ownership structure (if you gave away too much equity in previous rounds) so that the company does not have a broken cap table, and make sure that the entire IP is owned by the company. So, address topics that are important to investors.
6. Growth, but not at any cost
Investors, especially after recent large drops in valuations and investment, prefer startups that not only have unique technology, but are also able to monetize it. If you already have a finished product that you are monetizing, you should be able to show 100% year on year revenue growth (especially if your revenues/ARR is below $1M) with good metrics (like LTV/CAC above 3x, low churn, NRR above 100%, low burn multiple, etc.). If you are not monetizing yet, you should be able to demonstrate probability of generating revenues such as large number of downloads, free trials, pilots, list of resellers or distributors, etc.
7. Do some research on the investors
Prepare for the meeting with investors (study info on their website, Linkedin profile, blog entries and publications in the media) so that during the meeting you can indicate your expectations regarding added value, and at the same time ask tailored made questions to gather information that is important to you.
Investors want to see that you work with data, i.e., you have a process where you collect data, analyze it, and then make decisions and draw conclusions based on it. If you are already collecting data, make sure you share it with potential investors (e.g., by adding key metrics to your financial model). And if you are a business operating in the B2B SaaS model and want to make a big impression on potential investors, then provide them with direct access to your metrics (dashboards or external solutions such as Chartmogul or Profitwell).
9. Take advantage of professional legal services
When negotiating the term sheet and then the investment agreement, you should rely on the support of a lawyer or law firm. However, make sure that such a person/law firm has extensive experience in transactions between startups and VC funds (preferably at least a dozen). If do not have such a contact, get in touch with founders who have recently acquired an investor and ask them for recommendations.
10. Build relationships, don’t just seek capital
Fundraising is a marathon, not a sprint, especially since you will most likely need to fundraise capital for a few rounds before you break even or sell your business. Therefore, even if you hear a negative answer from a given investor (and you will hear this often), do not take it personally – ask if they can introduce you to other funds that may be interested, and ask if you can add a given investor to your investor newsletter (if you don’t have one, you should consider creating one).