I previously summarized general fundraising tips for first-time startup founders. I recently realized there are some additional tips that aren’t in the interest of any given investor to share with a founder in the course of trying to land a deal. That said, if the investor has confidence in their worthiness, they probably won’t mind sharing this advice.
5. Do due diligence on prospective investors
It’s okay to turn the tables. Do reference checks with other founders, ask about date of last investment, investment size, amount of capital left to invest, and if the investor is claiming a value-add, investigate its credibility. In general, be discriminating and picky. As an operator you would do the same with prospective employees.
4. Don’t spend much time with prospective investors in between fundraising
Your startup is young. You need to focus. As an operator, it’s hard enough to build one thing well. Apply that to fundraising. It’s okay to casually engage with interested investors in between fundraising, but be aware of your time investment and be clear that you are not fundraising.
3. Believe the “no”, not the why
There is an incentive for investors to not reject you outright, and furthermore, to not be caught sounding like an idiot in retrospect by providing an incorrect reason. The incentive is the fear of missing out; they may not be ready to invest now, but want to preserve a future ability to invest. If you receive a soft no with an accompanying reason, keep in mind that may not be the actual reason. Many successful startups receive 20 no’s (or more likely ambiguous “not nows”) with a variety of accompanying reasons before a yes. When it comes to validating your business, trust your market, product, and customers/users, not investors.
At FundersClub we choose to give a clear (and fast) “no” to founders we cannot fund and provide accompanying reasons. As founders of past startups ourselves who’ve raised VC and angel capital, we hate being left in limbo. We always caveat that the feedback represents investor sentiment–helpful to founders for optimizing the fundraising process, i.e. understanding investor sentiment–but not necessarily a reflection of reality.
2. Run a competitive fundraising process
As an operator you would never sell your product to a sole customer. Think of your stock and the opportunity to be an investing partner as a product. A competitive process can also speed up your fundraise, which will help you get back to focusing on the growth of your business.
1. Your key metrics & product-market fit matter more than raising money
The currency of success in startups is growth of your key metrics, not amount of raised capital. In fact, 2/3 of companies that IPO never raise outside VC capital.