Fundraising - 7 Steps for Optimizing your Next Round

The Blackroom Team
The Blackroom Team

Consider the following...

You've been hard at work trying to secure funding for your new business venture over the past few months.

You have established a comprehensive list of potential investors and developed a method that is both expert and well-organized for approaching each of them with your pitch. You have been successful in generating and sustaining momentum throughout the process, which has kept potential investors, sponsors, and team members enthusiastic about the trajectory of your business.

In a nutshell, you've been approaching the task of fundraising like it's your job, which is appropriate given that you're the founder or CEO of your startup.

Following all of the emails, pitches, and follow-ups, you can finally get a glimpse of the finish line in front of you. How exactly can you bring the sale to a successful closure and make sure you leave with a check in your hand?

We have been in the Saas startup industry for 15+ years. We have compiled a few tips to assist you in completing your fundraising round so that you can get back to working on building the company that will change the world.

1. Always begin with a query regarding the amount of curiosity.

There is no such thing as looking too soon for buying signs. When you have a meeting with a potential investor, you should always ask a few questions to determine their level of interest.

It's possible that the dialogue will go like this:

"We appreciate your willingness to spend some time with us today. I would like to know how interested you are in our company, the size of the checks you usually write, and what the next steps might be.

Then you should be quiet. You should be prepared to hear something along the lines of "oh, we'll talk about this at our next partner meeting," but pay close attention to what they say after that. If the response includes any kind of next step, that is a strong indication that they may be interested in writing a check for you.

2. Drive investors crazy with your business proposition.

Another excellent question to ask potential investors at the end of your pitch meeting might be the one that sets off a flurry of fundraising activity.

"I would love to hear how you assist the firms in your portfolio expand, and I would want to hear exactly how you would help me grow this company," you say. 

Every active investor has had the unfortunate experience of missing out on a lucrative opportunity because there were more potential investors interested in the deal than there were available seats at the table. A query such as this one sends a message to investors that they may have to put in some effort to participate in your deal, and the effectiveness of this strategy increases as the speed of the momentum surrounding your deal increases.

The second thing that this question achieves is that it forces the investor to make a case to you about why you should let them into your deal. This inverts the power dynamic in a way that can work to your benefit.

3. Observe the 80/20 principle.

You should plan on devoting approximately 80 percent of your time and energy on securing a term sheet from your first investor, while the remaining 20 percent will be spent working to complete your funding round.

It is possible that it will take between three and six meetings until you see your first term sheet; however, once you have it in hand, you will have greater leverage to assist you in closing transactions with the remaining potential investors.

4. Get familiar with the many negative responses.

In spite of the fact that fundraising typically has a normal rejection rate of 95%, it is sometimes challenging to obtain a negative response from a potential investor. This may sound illogical given the prevalence of the statistic. It's not unusual for venture capitalists to disappear without a trace, so you shouldn't take it too personally.

However, before giving up on an investor who has stopped responding to your messages, you should follow up with them two to four times.

Here is a way to organize your investor pipeline such that I can record three different types of rejections - you can check at useful tools in this article

  • Investors who responded with an unequivocal negative.
  • Investors from whom I have not received any feedback.
  • Investors who responded with "not right now," but who have agreed to be contacted for my subsequent round of funding.

5. Be sure to adhere to the "Handshake Deal Procedure."

The term "handshake deal" was invented by Paul Graham of Y Combinator in response to the prevalence of verbal commitments, also known as "handshake agreements," that are made in Silicon Valley, as well as the prevalence of verbal pledges that do not materialize into actual transactions.

The essence of the procedure is to make sure that a verbal offer is followed up with a written confirmation. If at the end of your meeting an investor tells you, "Put me down for $50,000," the first thing you do when you get back to the office is send an email to that investor. This is especially important if the investor mentioned what they did at the end of the meeting. Because obtaining a written commitment from the recipient is the purpose of your email, you could state something along these lines:

"It was wonderful to talk with you today. To clarify, you agreed to be onboard for fifty thousand dollars. Would it be possible for you to write back to confirm?"

You shouldn't transfer the investor into your committed column until after you have gotten written assurance that they will be investing. Anything less than that suggests the investor is still simply a prospect, and they should be regarded as such throughout the transaction.

6. Do not remove your foot from the gas pedal at any time.

If the world of fundraising had its own version of a cheesy "dad joke," it might go something like this:

How can you tell when an investor has given their approval? As soon as his check has been cashed!

Do not relax your efforts until all of the money has been deposited into your bank account. Anything that comes before that point is nothing more than a possibility, and I've seen countless agreements fall through right at the eleventh hour.

One of the most disheartening things that I witness is entrepreneurs who become disenchanted with the process and start to pull away, only to watch their investors leave one at a time until the entire transaction falls through.

7. Don't lose sight of the big picture; raising funds is simply the first step

Imagine that you are able to secure $1 million in funding for your company in order to help put this entire procedure into perspective. Maybe this provides you a runway to work with that is 12 months long, which implies that in six months from now it will be time to start the fundraising train going again.

So, you should immediately begin constructing your next investor list. Send out impactful investor updates to both your present and future investors, cultivating leads for your next round of funding, which will have an even higher degree of expectation.

The good news, of course, is that the next time you try this, you'll have a group of reliable investors right there with you, rooting for you to succeed.

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