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How to Raise Venture Capital Like a Pro (Complete Guide)
Raising capital is the same as sales, and just like sales, you’ll need a brilliant sales process to pitch and close deals. In most cases, this entails a workflow and tools that allow you to find, engage, and track leads, or in this case, investors.
We’ve helped tons of companies raise capital and this guide shares the process and tactics that we’ve found to be the most effective. This includes everything from the fundraising process to the software and setup you should be using to manage it all.
Bookmark This Guide
Be sure you bookmark this guide because fundraising takes time and you’ll want to reference it throughout the fundraising process.
What to Know Before Getting Started
When you are first raising venture capital, you need to make sure you’re approaching the right investors.
Different investors invest at different stages, so here is a quick overview of the right investors to search for based on your stage:
- Pre-Seed: Very early stages companies with a prototype but no users or traction. General pre-seed rounds will range from $50K to $2mm.
Ideal Investor Profile: Accelerators, Angel Groups, & Micro VCs
- Seed: Still early-stage startups with some revenue or users but nothing significant. In general, seed rounds range from $500K-$3mm, but they have reached as high as $10mm in 2021.
Ideal Investor Profile: Angel Groups, Micro VCs, & some Venture Capitalists
- Series A: The number you’ll often hear from VCs is that they only invest in a Series A after a company has reached $1mm+ ARR. It’s a common mark for Series A companies, although there are still many examples of companies with less than $1mm in annual revenue who successfully raised their series A. The general series A round will range from $5mm-$30mm or even higher in today’s economy.
Ideal Investor Profile: Venture Capital & Private Equity
How to Convince Investors to Invest
Before you get started, you HAVE to understand how fundraising really works. It’s no longer just about an amazing pitch or traction, although those obviously help.
If you’ve ever been in sales, you’ll know all about the importance of urgency. Fundraising is no different. Investors will rarely invest without urgency.
How do you create urgency?
Creating a competitive market is your answer. To put it simply, you need to instill a fear of missing out (FOMO) with every investor. As shown in the image below, you want them to think they’ll miss out if they don’t hop on soon.
To do this, you need to ensure every investor feels like they will miss the opportunity to invest if they don’t pull the trigger and sign the term sheet today. When achieved, you’ll begin to experience a bidding war where every subsequent term sheet emailed your way will include a higher valuation and more generous terms.
Your Fundraising Strategy to Create FOMO
To ensure you create FOMO, you’ll want to meet with all of the investors in as narrow a timeframe as possible. This will allow those investors to compete with each other creating competition between investors.
We recommend blocking off 4-6 weeks of your calendar 6-10 weeks out with the goal of booking a minimum of 15+ investor meetings within the first half of this timeframe. The second half will be used for follow up meetings and due diligence.
It may sound strange but it's okay to explain to investors what your expectations are. You can let them know that you are raising from [date] to [date] and will be closing the raise by [date]. This ensures that every investor you meet with has a deadline that they'll need to navigate around, further forcing them to make a decision.
Speaking with Investors
In the beginning, you won’t have any term sheets to start, so you’ll need to find another way to create FOMO.
A great alternative to a term sheet is to mention that you’ve lined up meetings with other prominent investors. Most investors see meetings as interest, making it the next best thing.
This might sound something like “We have 10 other meetings this week.” or “We’re meeting with [INSERT NOTABLE INVESTOR] tomorrow morning.”
As soon as you receive your first term sheet, you'll want to make all interested investors aware. This will instantly draw interest and many investors will begin digging for more information about the terms offered and the name of the investor. It's common to share the terms and to politely decline to mention which investor made the offer.
By now, you should know the kind of investor you will be approaching and the strategy you will be using when you approach them. Next, let’s dive into the specific steps you’ll take when you begin the fundraising process.
Step #1: Fundraising Preparation
Before you start fundraising, you need to prepare your materials for when investors request more information Below, we have outlined the specific documents investors will request.
Pitch Deck
When fundraising, skip the business plan and get a Pitch Deck put together. If you don’t already have a pitch deck, we recommend checking out our article to learn how to build a pitch deck.
Note: If your pitch deck design sucks, hire someone on Fiverr to redesign it. It will cost $30 and will look like a professional designer spent weeks on it. We recommend you use Usamaahsan, he’s extremely talented and we recommend him to all of our customers.
Data Room
When an investor is interested, they’ll begin requesting documents and many will simply ask for a “data room”.
Investors generally like to review financials (P&L and balance sheets), board meeting notes, employee overviews, cap tables, articles of incorporation, user statistics, and more.
The easiest way to set this up is by using a folder in Google Drive, Dropbox, or DocSend. Simply create one and upload all relevant documents to the folder, so whenever an investor asks for the data room, all you have to do is share a link. Beyond the simplicity of a single link, providing a data room will also show investors that you’ve done your research..
Terms & Fundraising Documents
It’s very common for early-stage investors to provide the terms of your raise, and all investors will negotiate their terms. It’s generally best for a founder (you) to meet investors with a specific goal of what you’re looking for. This should be reasonable and fair to both parties, but if an investor disagrees with you, then be prepared to defend your proposed terms.
If you’d like to learn more about fundraising preparation, we wrote an entire article on it here.
Step #2: Setting Up Your CRM to Track Investors
When selecting a fundraising CRM, it’s important you choose a software that you can master with ease. It also helps if the platform is purpose-built with fundraising in mind. In almost every case, this is going to be LeadLoft.
LeadLoft is ideal for fundraising because it’s an all-in-one solution that includes an investor database, outreach playbooks (email automation), and a simple CRM to track all of your investors and conversations.
LeadLoft launches with most of the setup out of the way, so creating your outreach Playbooks is all that is required to start.
We recommend creating 2 Playbooks to start:
Playbook A: Investor Outreach
This playbook is aimed at starting new conversations with investors. It will likely include your initial pitch, a LinkedIn connection request, and a couple of follow-ups. If you’d like to see some email copy that we’ve tested and know to work, you should check out our investor cold email templates here.
Playbook Steps
- Automated Email: Introduction and initial pitch
- Task: LinkedIn Connection Request
- Automated Email: Follow up with a short pitch containing at least one new piece of information
- Task: Send LinkedIn Message
- Task: Prospect a new contact from the VC firm & add them to Playbook A
If you’re using LeadLoft, here’s what Playbook A would look like.
Playbook B: Investor Follow Up
This playbook is used to re-engage any investor that expressed interest but hasn’t been contacted in 7-14 days. Following up is extremely valuable and can be the difference between closing a deal and losing one. Make sure to wait at least a couple days between steps to give the investor time to respond.
Playbook Steps
- Automated Email: Checking back in and mention updated traction
- Automated Email: Check back in and mention another update on traction
- Task: Send LinkedIn Message
- Automated Email: Check back in and mention another update on traction
- Manual Email: Check back in and CC multiple partners
Again, if you’re using LeadLoft, here’s what Playbook B would look like.
Step #3: Build a list of investors in your network
This is one of the most important steps. If you have a network of investors, this is the time to begin taking inventory. You can use LeadLoft’s LinkedIn prospector to save their emails and accelerate the list-building process.
If you’re at the Pre-Seed stage, this list can include family and friends too. If you’re at the Seed stage or beyond, only include sophisticated angels and VC firms in your list.
Step #4: Build a List of Investors to Reach Out to Cold
This is the last step before beginning your outreach. Reaching out to investors cold is an amazing way to add volume to your calendar appointments.
This is where we recommend using LeadLoft’s investor database. You can search and sort through the database to find investors who have invested in your industry in the past. We generally recommend saving multiple partners at every company that you’re planning on reaching out to so you can save time down the road if one partner fails to respond.
Step #5: Manually Reach out to Your Network
This step is extremely important and arguably requires the most time. Since these are your most valuable investor leads, it will be worth it to take additional time if needed to book meetings and build relationships.
This step requires a looser approach because different contacts may require introductions while others may be able to be called directly.
Regardless of the contacts, make sure that you either ask for introductions or contact each investor directly.
The goal is to createa dialogue and let them know that you’re starting your raise in 6-8 weeks. If it feels appropriate, book a time with them to demo or make your pitch in the future. Otherwise, plan to stay in touch and reach out a couple of weeks before the raise starts.
Step #6: Reach out to Investor Cold
Next, it’s time to expand your investor network. The most effective approach is to reach out to investors via cold email. The vast majority of investors are heavy email users and many welcome cold outreach. That being said, personalizing your emails can turn what would have been a cold email into a warm conversation.
Find Investors
You can make your life simple by using LeadLoft to find the investors interested in your industry and stage. When you’ve found the right investors, you can click “Save” and LeadLoft will find and verify the investor’s email address for you automatically.
Engage Investors
Once investors have been saved, you can use the Playbooks we outlined in Step #2 to engage them.
The goal here is to just get started. You’ll be shocked to find how responsive investors can be. Many of them care deeply about their reputation, and they will treat all founders (you) with a ton of respect.
Once the campaign goes live, all you’ll have to do is explain to them that you’re going to begin meetings in 6 weeks and you wanted to see if it’s something they’re interested in. If so, ask if you can schedule a time 6 weeks down the road when you’ve started raising to share your pitch deck and meet over Zoom or in person.
Step #7: Pitch Investors
Practice your Pitch
As soon as the 2-week timeframe arrives, you’ll want to have a refined pitch and deck. If you haven’t practiced your pitch at this point, you should start.
It’s possible investors will struggle to understand your business, so practice with friends and colleagues who know nothing about your company and are outside of your industry.
Remember to Create FOMO
While you’re pitching, be sure to mention any interest other investors have shown. This cannot be stressed enough, you want to make them feel like they are going to miss out if they don’t close on the raise today. If you have any term sheets offered or follow-up meetings, MENTION THEM!
Step #8 Follow Up & Close Your Raise
Investor emails get cluttered quickly and it’s normal for them to miss an email here and there. If an investor expressed interest in the past, be sure to follow up.
It’s your job to close the raise and there’s no harm in following up with an investor and showing them that you’re organized and serious about raising capital.
Wrapping Up
Hopefully, you’ve found this helpful and will use this strategy to raise capital. From everything we have learned, this guide includes the most effective tactics and tools for raising capital that we’ve seen to date. If you follow all the steps we laid out here, your chances of raising capital are certainly far better.
If you’re in need of some additional help, book a demo with our team and we’ll ensure you’re set up for success.
Good luck with your raise!
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