What does the ideal fundraising process look like?

by | Aug 2022 | Early-Stage Capital

This post was prompted by, and is dedicated to, the reams of terrible marketing emails I receive from founders looking for money.

In July 2022, I posted DQventures’ investment criteria on LinkedIn, without really thinking about it. If you look, you’ll see that I specified the following, so as not to attract hopeful founders, who might otherwise pitch for money, thinking we’re a VC:

Needless to say, almost nobody read or paid attention to the final note, and I was bombarded.

In the 36 hours after I posted the comment above, I received 85 connection requests, InMails, and messages from people who wanted my/DQ’s money.

In only 4 of those cases did the person show any indication that they had any understanding of what DQventures does and how it invests. I genuinely believe that, of the 81 others, it’s likely that not a single person took even 10 seconds to understand if I was a good prospect before writing to me.

How sad that the average, British  (as most of these people were British), early-stage founder operates this way!

One guy even told me that I was a great fit for his startup, despite the fact that even a cursive view of this website or my LinkedIn profile would show that I’m clearly anything but.

What were these founders getting wrong?

Overall, I was amazed by:

  • The blatant neglect, by nearly all of these founders, to do even basic research into the people they’re pitching to.
  • The abysmal quality of reach-out.
  • The lack of attention to detail.
  • The apparent willingness to machine-gun anyone with the word “investor” in their online profile, with no regard for targeting the right type of people.
  • The slap-happy grammar and spelling in many of the emails and DMs I received.

Honestly, it was saddening. I got a glimpse into the absolute rubbish that professional investors have to deal with, day-to-day, and my heart went out to them. Being a VC seems like such a great job, but if it means dealing with this kind of approach, day in, day out…? Forget it.

Founders, if you’re spraying your pitch out to every investor you find, it’s no wonder you don’t get a reply. It’s not them, it’s YOU. You don’t deserve a reply. Truly.

If you’re not spraying your deck around, good news. Most of the founders you’re being compared to are making a terrible job of this, so you’re probably standing out way more than you think. Keep going!

You need to stop this. It’s not only a massive waste of these investors’ time, it’s also a huge waste of your time. This is spam. It will not work.

The right process for capital raising

Raising capital is a process that should last between 3 and 6 months, depending on the position you start from. It looks something like this:

  1. Create an investor deck;
  2. Build an investor pipeline (find a guide here and a template here);
  3. Build a data room, where you provide investors with access to all company documents and information, as part of their due diligence process (screenshot below, showing of one of the data rooms I’ve used in the past);
  4. Create 2 killer intro emails – one for potential investors, one to give to people who can potentially introduce you to investors. Find a template here.
  5. Write your pitch. Note, this is not your deck. The best pitches never involve a deck, because the investor has already read it. Your pitch should be a combination of your background story (keep it short), combined with how that’s driven you to solve the problem you’re now building for, combined with what tells you you’re winning. You can refer to your deck afterwards, if you need to, but ideally it’s you telling your story, occasionally interrupted by the investor asking questions as you tell it.
  6. Internalise your pitch and your numbers: users, cost, revenue (if you have any), burn, runway, churn, CAC, LTV, CAC payback period, and any other metrics you’re tracking. If you don’t know what any of these terms mean, look them up and memorise them. This is important, and founders are expected to know it.
  7. Practise pitching. You will suck to start with, so don’t wing it.
  8. Practise on friends, family, colleagues, and your existing investors.
  9. When you improve, start asking for warm intro’s. Use the introducer template you created above, and attach your deck.
  10. Start with a) people you think will be kind and offer feedback, and b) people who you don’t see as hot prospects. Much better to mess up in front of lower quality prospects!
  11. Once you’re hitting your stride, you’re ready to send emails…
  12. Clear your diary, as much as possible, for 3-4 weeks. Make sure your other tasks are delegated, so the business can keep running while you focus 100% of raising money.
  13. Start sending emails to the list of prospects you created in #2. Customise every email. Don’t skip this part – it’s crucial.
  14. Send one follow-up email to people who don’t reply, then take them off your list.
  15. Dedicate ~2 weeks to investor calls and meetings. Pack in as many as you can, and tell them your timeline. This should create a sense of competition and urgency. Without this, the fundraising process can last for months.
  16. Respond to all replies and ask for a call.
  17. Write down all the questions you’re asked, and document the answers. You can keep these FAQs to send to investors, and add them to your data room.
  18. Meet with investors and try to convert a lead, with whom you can agree investment terms.
  19. With terms secured, go back to everyone who seemed interested, share the terms and ask if they want to be part of the round.
  20. Close what you’ve got, and turn your attention back to running your company.

I hope it’s useful!

Example data room structure
Example data room structure

Image credit

– Arm wrestling image by Gratisography.

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