A little Friday share for anybody looking to raise startup funding from business angels or VCs in the seed stage.
This is written because it's a recurring question to us, so here goes.
First, you will find that starting a startup is a series of how-to research.
You never really know how to do the next thing, so you use whatever you can to just figure it out, hire people who are resourceful and can do the same.
Fundraising was no different for us, so below is simply the result of hours and hours of searching for good resources, distilled into what we now believe to be the most helpful sources of advice/info. Thrown in for good measure is our view of the process, but we were no experts either - almost nobody is.
Articulate your business and your plan in a deck (business plan). Keep it pretty high level, but informative about what matters.
The aim of it is primarily to get a meeting, so it must be clear and captivating from the start. Here's a useful stat for you: we placed tracking software on the decks that we sent out, and they were read for an average of just 3 minutes, often less than 1 minute.
So keep it simple.
And keep in mind that the secondary aim is to demonstrate credibility in communicating, with clarity, a vision of the future, where you are at today and how you intend to go from one to the other. So, it can't be so high level as to be useless in doing this, and keep in mind that any factual statements must be deadly accurate a) because it's otherwise dishonest and karma will get you and b) you will go on to warrant its accuracy later in a successful process, legally binding you to its accuracy.
You’ll now have to find routes into speaking with potential investors. The typical advice here is to find an introduction, which is viewed often as a vicious circle but it's simply just true. Honestly though, do seriously challenge yourself as to whether this is actually a difficult thing to do, in the context of everything else that will be unbelievably hard in the starting-up process.
Investors are looking for opportunities to invest, so they really are looking for you, but they are super-short of time and choose to spend it with people who have been somehow pre-qualified (which is the purpose of the intro).
You figured it out and so it's time to go ahead and pitch, right?
Actually, our advice here is to not pitch at all, and simply tell your story. No BS, just be honest about what things worked and what you screwed up along the way, show vulnerability in not having all the answers, but show determination in what you are trying to do, and clarity in talking about why it matters.
The world's greatest accelerator is Y Combinator. Its pitching advice from one of the partners is in this vid, which is in a Stanford lecture series that I use a lot.
Here, you are into supply and demand.
If your opportunity is compelling, and that means the package of what the business is and how back-able the people are, then you will probably be inundated with funding supply, and oversubscribed for your round. How it happens is by receiving a term sheet, which is simply the distilled version of the main commercial terms of an offer of investment, and it later gets turned into longer legal documents that apply what is agreed in the term sheet.
Some investors publish their term sheets and/or template legal docs as a way of demonstrating transparency, which is cool and also helpful to learn from. Here are two that do so:
What you should do next is essentially choose the best fit for you, and don't dwell on valuation because that's really just 1 factor amongst many others that are of greater overall impact.
And if you're struggling to move through the steps, here are some snippets of advice:
If you struggle to draw offers, then ask for feedback and don't be disheartened. Re-group at this stage and consider whether the type of funder you're targeting is mismatched to what you need right now, or whether there's a larger issue to address - you will spot which it is in the pattern of feedback.
AirBnB got 20 rejections from VCs the first time around, so it happens to the best and they bounced right back from that. 20 said no, imagine how much that now hurts those 20 instead!
Finally, if you want to hear from an actual expert, then...
Y Combinator founder, Paul Graham, wrote this essay and it's broadly considered one of the most comprehensive roundups of how to fundraise at this stage.
If you have any further questions or would like to connect with Paul, then be our guest!