In the first half of 2021, global venture funding shattered the previous six-month record — set in the second half of 2020 — by more than $100 billion. The market was flooded with new startups, and one after another made headlines for deals that were previously unheard of: a $70 million seed round, a $1.5 billion Series A, a unicorn valuation after just two years.
If you are thinking that there has never been an easier or better time to raise money, you are right. First, the pandemic generated huge demand for new products and services as we all adjusted to new ways of working and living. And second, the pandemic made funding more accessible as deal-making shifted almost entirely to Zoom.
There are therefore a huge number of founders trying to raise — I myself just raised Superhuman’s Series C — and many of them are doing it for the first time. In my role as an angel investor in startups like Alt, Circle and Destiny, I am often asked for fundraising advice, and these are the five tips I give out over and over again.
Always be raising, but never actively raising
Most founders are familiar with the maxim that they should always be raising. And while this is true, I would add the caveat that you should never be actively raising.
Why? Because the best companies are never actively looking for funding; rather, they have investors chasing them all the time. In venture capital, perception is important — and seeming desperate is not a good look!
So while you should always be having conversations and building relationships, you should avoid saying you are raising until you have your first inbound offer. At that point, you’re not raising because you have to; you’re raising because you already have an offer.
Understand the code
“Let’s run a ‘no-process’ process.”
“We want to invest at least $10 million.”
“We’re basically there. I’d just like you to meet a few more people.”
Statements like this seem straightforward, but, in reality, are part of the coded language that VCs use. In this sense, raising a round is a lot like dating. Neither side wants to put all of their cards on the table, and you can’t always take what’s said at face value.
Find somebody who has been through this process before — ideally on both sides of the table — who can help you decipher what these phrases mean. This is especially true when investors start floating numbers, such as “we want to invest at least $10 million.” Is this an offer to invest or simply an investing strategy?
You need good intuition — and access to wisdom — to know how close you really are. Many early-stage startups stumble by reading too much into statements like these.
Always make a deck
While we’re on the topic of things not to take at face value, I’ll share one that I’ve heard many times: “You don’t need to make a deck, we’ll just walk through your data together.”
While it may seem tempting — making a great pitch deck is massively time-consuming — do not do this! If a potential investor is telling you not to make a deck, it is genuinely to save you time … but it is also because they do not want you to show that deck to any other investor. So next time, do the exact opposite: Make the deck. In fact, make the most compelling and highly polished deck that you can imagine.
This approach has several advantages. First, having this deck will actually make it more likely that you get an offer from this initial investor. Second, you now have an incredible asset to share with other potential investors. And third, even if you do not end up with an offer, you now have a fantastic tool you can use to close candidates, boost morale and inspire your team.
Be prepared to go from zero to 100 very quickly
Having your deck ready is key for this next step. After months of Zoom calls, coffees and relationship building as part of your always-raising-but-never-actively-raising strategy, you’re going to get a term sheet from an investor you’re excited about.
At this point, you need to drop everything to talk to other investors and quickly get a deal over the line. Today, timelines are extremely compressed: Many investors are moving from verbal offer to term sheet in just a few days. This means that you have a very short window to make a market, avoid looking like you are “shopping” and avoid becoming a “stale deal.”
Don’t talk to too many people
This brings me to my final point: When engaging investors who could lead your next round, start with your top five, not your top 15. Word makes its way around investing circles very fast, and if you are talking to too many firms simultaneously, folks will wonder why. Is there something hidden in your data? Or trouble on your team? As I mentioned before, perception is important, and you want to be operating from a position of strength.
Raising money for your startup is almost always a wild ride; I’ve been through the process many times and I learn something new with each round. Happily, investor appetite is at an all-time high. If you arm yourself with just a bit of this insider know-how, you can grow your company faster than ever before.