Founders seeking to raise their first round of capital may feel overwhelmed by the prospect. There is definitely plenty of capital out there, but there are also a lot of startups clamoring for it.
To help new entrepreneurs figure out this dilemma, we invited three investors to speak at a panel titled, “How to Raise Your First Dollars,” during TechCrunch Disrupt 2021 so they could share their best tips on what you should do as you attempt to raise that money, as well as strategies for who to pitch to, when to pitch and how to pitch.
Index Ventures partner Nina Achadijan started out by urging founders to first consider whether they actually really need to raise venture capital. “It’s a phenomenal time to be an early-stage entrepreneur. There’s more capital than ever before and there’s a willingness to accept technology from consumers and businesses,” she said. “And quite frankly, there’s a lot of platform shifts that are very exciting for early-stage entrepreneurs. But the first thing you need to do is ask yourself: Do you really need to raise venture capital? There are so many incredible businesses that can be built that actually don’t need VC funding.”
Achadijan said founders should first get clarity on what they would be using the money for. Secondly, she said, they should consider whether they want to eventually exit the company via an IPO or a sale. Once a founder decides to raise capital, the next step would be to make a list of companies that are either similar to theirs either in business model or by industry. Then using Crunchbase or PitchBook, she then recommends making a list of VCs that backed those companies, including angel investors.
“Then what you can start to do is go down that list and say, ‘It seems like this person focuses 100% on what I’m doing; I’m definitely going to talk to them,’ or ‘This person has backed similar business models and I’m really excited to hear their perspective on my space or my industry!’ And then once you have your target list … you can start to get introductions and basically start the process of fundraising,” she said.
Canvas Ventures’ co-founder and general partner Rebecca Lynn agreed with the exercise. In particular, she recommended listing what’s “non-negotiable” in terms of the investor and amount of money raised, and what would be a “nice to have.”
“Having that to refer back to, I think, is really, really helpful,” she said.
She also recommends waiting to pitch to the people at the top of your list after you’ve pitched to other investors. “Don’t pitch them first,” she advised. “Write a few pitches, really nail the story and get some early feedback.”
For example, if a particular question comes up several times, then you know it’s probably a good idea to make a slide on it. “Leave the person you’re really excited to work with as your final part of the process,” Lynn said.
Sequoia Capital partner Luciana Lixandru suggested finding other founders to mentor you throughout the fundraising process to help provide guidance.
Looking for capital also requires some discrimination on the part of the founders. In other words, you don’t want to just take money from anyone. “I always tell founders that this is a very long-term decision,” Lixandru said. “Ideally, we are in business with the founders that we work with for a decade or beyond. So I can’t stress enough how important a decision it is.”
Her advice is to seek investors who are a good match from a sector, geography and focus perspective. Beyond that, she believes most people underestimate the value of good chemistry between a founder and investor.
“That personal relationship and the personal chemistry between a founder and investor is really, really key,” Lixandru said. “We always say that if you get one of us, you get all of us. And this is true; that one partner who sits on your board will be the window into the firm that you’re working with, and you’ll interact with many people.”
Along the same vein, Lynn recommends that founders talk to founders of existing portfolio companies when evaluating whether to go with a particular firm. She emphasized that the needs of each company are different. “Where I come in is to really help with growth, go-to-market and recruiting,” said Lynn. “If those are the skills they need, then I’m a good fit. If it’s something very different, then maybe I’m not a fit. It’s important to have those conversations upfront early on.”
Lixandru also urged founders to not feel pressured to make decisions quickly despite the competitive environment. Achadijan agreed, noting that entrepreneurs need to remember they are in control of when they want to raise and how much they want to raise. She also advised founders to do as much diligence on the VCs as the investors do on the founders.
“Sometimes you might feel like a timeline is being imposed on you. And therefore you don’t have enough time to make the right decision,” she said. “I would encourage you all to just push back, because this is truly a very, very long-term commitment. You know, there’s a lot of analogies of how bringing somebody on your cap table is like marrying them. It really is long term and not like speed dating at all.”
As for how to make a pitch, Achadijan said each founder should be able to clearly articulate what their business does in 30 seconds. Founders shouldn’t “get lost” in a product demo, especially in the early stages, where you typically have a limited amount of time.
Lynn cautioned founders to be careful of how they tell their story and to work to get all the highlights out of the way in the beginning. “Once you’ve hooked us, then you can tell us the depth of your story,” she said. “But don’t hide the numbers. If you have great numbers and great traction, lead with that. Lead with what your customers think.”
For Lixandru, the key to successful pitches is simple: “Be yourself, and be prepared.”
