How To Get Capital From Those Pesky VCs?

Okay, so “pesky” was perhaps clickbait with some truth to it, but it’s undeniable that the fundraising process is inefficient. Some entrepreneurs seem to raise funding effortlessly, typically because they are high-profile, or backed by investors from their previous business, or the market is especially frothy. Those are the ones that disproportionately make the headlines. But the reality is – and speaking from personal experience too – most entrepreneurs have to work for it. This post is about 5 pragmatic ways to ensure you get the maximum ROI on your efforts.

1) Checking The Fundamental Assumption – Should You Raise VC?

Conceptually speaking, a startup is a fast-growing business whereas a small business is stable or slow-growing. The former typically needs significant funding periodically, the latter often fuels with some capital irregularly else just their own revenues. Venture capital is really optimized for the first category. And perhaps one good moniker is that the reward is inversely proportional to the risk i.e. reward = 1 / risk. A seed investor might look for 10x in 10 years, a mid-stage investor for 5x in 5 years, a late-stage investor for 2x in 2 years. Software is at the heart of modern venture capital because it typically has high margins of 90%+, can be distributed and upgraded far easier than most other businesses, and is thus poised for exponential growth. If you don’t fit the paradigm then don’t raise VC, it may be better to go for other sources of capital such as crowdfunding, family offices, corporates, foundations, or government grants.

2) Assuming Yes, Then What To Do Big Picture?

Again, for VC the underlying answer is exponential growth. How this instantiates is different for different businesses and below are some common challenges:

3) Big Picture Done, How To Manage The Process? (hint: through a spreadsheet)

A good fundraising has the right balance of structure and flexibility so you can get quick results while leaving room open to serendipity. One key piece of guidance we offer to our own portfolio is to have a master spreadsheet. Specifically we advise writing down 100 firms, naming the specific contact there, how you can get connected to that person, and divide them into tiers in terms of potential fit: 1 (high), 2 (medium), 3 (low). Start by pitching to up to 5 names from tier 2, assess what the response is, and move up and down the tier accordingly. If you don’t have enough conviction on getting a term sheet within a month then check whether you need to change style (how you telling the story), substance (what you are telling as a story), or strategy (who you are telling the story to).

4) Links > Decks (almost always)

Know what is better than sending decks? Links. Put your materials on a platform like Docsend. That way you can just send a link that is always up to date, can get analytics on who is accessing the deck, can control access if needed including through a password, and can enable downloads for investors who want to keep a local copy or share with their partnership. The exception to all of this -- when an investor explicitly asks for an attachment. In 2023 this is still justifiable in a small number of situations such as you are caching your email so you can access everything later in a place without Internet.

5) Keep In Touch

At Tau we recommend all our entrepreneurs to create a mailing list and sign up all investors who are legitimately interested even if they didn’t say yes right now. In fact that mailing list should include everyone vested in the startup’s success, including potential hires, partners, customers and suppliers. For most companies, sending out a message quarterly is a good cadence because it ensures meaningful updates without being overbearing. That way whenever you reengage with a VC they will hopefully remember you already plus be able to go back to the updates. Other concrete optimizations:

• deck and website: investors pay attention to other investors, so highlight the people / firms that have backed you
• social media: share significant milestones by tagging existing investors, so they can reshare or at the very least make it more visible in their network
• public visibility: three months before doing a major fundraise see if it makes sense to get media stories and speak at panels / podcasts / investor days.

Originally published on “Data Driven Investor.” Primary author of this article is Amit Garg. These are purposely short articles focused on practical insights (we call it gl;dr — good length; did read). See here for other such articles. If this article had useful insights for you, comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are from the author(s).