HOW TO RAISE MONEY FOR YOUR STARTUP

A complete investment generation/fundraising guide for startups.
Let's take a look at fundraising. How to attract investment and create FOMO at different stages of your startup. In a broader perspective, we are going to cover all the ways to raise capital.
Types of capital:

Equity. Money coming from founders or investors. Any capital that you raise in exchange for shares in your company, or a promise of shares in your company, is equity.
In addition to equity, there is borrowed capital — money that you borrow. These include loans, project financing, factoring, etc. There may be other ways to obtain borrowed capital. For example, you can make deferred payments to suppliers for products they have provided, or you can borrow products and raw commodities. This is an alternative form of borrowed capital.
There is also the accumulated capital, money that your company — not you personally — has accumulated.
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Types of capital:

Equity. Money coming from founders or investors. Any capital that you raise in exchange for shares in your company, or a promise of shares in your company, is equity.
In addition to equity, there is borrowed capital — money that you borrow. These include loans, project financing, factoring, etc. There may be other ways to obtain borrowed capital. For example, you can make deferred payments to suppliers for products they have provided, or you can borrow products and raw commodities. This is an alternative form of borrowed capital.
There is also the accumulated capital, money that your company — not you personally — has accumulated.
The last type of capital is special or gratuitous capital. This is money to which various types of conditionality applies, for example, the revenue share in the future, all kinds of grants, sponsorships, donations, and scholarships for project development. Once all countries began to realize that entrepreneurship is very cool, and venture entrepreneurship is an incredible economic driver, they all started to think of ways to promote venture capital companies. There are various types of grants. For example, if you operate a high-tech pharmaceutical startup, then your first few stages of raising investment will mostly constitute grants from universities, the government, and various associations.
Types of borrowed capital:

  • Short-term. Anything less than a year is short-term.
  • Long-term. Anything over a year old is long-term.
  • Convertible. Convertible is anything that can be converted into something else, such as your company’s shares. Convertible loans are the most convenient and comprehensible way to attract investments in your company during the early stages. It often allows closing a deal very quickly at later stages as well. It can take the form of a safe note (contract), convertible note, or convertible loan.
Some of the characteristics of borrowed capital need to be thoroughly analyzed whenever you think about how to finance your company.

Purpose is why capital is raised. You can borrow for the purpose of working capital financing. Factoring is a way to close a cash gap in a situation when you make an application and App Store delays your payment a bit, but you need money for marketing right now. There are many financial institutions that provide funding for this purpose.

Form — it can be money or other resources.
Source — specialized and non-specialized credit organizations, or bond issue in the open market.
Period — short-term / long-term.
Terms and conditions can be financial, envisaging an interest rate (fixed/floating) and maturity. Conditions to secure a loan may also apply. If you are a startup or smaller company, borrowed capital is almost never available to you without collateral. To secure a loan, you need something as collateral — the company’s funds, rather than your own house.

Types of equity.
Founder equity — founder’s money and resources.
Investor equity — investment that you raise.


Equity characteristics:
Purpose, for which it is raised, which is as a rule the development of your company. You might have a different purpose, such as to buy another company, merge two companies, remake or restructure a business, and so on.
It can be of any form but refrain from taking in-kind investment. For example, there are media for equity foundations that offer advertising time in exchange for a stake in a startup. It is difficult to work this way and you can never truly appreciate its value.
Sources are private investors, business angels, business angel communities, smaller foundations, bigger foundations, private equity funds, growth funds, public investors (those investing in equity of public companies), non-profit foundations, endowment funds.
Terms and conditions. The main conditions for raising equity finance stipulate the number of shares received in exchange for a particular amount of money. Additional conditions describe what kind of shares are exchanged, their class, voting rights, and so on.
Test "What type of capital is available to me?"

  • Do I operate a startup?
  • Do I generate revenue?
  • Is it growing fast?
  • Is it big already?
  • Will it exceed a billion dollars?
Count the number of "Yes" answers.

0-1 - Grants, sponsorships, donations, small business loans, deferred payments, commodity loans, etc.
2-3 - All of the above + venture capital investments (equity, convertibles), project financing, short-term working capital loans, etc.
4 - All of the above + private equity, long-term loans, bonds, etc.
5- Public offerings (IPO, SPO, reverse IPO, SPAC), etc.
VC Fundraising
Raising investment is akin to selling. We attract investment from people. Let’s start by studying the audience. To this end, let's try to understand who venture capitalists are. VCs are a number of striking personalities.
VC types
Business Angels

-Invest without a strategy
-Want to co-invest with more experienced investors
-Invest in companies that are close in spirit (familiar founders, etc.)
-Don't know how to do a comprehensive Due Diligence
Early-stage funds and micro funds

-Follow investment strategy
-Are above cyclicality
- Are only managed by partners
-Want to co-invest with more experienced investors
-Don't do comprehensive Due Diligence
- Strategy "Spay and Pray" or "Trust me I know what I'm doing"
- Are more interested in "number of X's."
-Invest according to warm intros and through incubators/accelerators
Classic $100M+ funds

-Follow investment strategy
-Are almost immune to cyclicality (continuity of funds)
- Are managed by partners with a team
-Want to lead the rounds
-10-12 year horizon
-Interested in "number of X's" less than the ability to place a lot of capital with growth prospects
- Invest according to warm intros and through analytics (watchlists)
Business angels are regular people who, in addition to their professional activities, invest their own funds or those of their families and friends in business. These may include businesses that they understand well or those they do not understand at all, but they share several criteria. First, they have no strategy whatsoever or no strategy they can follow properly. This is because in order to follow a venture or private equity investment strategy, you need to have a lot of money and make a lot of deals. If a person requires a lot of money for this and a lot of time to make a lot of transactions, then they should invest 100% of their time and effort in this and this becomes a professional activity, and then it is no longer a business angel, but a professional investor. Why does any strategy envisage either a lot of money or a lot of deals? Because venture capital is a numbers game. That is, to find one company that outperforms 30 other investments, you need to make another 30 investments.
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Business angels are regular people who, in addition to their professional activities, invest their own funds or those of their families and friends in business. These may include businesses that they understand well or those they do not understand at all, but they share several criteria. First, they have no strategy whatsoever or no strategy they can follow properly. This is because in order to follow a venture or private equity investment strategy, you need to have a lot of money and make a lot of deals. If a person requires a lot of money for this and a lot of time to make a lot of transactions, then they should invest 100% of their time and effort in this and this becomes a professional activity, and then it is no longer a business angel, but a professional investor. Why does any strategy envisage either a lot of money or a lot of deals? Because venture capital is a numbers game. That is, to find one company that outperforms 30 other investments, you need to make another 30 investments.
Business angels are non-professional investors who invest various amounts in all kinds of startups in all industries. There is one common feature, though — they want to invest together with others. In other words, they seek to make up for the lack of expertise and time by investing together with more professional investors. In addition, they invest in spheres that they can relate to. That is, they are familiar founders, whose product resolves some issue that the investor may be facing as well, or delivers some kind of relatable message. Angels very often invest in something that, in their opinion, matters and makes a difference in this world.
In fact, the message you bring to the world is very important. The story that you tell the world, the story that you share with your employees, investors, clients, partners matters more and more to everyone, because people start to think about the long-term effects of the businesses. This begins to produce a direct commercial impact.

Micro-funds are USD 5 million to USD 80 million funds. They have a strategy and a clear understanding of what they do. Usually this is either the Spray and Pray strategy — making as many deals as possible and hoping that a certain percentage of them works out, or the “Trust me, I know what I'm doing” scenario, when investors have a narrow focus (I will invest exactly this amount in exactly these companies in exactly this domain). Funds have a strategy not only because they want to make money, but also because it is easier for them to raise this money themselves.
There are private fund investors and institutional fund investors — all types of non-profit organizations (for example, banks, credit institutions, insurance companies, pension funds, university endowment funds, etc.). They all invest according to the conventional “portfolio theory”, i.e. in various types of assets, one of them being venture capital firms, which invest in venture capital funds together with individual investors to share the risks and potentially gain substantial profits for a small investment.

In practice, investors do not look at a fund’s return rates; they are more interested whether a fund is profitable or not. Another important aspect for them is its success story, what message it delivers and in which companies it invests. It is sometimes better to invest in a fund that makes ethical investments (the so-called ethical investor) that invests in accordance with some ethical guidelines. There are ethical investors that do not invest in environment polluters, in alcohol, drugs, weapons, gambling, etc. It is often better to invest in such a venture fund as against a fund that will offer you an additional 1.5 pp profitability, but it is not clear where it comes from. You can invest in a fund that supports female entrepreneurs. The message is important because people make decisions about how to use their money, they want to do some meaningful things with that money, not just make money with money. Therefore you need to find the funds that suit you.

Small funds are interested in the number of so-called X's. What does the number of X’s stand for? It shows how many times a fund’s revenue exceeds the money invested. When investing, say, a million, the fund earned 7 million, which means the fund earned 7X. Smaller funds mainly invest their own money, and usually this is their managers' money. Managers are interested in ROI, and then in the Carry — the cost of their return. Another important characteristic of early stage funds is that they invest via warm intros. Warm intros are when someone you know recommends you to an investor. Cold reach out means trying to communicate with strangers. In addition, these micro-funds invest a lot through incubators and accelerators because it is a good hub for startups.

Classic funds are funds exceeding 100 million. If you drive to Sand Hill Road in Silicon Valley, there are many such funds to your left and right, many of which are very famous. These funds almost always follow an investment strategy and are not prone to cyclicality. Small funds have a period when they raise a fund, followed by an investment period, followed by a period when they only invest in companies in which investment has already been made, and then follows exit. Large funds, organize their work in such a way that their cycles intersect and money flows continuously, that is, by the time one fund comes to an end, another fund has already been made ready, and investment has already started. They are run by a large team of professionals usually willing to lead within a 10–12-year horizon. They are less interested in the number of X’s than the ability to invest heavily, because even if funds are large, there are still not so many partners. For example, 10 partners have a billion dollars under their management, so each partner wishes to invest $100 million. If a partner considers a company at an early stage to invest $1 million, then 100 transactions of this kind should be completed, and partners will not even remember the names of these companies. The second option is to look for a company in which to invest $30-40 million or more. If a partner invests $30-40 million in a single company, then, most likely, this company will raise investments from other funds as well, so it can raise, say, $200 million, which means that it is probably already worth about a billion. Therefore, looking at a project at the idea stage, at the seed stage, such an investor will hardly invest anything. Their first question will be “What are their chances to become a billion-dollar company?” A fund is interested in investing $30-40 million in a single company and then earning some X’s on it.

Investors that have captured an Uber tend to maintain their share. A lead investor usually enjoys the pro rata right, which means that during each subsequent round, they can invest in proportion to their original share. Small investors are not usually granted this right. Lead investors buy the right to be involved in such a deal with their initial investment, because competition at the Series B stage is cutthroat — they will either have to invest money at crazy rates or be rejected by founders. Therefore, they look for early stage projects and buy their pro rata rights. Classic funds search for unicorns. If you build a startup that will hardly ever become a unicorn, but will turn into a solid business that can potentially be purchased by Google, you should opt for small funds.
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VC characters
Venture capital investment success opens up access to the pipeline (a flow of transactions for investment), access to capital, or a combination of both. In order to have access to capital, an investor may come from the financial environment, for example, serving as an investment banker with a properly established network involving major foreign investors and attracted a fund of $100 million. Furthermore, there are corporate managers who have worked for various corporations and have a good understanding of the B2B sector. They frequently raise funds citing their capacity to build effective B2B sales and knowledge of what corporations really need.
The most common and most useful type of early-stage investor is the entrepreneur who has made money on startups or other projects, and who has achieved something and remembers what it was like. Apart from money, each type of investor can provide plenty of helpful advice. You need to understand which investors are right for you, which investors you will contact, what idea and message you will deliver so that your communication with them makes sense.
VC characters
Venture capital investment success opens up access to the pipeline (a flow of transactions for investment), access to capital, or a combination of both. In order to have access to capital, an investor may come from the financial environment, for example, serving as an investment banker with a properly established network involving major foreign investors and attracted a fund of $100 million. Furthermore, there are corporate managers who have worked for various corporations and have a good understanding of the B2B sector. They frequently raise funds citing their capacity to build effective B2B sales and knowledge of what corporations really need.
The most common and most useful type of early-stage investor is the entrepreneur who has made money on startups or other projects, and who has achieved something and remembers what it was like. Apart from money, each type of investor can provide plenty of helpful advice. You need to understand which investors are right for you, which investors you will contact, what idea and message you will deliver so that your communication with them makes sense.
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Venture paradox

The only opportunity cost of VCs is FOMO (fear of missing out). If you are an entrepreneur heading forward and encountering a mountain, you make up your mind how to handle it. You can climb this mountain, you can go around it, you can dig under it, you can try to fly over it — you come up with different paths, but your goal is to get to the other side of the mountain. If you are an investor heading forward and encountering a mountain, you may as well turn and choose a different direction, where there is no mountain, without losing anything. When an investor chooses not to invest in your company, they do not lose anything. But in fact, investors are very often driven by the fear of missing out on something cool. The greatest FOMO users carefully select startups and help them grow. And this is what they do next — they show an investor that there are 200 startups and 1,000 prospective investors. As a rule, at the time of the demo day, 5% of startups have already raised their rounds. And for the rest, investors will see opportunities to invest start to disappear in front of their eyes. Investors see that out of all these wonderful 200 startups that have been so carefully picked, 100 are really good, 50 are not bad, and 25 are exceptional. And this I where FOMO is triggered.
Important statements about investments
Standardizing investment deals is a good thing
Standardization helps increase the speed of transactions, whereas speed promotes FOMO. If an investor has very little time to make an investment, then there is a great chance of losing money with this investment. If all transactions are standard when it comes to their legal structure and an investor does not have to pay lawyers to deal with this, then they can complete any given transaction quickly. If you have a non-standard company subject to non-standard conditionality (for example, you have a parent organization with 70% of equity, or you have a parent organization with 70% of equity now, but there is an agreement that it will reduce its share), or you have a strange relationship between co-founders with some sort of mutual loans, or there is no founder vesting (when a founder “earns” their share), an investor gets the idea that there probably will be no competition for you, because if someone is interested in investing in your company, then they will also slowly and meticulously figure everything out.

If everything is standard for you, though, an investor gets a signal that you know what you are doing, perhaps this is not your first time, and most likely there is a lot of competition for you. Therefore, there will be no delays. Making an investment is an emotional decision of a human being — a fund’s partner. They need to take your case and make a pitch before the investment committee to convince them to invest in your company. Therefore, we work with emotional decisions, which tend to be subject to second thoughts. That is, over time, a person might have doubts, and the original decision might be changed. This is human nature that has nothing to do with the quality of your company.
Investing your own money instead of a round is bad
The reason this is a poor decision is you skip stages and gain no credibility, which you could enjoy otherwise. Accordingly, when you raise a seed round eyeing a fund, you do not have a single investor. If you have 10 smaller investors, of which eight are your earlier clients, then this tells the fund that customers are not only willing to buy, but also eager to invest in this business, and even if these checks are only worth $5,000, this is a huge signal that the company can be trusted. The second reason why you lose by investing your own money is because you do not have partners in your business who can help you grow it. Third, future investors will not have you on their radars. Those eyeing Series B are looking for all startups that have completed Series A. If you invest your own $ 3 million in your company instead of going through Series A, you will not be on their lists. You will appear out of nowhere.
Good traction replaces the ability to raise capital
Traction is the rate at which your revenue grows, the actual characteristics of your business’s progress. Many investors use analytics to invest and have watchlists. Take a Series A or Series B investor: the latter understands that a Series B company is unlikely to come out of nowhere. Most likely, this startup has raised Series A investment, which means that investors need to keep track of all companies that have raised Series A, and before that they should keep an eye on all companies that have raised any investment at all. Raising investment from the very start is your first step towards raising more funds. Even if you do not contact anyone, but grow very quickly, then funds will be lining up to invest. Funds communicate with each other, and FOMO appears.
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The stages are designed for the convenience of venture capitalists. They do not mean anything other than which funds invest in them. In various industries, these will be companies at various stages. If you are engaged in hardware, then you will definitely have no revenue before Series A. It is the same if you are in pharmaceuticals or have a high-tech startup. If you develop SaaS or a mobile app, then you should have revenue during Pre-seed. At each stage, investors buy various risks, and investors that invest in Pre-seed are capable of working work with a certain type of risk. Pre-seed investors are aware what a team should look like. At Y Combinator, during interviews, they always focus on how founders communicate with each other. If founders interrupt each other, there is no connection between them. It is clear that there is no harmony between them, they might fight and there will most likely be some conflicts, putting an end to the company. The way almost all successful companies look at the start differs dramatically from what they look in the process. They go through several pivots — change in business directions, change of business models, or change of their companies’ products. Everything changes, except the team. At least attempts are made to prevent changes in the team. Therefore, the very first risk is that an investor invests in people, in their ability to deliver results, in their ability to work together. It is for this reason that very often early stage investors invest in entrepreneurs they know or in someone who has already achieved something. Serial entrepreneurs generally have a huge number of advantages in all of this, because they already enjoy trust. They already know everything and do it faster and better.

The stages are designed for the convenience of venture capitalists. They do not mean anything other than which funds invest in them. In various industries, these will be companies at various stages. If you are engaged in hardware, then you will definitely have no revenue before Series A. It is the same if you are in pharmaceuticals or have a high-tech startup. If you develop SaaS or a mobile app, then you should have revenue during Pre-seed. At each stage, investors buy various risks, and investors that invest in Pre-seed are capable of working work with a certain type of risk. Pre-seed investors are aware what a team should look like. At Y Combinator, during interviews, they always focus on how founders communicate with each other. If founders interrupt each other, there is no connection between them. It is clear that there is no harmony between them, they might fight and there will most likely be some conflicts, putting an end to the company. The way almost all successful companies look at the start differs dramatically from what they look in the process. They go through several pivots — change in business directions, change of business models, or change of their companies’ products. Everything changes, except the team. At least attempts are made to prevent changes in the team. Therefore, the very first risk is that an investor invests in people, in their ability to deliver results, in their ability to work together. It is for this reason that very often early stage investors invest in entrepreneurs they know or in someone who has already achieved something. Serial entrepreneurs generally have a huge number of advantages in all of this, because they already enjoy trust. They already know everything and do it faster and better.
Seed stage investors buy the risk of whether you have a market fit product — this is the degree to which your product meets market requirements, when people are really willing to pay money for your product. In SAAS businesses, a market fit product is usually found before seed, that is, the initial traction, initial numbers can be obtained before seed. In all other businesses, this will be just the seed stage.
Series A investors buy the risk of whether this project is scalable or not, whether a company has chosen the right go to market approach (the channel through which you sell), whether you have a successful combination of a market fit product and a go to market product (that is, a business model, to whom and what you sell, and how you make money). Series A investors buy the risk that you figured it right and you are scalable enough.

Late-stage Series B, Series C (and so on according to the Latin alphabet) investors buy the risk that your product market fit might fail when scaled, the scalability risk, the risk that the team can handle fast hiring and rapid growth. In addition, there are market risks: how much your project can be protected from competitors and from direct copying.

Checklists - what venture capitalists expect at each stage based on the SAAS example.
IDEA STAGE
1) Who needs what I'm doing?
2) How do they address this issue now?
3) My prospective clients - how many are there?
4) Is my product doable at all? Is it feasible physically? How much money does it require?
5) What unit economics will I have?
6) Are people willing to pay so much for this value?

This will lead you to three tests.

The first one - the feasibility test - answers the question whether such a product can be made.
The second is the unit-economics test - whether such a product will bring in enough money to make it into a fast-growing business.
The third one is MVP, the most important test. It will show if people are willing to pay that much money for that value.

The mission of the idea stage is to test the hypotheses of your business idea and turn one of them into a product. You have to test a lot of hypotheses. A successful business is a combination of luck and many other factors. To succeed predictably, you need to increase the mathematically expected value of success, and accordingly, you need to increase the number of attempts. To maximize your chances of success, you need to do your best at this stage. You have not yet encountered the dreaded word “runway” — this is how many months of the company’s life you have left in the bank (if your company does not make profits, but generates losses, in how many months you will run out of money). As soon as you incur regular costs (compensation paid to employees), you have a runway, and from now on, you start a race against the clock, instead of conveniently testing hypotheses. Therefore, there is no need to rush at the idea stage.

To raise money at the initial stage, you need FFF investments — Friends, Family, Founders. What you really require is a small amount to test several hypotheses, understand which of them works, register a company and start working with this hypothesis. The company is to be registered when you are going to either receive real income or raise investments.

SEED
The checklist consists of answers to the above questions what you need to have in order to raise seed investments.
1) Here are my prospective clients, this is what they want
2) Here are alternative commodities / competitors that my clients pay for
3) There are many prospective clients and there will be even more
4) This can be done for X money and Y sprints with this team
5) I must borrow X money to pay COGS (Cost of Goods Sold) and CAC (Customer Acquisition Cost) for my unit economics to work, and this is real
6) Here is my traction with MVP.
Look, I attracted 100 users, 15 of them requested the product, I talked to three, they made down payments, and one invested! — this is traction with MVP. This method of communicating and getting feedback is the best way to find original investors. The best first investors are potential clients. Business angels invest checks from a few thousand dollars to tens of thousands of dollars and, as a rule, successful startups raise up to half a million via business angels before they attract something from a venture capital fund. Beginner entrepreneurs often skip this stage. Nobody likes to raise money with small checks. Those with experience do it anyway, because it validates their idea better than sales traction. This is the credibility that they brought in primarily for themselves. In addition, you have your brand and product evangelists — those who will really help you spread the good news about it to the world.

If you have raised half a million from business angels, and then went to funds, then you will already understand how to raise the first million from them. Investments should always be raised starting from small and then progressing towards the big.

The SEED phase goals are to create the first version of the product, hit the market and validate the PMF.
SERIES A
1) Here is my product and its traction: MoM growth, contribution margin. This is how many users I have — churn/retention
2) Here is my go-to-market strategy, business model, and how they scale (LTV/CAC)
3) This is how I plan to grow and cope with growth
The objectives are to prove that PMF does not fail when scaling, to validate the go-to-market strategy and the working business model.

Series A is an equity round in 99% of cases. There is no longer borrowed capital, only equity capital, which converts all of the previous rounds. Unless they were converted during the seed round, they will be converted now, and in case of SaaS, these will be checks of $5-10 million dollars in the Valley.
SERIES B+
1) This is how I grow.
2) This is the kind of team I hire and this is how I deal with my growing user base.
3) This is how my business metrics change across channels.
4) Here is my product strategy and how I increase retention and LTV.
5) This is how I build the defensibility of my business.
Objectives: To prove that the go-to-market strategy does not fail when scaling and that the company can handle growth (hiring, workload, etc.)

A startup has two problems to tackle: either it doesn't grow, or it does, but too fast. Therefore, to raise Series B investments, you need to show how you address the problem of growing too fast.

Investment appeal criteria and fundraising plan.

Here is the formula of investment attractiveness: 80% homework, 20% active fundraising.

Homework is networking, identifying target investors, preparing materials and data rooms, pitch training, rethinking materials. The basis of a good round is great networking in the first place.
Where to network? At meetups, hackathons, conferences, all kinds of parties, in communities, etc.
The best networking is founders with a one-stage difference from your business. The perfect option is that you as an owner of a seed-stage startup communicate with those who have recently raised Series A.


startup robot
Investment appeal criteria and fundraising plan.

Here is the formula of investment attractiveness: 80% homework, 20% active fundraising.

Homework is networking, identifying target investors, preparing materials and data rooms, pitch training, rethinking materials. The basis of a good round is great networking in the first place.
Where to network? At meetups, hackathons, conferences, all kinds of parties, in communities, etc.
The best networking is founders with a one-stage difference from your business. The perfect option is that you as an owner of a seed-stage startup communicate with those who have recently raised Series A.

Fundraising plan
1. Compiling a list of investors
2. Preparing materials and training
3. Contacting
4. Pitching
5. Going through Due Diligence
6. Bargaining
7. Closing the deal
About timing
You should start fundraising when you have six months left in the bank. If you have less left, you will not be able to cause FOMO — the investor understands that once you run out of money, you are desperate. If you come to an investor and you have less than three months left in the bank, it means that you have been trying to raise funds for three or four months without success and no one has given you any money. If no one has given you money, it means that you do not know how to fundraise, and if you do not know how to fundraise, o investor will ever invest in you.
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How to compile a list of investors

First, make a long list of 200+ funds. All funds that invest a) in my market, b) at my stage, c) in similar business models, e) with a suitable cycle. Then you choose partners in these funds, because you will communicate and deal with people, and they will be sitting on your board of directors. As you choose partners, you do research on them. It takes a long time, it is a challenge, so it must be approached in advance, and not when you have run out of money.




Research — You must understand in what companies they have invested, how they can be of use, and if there are direct competitors in their portfolio now. If they do have competitors in their portfolio, they will not invest in you due to conflicts of interest. Open their blogs, read social media, read what they write in their messages, read their tweets, try to understand their focus, understand which mass media they read, what they follow. And most importantly, figure out how their network overlaps with yours, what people you know in common, and how you can strengthen your network in that direction.

After you have done research and selected those partners who invest in businesses like yours, and who are likely to get into what you do, make a shortlist of them. Pick at least 30 people — better still have 50. Write down all the acquaintances you have in common who could introduce you and the channels through which you can communicate with them, embark on CRM with investors in mind. At this stage, try not to communicate with investors. This is necessary because you need to fundraise at a strictly defined moment, otherwise there will be no FOMO.
How to compile a list of investors

First, make a long list of 200+ funds. All funds that invest a) in my market, b) at my stage, c) in similar business models, e) with a suitable cycle. Then you choose partners in these funds, because you will communicate and deal with people, and they will be sitting on your board of directors. As you choose partners, you do research on them. It takes a long time, it is a challenge, so it must be approached in advance, and not when you have run out of money.
Research — You must understand in what companies they have invested, how they can be of use, and if there are direct competitors in their portfolio now. If they do have competitors in their portfolio, they will not invest in you due to conflicts of interest. Open their blogs, read social media, read what they write in their messages, read their tweets, try to understand their focus, understand which mass media they read, what they follow. And most importantly, figure out how their network overlaps with yours, what people you know in common, and how you can strengthen your network in that direction.
After you have done research and selected those partners who invest in businesses like yours, and who are likely to get into what you do, make a shortlist of them. Pick at least 30 people — better still have 50. Write down all the acquaintances you have in common who could introduce you and the channels through which you can communicate with them, embark on CRM with investors in mind. At this stage, try not to communicate with investors. This is necessary because you need to fundraise at a strictly defined moment, otherwise there will be no FOMO.


Preparing materials:

- Long deck/story
- Short deck
- Teaser/ 1 pager
- Blurb
- Data room materials
- Financial Model (Profit & Loss Statement, Cash Flow Statement, Balance Sheet, Unit Economics)
- Additional slides with answers to the questions

How to make the perfect deck. How to make a good presentation

A presentation without a story is a waste of time. What works best is a story that engages the listener, that makes them part of your story, a story that they can relate to. People are designed in such a way that we perceive the world through stories. The most important thing in any pitch deck is its story. Any story has a plot, introduction, climax, denouement, and, as a rule, there is moral. When it comes to an effective presentation, you need to repeat the three main messages three times — at the very beginning, in the middle and at the end — because chances that the listener will remember this are higher.

Presentation story format:

  • Three main messages
  • The problem. Importance of the problem
  • Volume of the problem (market volume in USD, in people. How are people affected?)
  • This is our idea of how to address this issue. Description of the solution
  • How we tested this solution (already works for XX people)
  • We want to raise investment in order to increase the number of people we can help handle the issue.
  • Team (these are the people working for us, their experience and competence)
  • Repeat the three main messages

How should you speak about your business in order to be understood? How should this story be narrated?

Invite someone to dinner. You pay for dinner and the guest listens and gives feedback. Ask them to tell everything they have heard in three sentences.

Arrange the first version of your pitch as a Word file and tell your story. You spoke to 50 people (ideally other founders), told about your project, they gave you feedback, you took three ideas that they understood, identified three messages, and put those three messages into a story. Just write your text. Then you start adding illustrations to explain the text.

The divide it into blocks according to the illustrations — these are your future slides. Now, try taking the illustrations alone and see what happens. If it is clear without words — great. If not — try again. If still unclear — add the least text it takes to clarify it. Your job is to make a presentation that you will be using as you speak. This is the MVP of your pitch. Then you keep practicing and inviting people over to dinner to listen to you. You need to have 20–30 meetings, write down FAQs and work them out. If a question is simple and you can answer it briefly, answer directly in the pitch so that when it appears to the listener, you will answer it with the following sentence. Make a separate slide for each complex and frequent question and place it in a separate Data Room folder. The purpose of this folder is not only to answer users’ inquiries, but to show that you have already received many of them. This means that you have been talking to many investors, which means that you are a very hot startup.
You will get a long pitch deck in the end. To prepare all the other materials, you cut off everything that is unnecessary, write the text on the slides, and leave the brief version for reading. Do this for someone who has never heard of your company to understand your three key messages once they have read it. This is the version you will send after meetings. Its mission is not only to talk about the business but also to generate interest.

Then remove any extra details from the short deck and make a teaser of 1–3 slides that you send before the meeting. The purpose of the teaser is to kindle interest. There are no answers to any questions.
Then you cut the teaser to three sentences and get the blurb. It consists of three sentences that describe your business. The blurb is used like this: you approach a founder and say, “Look, you have a good investor, can you tell him about us?”; they agree and ask to send a description of what kind of project you have, you send the blurb so that they can simply write in the chat to the partner of the foundation with whom they work.

Update the financial model and the finances must be up to date as well. Pay attention to the dates you write in presentations, because the dates should be as recent as possible.
DATA ROOM STRUCTURE
Inside the Data Room, there should be documents and relevant descriptions. Each folder must also contain a file describing the contents of the folders.
The idea is to put together this information, get ready, complete 80% of your homework, concentrate, and then kick start it. Thanks to this, you will raise your investment in a matter of just a few weeks.
1. Corporate records and charter documents
2. Business plans and financials
3. Security issuances and Agreements Concerning Securities
4. Intellectual property
5. Material agreements
6. Employees and employee benefits
7. Licenses, insurances, taxes
8. Marketing and research materials
9. Product
10. Technology and development
11. Customer information requests
12. Hardware
13. Operations processes and flows


Access to investors - the contact. (What you need to know before the contact)

Cold emailing does not work and even does you harm. When you send a letter to a large list of investors saying that you are looking for investments, you are tracked in their CRM. All investors, especially professionals, maintain databases of all startups that have ever written to them. Therefore, when you write to them again, first, they will see that you have already faced refusal. And second, they will understand that you have been unsuccessfully fundraising for a long time. This will destroy the FOMO effect and harm your startup’s credibility, and you will definitely have no result.

The coolest projects do not pitch investors, but have investors pitch to get them. Investors find top startups with analytics and warm intros. When you are an investor, the window of opportunity for investing in a very hot startup is very small. Oftentimes, you need to be able to sign a check within an hour while in a meeting. You snooze, you lose. Investors discuss projects with each other, which is a way to increase FOMO. In other words, if I’m already negotiating with this startup, it’s okay that everyone knows about it. Others will hardly outrun me, but by creating this additional hype, they will subsequently raise the value of my stake in this startup. You will only communicate with your shortlist and incoming applications. There will be no outgoing activity, you only communicate via intros.

Timing is everything. You need to be perfectly on time when you have the right traction, the right season (investors are human beings and they go on vacations and have holidays), have money available, and the necessary milestones already completed. Concentrate communications within the shortest possible time. If there are many investors and you divide them into batches, then try to divide them at least by their location, so that there is as little contact between those with whom you have and with whom you have not communicated as possible. Ask for warm intros. Do not limit yourself to one person, but have several warm intros. This is necessary because you are creating an echo chamber in which you can be seen and heard from everywhere. The task is to make the investor feel that you have an incredibly hot project. Try to get posts and articles about your startup published in the media and blogs that they read. Have your features on Product Hunt or whichever resource an investor reads. The best result is that the investor wants to meet you even without a intro.
How to answer valuation questions.
If asked on which valuation you raise investment, do not be the first one to give numbers. The spread should be generally understandable in terms of the amount of investment you raise. If you raise Series A and say you need $10 million, then you are probably worth about $35–40 million. If you name a spread, then you offer an investor more room to bargain. Show that you are reasonable and negotiable and that a good partnership is more important to you than getting a million here and now. Make it clear that there is competition for you, but you do not want to compare offers solely based on prices. Try to be reasonable and choose an investor based on how you can benefit and how convenient our cooperation will be, rather than based on the price.

At each investment round, people roughly understand what share you will offer. At the seed round, you usually give 5-15%. Then you will have the Series A round, where you will give 20-25%. This is because the funds working with Series A fundraisers are usually focused the most on buying themselves the pro rata right for the largest possible share. They have a minimum shareholding when the fund does not invest in a company, if it cannot buy, say, 15% of its shares, because they are not interested in investing $2 million and making 5X. They are interested in buying 20% so that they account for 20% of all your future rounds and will have invested a total of $40 million in your company to make 3X. The third round is usually looser — about 15-25%. But the further you go, the smaller these standard shareholdings.
Investments from co-investors

Very often you can come across a fund that tells you that they usually invest jointly with someone, so you need to contact them when you have a lead investor. You must never agree. If you have not found a lead investor, but there are several investors who are potentially willing to invest in you, you need to show that the competition for your startup is high and when a lead investor appears, they will no longer be able to invest. Show them that if they want to invest now, they can take a convertible loan or a SAFE. The decision to invest is emotional and it quickly becomes infested with doubts, therefore, if a person is ready to invest now, you need to take money from them now.

Lead investors are not interested in having co-investors. Their aim is to take as much room in a round as possible. They have a lot of money, and the more they invest in your startup, the more they can earn. It is easier for co-investors to get into a round with convertible loans, so a co-investor who has already invested will actively help you complete the round.

TERM SHEETS
A good example of a term sheet - DOWNLOAD

Cutthroat competition has led to the standardization of term sheets. It is almost always a one-page document, containing the amount and valuation, additional conditions and exclusivity (no-shop). Term sheets almost always turn into a deal. Your job is to avoid exclusivity as long as possible and to bargain before you sign a deal. You should not try to change the standard conditions, but you can bargain for something else. For example, you can change valuation and say that the investor should offer more money for that share, or you claim that you will not give them an additional seat on the board of directors, or that you want to have more votes for your shares. A good deal must be a little bad for all parties, because if it is good for one, it is bad for the other.

By the time you receive the term sheet, you should already have engaged a lawyer. Use local businesses for it. If you are going to have a round in the Valley — hire a Valley lawyer. If you are going to have a round in England — hire English lawyers. This is necessary because there are local peculiarities everywhere. Together with a lawyer and your team, you will go through Due Diligence and close the deal.
Due Diligence can be commercial, technical, legal, and financial. You should be prepared for all types by filling out the data room and answering questions fast. The faster you close the deal, the less likely you are to lose it. The deal is not closed until you have money in the bank and all the final documents signed. There is no need to celebrate in advance and under no circumstances should it be announced to the media. It is better to postpone the announcement of the deal in order to use it for the next fundraising phase. A startup cannot offer a lot of coverage opportunities to tell the world about itself, and this is one of them. After DD and after you sign the ultimate transaction documents, you will have money in your account and a valuable partner in your equity.
Good luck with fundraising!
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