The Essentials
- It’s a new economic landscape. Analyze whether you’re in the right position to raise capital.
- Focus on research, networking, and referrals, although cold outreach still works sometimes.
- Have a great story about how you’ll allocate the capital to drive significant growth, and be prepared to tell it.
Nate Nurmi leads Sales for Full Potential Solutions, a performance-based and tech-enabled CX services company. He is also the Owner and Managing Partner of Bluebird Analytics, a consulting firm that helps early-stage founders build successful revenue engines. Nate is passionate about accelerating the growth of the tech ecosystem beyond the innovation hubs of Silicon Valley, NYC and Boston.
There are a few good (but many bad) reasons to raise capital. Especially in this downturn, it’s worth doing some soul-searching to determine if outside investment makes sense.
A couple of founders I recently advised are in a great position to raise.
The first has built a services business that recently crossed the $100k mark in revenue. He found a widespread problem to solve, and it was clear that he could have a greater impact on his target market by productizing his offering. The capital he raised would be allocated to hiring a CTO and developers for R&D.
The second founder’s company has reached ~$10M in sales and is growing fast. Unlike the software business above, it is a very capital-intensive business dependent on depreciating assets (large vehicles). To keep up with the explosion in demand, the company needs to buy an additional fleet of vehicles. Given the amount of debt already on the balance sheet, the company decided that private equity would be a better route than additional debt financing- especially at current interest-rate levels.
While these businesses are very different, they share two distinct characteristics that make them perfect candidates for fundraising: 1) They have generated significant traction and revenue and 2) they are clear about how they will allocate the capital.
In 2021, you could raise millions with nothing more than a pitch deck and a cool idea. Right now, it’s better to bootstrap until you gain customers, find product-market fit and generate revenue before fundraising.
Focusing on value creation for your business will also provide significant leverage and optionality when negotiating term sheets. Too many founders I speak to think the VC check is the destination. It’s not – it is merely an accelerator to get your business to the next chapter of growth. Thus, reframing VC money as a nice-to-have rather than a necessity will ultimately result in a better outcome for everyone.
Assuming you’ve checked all the right boxes and have a great story about how you’ll allocate the capital to drive significant growth, developing a systematized fundraising process focused on the three activities below will ensure you get the requisite number of VC meetings to find the right capital partner.
- Referral: This is by far the most effective method for getting VC meetings. If you know someone who has worked with a firm before or has connections to a VC, ask them to introduce you. Many VCs prioritize referrals from trusted sources, so having someone vouch for you can increase your chances of getting a meeting.
- Network: One of the most effective ways to get an introduction to a VC firm is through networking. Attend events and conferences where VCs are likely to be present and try to meet and connect with them. Utilize social media platforms like LinkedIn and Twitter to connect with VCs and learn more about their interests and investment areas to have an informed conversation and build a relationship.
- Cold outreach: While it may be less effective than the first two methods, cold outreach can still be a way to get an introduction to a VC firm. Research the firm and its partners, and craft a personalized email or LinkedIn message that demonstrates your knowledge of their investment focus and why you would be a good fit for their portfolio. This method will have much lower meeting conversion rates than Referrals and Networking so while personalization is important, remember that it is a volume game. Be sure to build a good template and incorporate automation that allows for sending emails at scale.
https://refinery.com/news/how-to-get-a-first-meeting-with-a-venture-capitalist/
Getting an introductory meeting is just the first step in building a relationship with a VC firm. Once that first meeting occurs there is often a long song-and-dance before a check is written, if ever. This uncertainty is why it is imperative that the business be in a good spot before a capital injection.
Your fundraising goal should be to execute the activities above until you’ve met with 10-20 VC firms. This increases your leverage by creating competition between firms and gives you more experience which will result in being more polished with each subsequent meeting.
Unless you already have a ton of clout (so much so that VCs are seeking YOU out for meetings) you will not get a term sheet after initial meetings. If they are interested in pursuing further, they most likely will require the business to hit specific KPIs for them to feel comfortable making an investment. Revenue growth, user growth and EBITDA growth are all on the table depending on the type of business you own.
It’s a long song-and-dance, but if you have a clear vision of how it will help accelerate the growth of your business, it can be worth it.
