Venture Capital Fundraising Process

Venture Capital Fundraising Process
Photo by Bayu Prayuda / Unsplash

Raising capital for your startup is a long process that's dependent on many factors outside of your control. It's important to remember that investors are people just like you. They have different goals and needs, but they all want one thing: a good return on their investment. To help you navigate the fundraising process, here are some things to keep in mind as you try to raise money from venture capitalists.

First of all, you should begin networking and getting introductions. The key here is to start by making a list of people you know who are connected to potential investors, such as other founders or senior executives at companies in your space. These people may be able to introduce you or help connect you with an investor that can provide guidance during this stage of the fundraising process. The next steps are:

1. Think about the different types of investors

You need to think about the different types of investors you want to attract. Venture capital investments fall into two categories:

  1. Growth capital investors are looking for companies that are growing fast and have a high likelihood of going public at some point in the future.
  2. Strategic nvestors seek complementary businesses within their own corporate family that they can either grow or acquire outright once they’ve reached profitability or been acquired by another company with greater resources than yours (e.g., Microsoft acquiring LinkedIn).

2. Get your pitch deck ready and practice

Your pitch deck should include an overview of the company, its traction metrics and financials, your team and its achievements.

What should be included in the deck?

  • An overview of your company’s mission statement, including what problem you solve, how many people use it today, how much revenue it generates today, and how fast that revenue is growing.
  • A brief summary of your team members' backgrounds.
  • Some early happy customer/user testimonials.

3. Build a team sheet

You will need a team sheet, or a list of your business and its functions. This is the first thing that investors will ask to see when they visit you.

Your team should include:

  • The founders on the team, including their names and roles.
  • Investors and advisors.
  • Board members.
  • A list of core team members with their names and roles.
  • A list of key hires made in the last year or two; this could include an executive hire as well as an engineer or designer hire who is not part of your founding team yet has been instrumental in making progress toward achieving milestones from your fundraising deck.

4. Research the VCs you're meeting with

Before you meet with a VC, you should do some research. The more knowledge you have about the VC and their investment thesis, the better prepared you'll be to answer their questions. For example:

  • What past investments are they most proud of?
  • Which companies in their current portfolio do they think will be huge successes and why?
  • What is their investment thesis?
  • Do they have any personal interests that align with yours? If so, what are those interests and how did they discover them?

5. Find out which investors are most likely to invest in your company

Investors are most likely to invest in your company based on its stage, problem, market size and other factors relevant to each investor's thesis or thesis type. The best way to do this is by getting introductions from other founders and entrepreneurs who have worked with them in the past or who have worked with one of their portfolio companies who has pivoted into your space successfully.

Once you've identified some potential investors, research them thoroughly:

  • What have they invested in before?
  • Who are their current portfolio companies?
  • Where else have they invested before?
  • How much money do they typically invest at each stage?
  • What kind of syndicates do they run?

The best way to get funded is by finding an investor whose thesis matches your company's value proposition

Thesis refers to an investment philosophy or investment thesis, which is a broad statement about why a certain type of firm should be funded and how it will succeed as a business.

For example, an investor who believes that consumer packaged goods companies can generate significant shareholder value through increased revenue growth may decide that he or she wants to invest in startups with similar characteristics. A common mistake entrepreneurs make when fundraising is failing to understand what the investors they are pitching are looking for—they might be pitching their company based on its potential product market fit instead of its ability to scale quickly and capture market share before competitors enter the space.

Raising capital for your startup is a long process that's dependent on many factors outside of your control

The fundraising process is a long one, and it's dependent on many factors outside of your control. You can't control your company's valuation, or which investors will be interested in it, so you'll have to be prepared for the long haul.

Here are a few things to keep in mind during this time:

  • Don't rush! If you're trying to raise capital too quickly, then it might not be right for you. The right investor will be there when they see that you're serious about building something special for the market and yourself.
  • Keep track of what stage of fundraising process you are in at all times--it's important that everyone knows what step they're on with each other so there aren't any surprises along the way (and no one feels left out). It could also help remind people why they need each other; if someone has been complaining about how much work went into finding an angel investor but hasn't yet decided if he wants me as part of his team yet, I'll remind him about how hard this path would've been without him."

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