6 rules for raising capital

Some of the world’s most famous companies came from humble beginnings. It’s no surprise that more people are following in the footsteps of these successful startups, with nearly 5.4 million applications filed to start new companies in the US in 2021, a 53% increase from 2019. adapts to the lingering effects of the Covid-19 pandemicsuch as layoffs, industry changes and a move to working remotelyentrepreneurship around the world is alone expected to continue to grow.

But a top-notch idea is only one piece of the puzzle, as most founders need the trust of crucial ones venture capital (VC) investors to provide the funds to build a top product and become an industry leader.

Fundraising may seem like a formality, but it has become a critical part of the process of setting up a startup. For founders going the VC route, this can be a grueling process. So, how can founders navigate this process?

Here’s a shortlist of six rules that can help change the way you think about raising capital.

Rule #1: Know your market

Developing a deep understanding of your market and the customers you serve is critical – VCs will quickly notice if you don’t. Demonstrating the total addressable market for potential VC firms highlights opportunities and growth potential; while a strong customer base shows that you create solutions and whether you have the right product for the right market.

For example, internal legal teams have relatively little power over software compared to other internal business functions such as sales, marketing, or finance. According to a recent survey, 90% of legal teams use three or more software vendors, and 77% spend more than an hour a day switching between different systems to get a complete picture of their work. These insights provide a data-driven edge that business leaders can share with VCs to instill confidence that they deeply understand their addressable market and that there is a real need for the product.

Rule #2: Start early

This doesn’t mean you should start raising money right away; it means start talking. While you will probably only have serious conversations with up to five VCs, companies speak to as many as 30 VCs when they get started. Fundraising is a long game and it’s important to meet investors at the beginning of your journey so you can share a product or vision and get advice and direction in return. Raising capital is a lot like starting a new relationship, it takes time to build trust, so start sharing your startup’s journey and build trust with shared history.

Rule #3: Statistics Matter

It is also extremely important to research and understand which metrics matter to your business. This will not only demonstrate growth, but above all will show predictability. Everyone has heard the story of creating companies with insane “hockey stick” growth. As other metrics suffer, such as customer acquisition, adoption, or churn costs, the upward and right trajectory and growth rate begin to lose its luster.

Many VCs look at annual recurring net revenue growth, gross industry margins, and of course the potential return on investment — so focus on these important stats when talking to VCs. Steady predictable growth with high customer and employee retention can also be incredibly attractive to potential investors.

Rule #4: Don’t be just another card game

Meeting a VC isn’t all about the card game. In fact, you may not need a deck of cards for most meetings until you are formally ready to raise a round. Meeting VCs is as much about building a relationship as it is about the numbers and data you can display in a deck. Take the time to learn, research and evaluate who would be the best partner.

Eliminating the distraction of a deck can give you time to build a relationship with potential VC partners and will allow you to really focus on business alignment, fit, focus and vision for the future. Most initial meetings can last 30 minutes or less, so time is precious. In the end, it all comes down to people, and the partner you’re talking to should be able to secure the buy-in from other members of their funding committee. If successful, your company and team will work very closely with that company. So it’s vital to like the VC, the way they work, the people and their culture.

However, when it comes time to build a deck, simplicity is key. Avoid information overload and focus on creating punchy, concise slides that articulate your message and vision. Follow a logical flow that guides your audience through the problem, market, and solution your product offers. Remember that the most important part of a deck is the conversation it creates, so build a deck that tells your company’s story in an engaging and memorable way.

Rule #5: Always be open

The first few lines won’t work if you don’t talk to VCs all the time. Once you start thinking of VCs as selling money, it changes who’s in power. Remember that their business revolves around deploying capital.

Keep yourself open to new opportunities during the fundraising process – you never know which relationship can lead to success. The National Venture Capital Association estimates that 25% to 30% venture backed companies fail, so finding a VC who understands your vision and can guide the growth of your business is critical to success for the future. business and investors.

Rule #6: Enjoy the game

This is a numbers game and a process where you lose much more than you win. Chances are you’ll be talking to dozens of potential investors and hearing a lot more nos than yes, so you need to learn to love the “game.” The initial fundraising process can take three to nine months, so be patient and focus on the small wins. Remember the importance of building relationships throughout the process and that it can take several tries to find the right VC for your business. As with most games, the more you train and play, the better you get.

Once funding is secured, one of the most efficient ways to secure additional capital is to aim for current investors to double their initial investment. The key to strong follow-up investments is maintaining strong lines of communication with your investors. Don’t just share the highlights, but also share issues and issues facing the business.

Now you should better understand how to encourage VCs to double their investments and further increase your position in the market during fundraising. Remember the importance of statistics, that there is a time and place for a slideshow and that starting early will always be your friend. Enjoy the process and remember not to get caught in the nose.

Despite how difficult the fundraising process can be, especially as VC funding has reached new heights in recent years, it is well worth it in the end.

Sam Kidd is co-founder and CEO of WetVu.