Picture this...
Over the past few months, you’ve been working to raise capital for your startup.
You’ve compiled a long list of qualified investors and created a professional, organized process to approach and pitch each one. You’ve managed to build and maintain momentum in the process, keeping your prospective investors, supporters, and team members excited about the future of your company.
In short, you’ve been fundraising like it’s your job — because as founder or CEO of your startup, it is.
After all of the emails and pitches and follow-ups, you can sense that the end is in sight. So how do you close the deal and ensure you’ll walk away with a check in your hands?
After spending 20+ years in the fundraising world and interviewing 240+ startup founders on the How I Raised It podcast, I’ve gathered a few hacks to help you finish out your fundraising round so you can get back to building your world-changing company.
1. Ask about interest level — every single time
It’s never too soon to look for buying signals. Every time you meet with an investor, ask a few questions to gauge interest.
The conversation could go like this:
“Thanks for taking the time to meet with us. I would like to hear what your interest level is in our company, what your typical check size is, and what the next steps might be.”
Then, stop talking. You’re likely to hear some version of “oh, we’ll talk about this at our next partner meeting,” but listen closely — if the response includes any kind of next step, that’s a strong signal they may be interested in writing a check.
2. Make investors chase your deal
Another great question to ask investors at the end of your pitch meeting could be the spark that ignites a fundraising feeding frenzy.
“I would love to hear how you help your portfolio companies grow, and I’d love to hear specifically how you would help me grow this company.”
Every investor in the game has had the experience of losing out on a competitive deal where there are more investors interested than there are seats at the table. A question like this one signals to investors that they might have to work to get into your deal, and this is even more effective as the momentum of your deal accelerates.
The second thing this question does is make the investor pitch you on why you should let them into your deal, which flips the power dynamic in a way that can work to your advantage.
3. Apply the 80/20 rule
Expect that 80% of your effort will be spent on getting a term sheet from your first investor, with the remaining 20% going toward filling out your round.
It can take 3-6 meetings before you see your first term sheet, but once you have it in hand, you’ll have more leverage to help you close deals with the rest of your prospective investors.
4. Understand the different no’s
It may sound counterintuitive in light of the standard 95% rejection rate in fundraising, but it can actually be difficult to get an investor to say no. Getting ghosted by VCs is not uncommon, so don’t take it personally.
That said, do follow up 2-4 times before writing off an investor that has gone radio silent.
I like to set up my investor pipeline to record three kinds of no’s:
+Investors who said no outright.
+Investors from whom I’ve had no response.
+Investors who said “not right now,” but whom I’ll contact for my next round.
5. Follow the ‘Handshake Deal Protocol’
Paul Graham at Y Combinator coined the Handshake Deal Protocol based on the frequency of verbal commitments, or handshake deals, that go down in Silicon Valley — as well as the frequency of such deals falling through
The gist of the protocol is to get confirmation of a verbal offer in writing. So if at the end of your meeting an investor says, “Put me down for $50K,” then the first thing you do when you get back to the office is fire off an email to said investor. The goal of your email is to get a commitment in writing, so you might say something like:
“Great meeting with you today. Just to confirm, you’re in for $50K. Would you mind writing back to confirm?”
Only once you have received confirmation in writing should you move the investor into your committed column. Anything less indicates the investor is still just a prospect and should be treated as such.
6. Don’t take your foot off the gas pedal
If there were a corny “dad joke” for the fundraising world, it would go like this:
How do you know when an investor says yes? When his check clears! :)
Don’t let up until the money is in your bank account. Everything leading up to that point is just a maybe, and I’ve seen countless deals fall apart at the last minute.
One of the saddest things I see is founders who burn out on the process and begin to pull away, then watch their investors drop out one by one until the deal collapses completely.
7. Maintain perspective: fundraising is just the beginning
To put this whole process into perspective, imagine that you raise $1 million of capital for your business. Maybe this gives you 12 months of runway to work with, which means that six months from now it will be time to get the fundraising train rolling once more.
So start building your next investor list. Send out impactful investor updates to both your current and future investors, nurturing leads for your next round when the level of expectation will be even higher.
The good news, of course, is that next time you’ll have a team of solid investors right there with you, cheering you on.
Nathan Beckord is the CEO of Foundersuite.com which makes software for raising capital. Foundersuite has helped entrepreneurs raise over $4 billion in seed and venture capital since 2016. He also hosts the podcast How I Raised It, a behind-the-scenes look at how startup founders raise money. This article is the fourth and final post in a series about fundraising hacks.
