There is a winning formula for raising a financing round and I believe it’s not rocket science, assuming that the team is strong and the startup has the quality to raise a funding round. So before a startup starts fundraising, I suggest to every entrepreneur I speak to, to listen carefully to the following approach:
As a founder and CEO you must be willing to spend an incredible amount of time preparing for the fundraising process and walk away from your day-to-day operational duties to focus solely on this. As a CEO you must be ready and able to commit five to eight months of your life – from initiation to closure – for a funding round. This duration starts from the moment you are ready to begin the process up until the moment when they actually received the funds in your company accounts. Various stages of the fundraising process may require different levels of personal commitment and time, however, over ¾ of the fundraising process requires all of your time and attention.
This practically means that your startup needs to be in order, so you can walk away from working inside it. Running a fundraising process with less than eight months of runway of cash in the bank, from the time you say “I’m going to raise” to the time you close the funding round, does not only set you up for poor results but is also poor decision making. Furthermore, assuming that your existing investors will bridge finance you if you run out of money because you timed your fundraiser poorly means that you are also making a lot of larger-than-life assumptions.
As a CEO, you must have an intense amount of confidence and not arrogance, in what your startup has accomplished so far and what you are capable of accomplishing in the future, such that you will not be unshaken by numerous rejections from any VC. Fundraising is usually a lonely and personal journey for a CEO and allowing external noise to cloud your thinking and your focus during this process is damaging. While you will probably reach out to your existing investors, advisors or key team members for feedback and advice on your startup story, limit the feedback to a select few. A lot of feedback from too many people will create too much noise that can send you into a death spiral.
If you are a CEO and you are not good at telling your startup story or simply don’t like being put through the meat grinder of VC meeting after VC meeting after VC meeting, you have to bite the bullet and deal with it, because it goes with the job. As soon as you start fundraising and get your first follow-up meetings and data requests, VCs will start scrutinizing the inner workings of your startup, so make sure your house is in order while you are away.
Do you have the stamina to keep going until you get the term sheet no matter what obstacles and how many NO’s or Maybe’s you face? Do not forget as a CEO that you are telling a powerful story, with a strong narrative that usually transcends time, is memorable, and moves the audience. In a nutshell:
- Why this matters
- What this means to the world or your target audience
- What happens if you succeed in this business venture
Your startup story, needs to be bullet-proof therefore not only powerful and heart moving, but also fact-check and can be scrutinized under a 360-degree angle and still hold true. Your personal insight of the industry must match your startups value proposition, which correlates to your big vision of where the business is going, which is supported by the results you have accomplished as a team until today.
A bullet-proof story is also backed up by a solid financial plan, a clear product roadmap and an honest hiring plan, which complement it rather than contradict it. If your story is vague, then your narrative is not bulletproof, and that creates doubt and vulnerability.
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Christos Lytras – Managing Partner