A Startup’s Guide to Fundraising (Part 2)

Securing a new funding round is a significant turning point for startups. Over the years, we’ve seen hundreds of startups achieve their fundraising goals and objectives. Metavallon VC portfolio companies have raised 13 follow-on rounds so far, with several more lined up for the months to come. In Part 2 of this series, we share what it takes to attract investors and unlock a new funding round and analyze the 4-step fundraising process we have identified at Metavallon VC.

Introduction

The fundraising process is rigorous and requires significant commitment from a startup’s leadership; in fact, the CEO is expected to spend 60% or more of his time in fundraising related activities throughout the process. Fundraising usually lasts between 1 and 4 months end-to-end, and involves several different parties in each step, including existing investors and external advisors.

Step 1: Preparation

The best funded startups know that the fundraising process takes careful preparation. One of the important details is determining the size of the round, the company valuation you are aiming to achieve and other information that will help you select relevant funds to reach. You should gather and prepare material beforehand, and organize everything in a data room. This will in turn help you during the process, when funds will begin requesting additional information and data. You can also conduct a few dry-runs on your pitch before reaching out to funds.

Step 2: Approach & Pitching

Approaching and pitching to funds is the most critical stage of the fundraising process. Start by compiling a list with all the investors you would like to contact and try to get warm introductions – leveraging your network (existing investors, friends, former colleagues and other) can be extremely helpful in this step. After the pitch, the funds will take some time to review all the information, and potentially ask for clarifications or other material.

Step 3: Term Sheet & Negotiation

Congratulations! Receiving a Term Sheet is an accomplishment and comes with negotiating the principles of the agreement. A term sheet is an overview of the terms and conditions of a proposed deal, and means that an investor is willing to lead your round – you should aim to negotiate during the term sheet stage and avoid renegotiation during the final closing stages. This is also the important stage to perform your own Due Diligence for your potential investors: remember, its a partnership. You can do that by asking for references by portfolio companies or other people in the industry, always ask for references from an investment that worked and one that didn’t – it’s important that your investors treat you fairly and respectfully even if things don’t work out. If negotiations succeed, you’ve reached an agreement in principle.

Step 4: Closing the deal

Investors along with their advisors will perform an in-depth audit of a startup’s financials and accounting records, actual technology infrastructure and stack, operations and any other aspects of the business you can think of. The deal becomes effective indefinitely when the closing conditions defined in the agreements are met. Having your data organized ahead of time will save you time between a signed Term Sheet and the funding available in your account.

Conclusion

Use these steps as a guideline to create a system that works for you. Fundraising is hard, but being intentional about your efforts can make it worth your while.

Find out Part 1 and Part 3!