Keys for a Successful Funding Round

Venture Capital is the lifeblood for some startups. They fuel growth, drive innovation, and can ultimately determine the fate of a company. But securing funding is no easy feat. It requires strategy, preparation, and a dash of luck. Here are some key elements to consider to increase your odds of success:

1.  Understand your financial needs

Before diving headfirst into the world of fundraising, take a step back and assess your financial situation. How much do you actually need to raise? It's crucial to have a clear understanding of your expected revenue, expenses, and cash flows for the next few years. This not only helps you avoid unnecessary dilution but also prevents you from falling into the trap of illiquidity. Need help crunching the numbers? Check out VGP’s blog on calculating your fundraising needs here.

2.  Reach out to the right investors

Not all investors are created equal. Tailor your outreach efforts to the type of funding you require. If you are a pre-seed company raising $250k, target angels instead of Andreessen Horowitz and Sequoia. Conversely, avoid spending time with angels if you are raising over $500k.

3.  Practice your pitch and have everything ready for due diligence (DD)

Practice is a vital element of pitching, contrary to what Allen Iverson might suggest. Ensure readiness not only by memorizing your pitch but also by being prepared to field any curveballs from investors. After advancing to the next round, ensure all necessary documents are available to assist potential investors in their decision-making process, organized in a structured data room.

4.  Secure a lead investor

Negotiating the terms of your round with each investor is inefficient. Lead investors exist for this reason. They not only facilitate finding common ground between you and the investors but also aid in convincing them to invest and accept the terms once an agreement is reached.

5.  Ensure enough runway!

It is astonishing how many founders wait until they run out of money to start fundraising. Successful rounds typically take between six and eight months from the moment the founding team initiates contact with investors until they receive funding. This is IF they receive funding. Remember: less than 1% of startups secure VC funding (Eve, Holly, “Venture Capital Is Not The Funding Reality Of Most Startups—Here’s What Is”, Forbes, https://www.forbes.com/sites/hollyeve/2020/07/06/venture-capital-is-not-the-funding-reality-of-most-startups-heres-what-is/?sh=3680be1f65ea).

6.  Maintain realistic expectations

If you are a pre-MVP company without a founder with a significant successful exit, lacking connections in the space, lacking a Stanford degree, and your last name is not Rockefeller, you will likely not raise a $20M round anytime soon. Instead, gauge the market appetite based on similar companies (stage, team, geographic region, etc.) and consider raising a comparable amount. Again, remember that closing a VC round typically takes 6-8 months, if it closes at all, with chances being less than 1%.

7.  Have a “Plan B/C/D/E”

Hope for the best, but prepare for the worst. What happens if your fundraising efforts fall short? It's essential to have a contingency plan in place to mitigate risk and keep your startup on track. Whether it's reducing burn rate, exploring alternative funding sources, or doubling down on sales and marketing efforts, having a Plan B can provide much-needed peace of mind in an uncertain landscape. Neglecting to have a contingency plan is naive at best.

Fundraising requires a mix of preparation, perseverance, and realism. By understanding the aforementioned elements, you can increase your chances of success and take your startup to new heights.

Good luck!

Fernando Moreno
Growth Partner