Strategies for Securing $3M in Just 3 Weeks: Insights and Advice
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A year ago, I transitioned from my role as an investor at the Softbank Vision Fund. This past April, I successfully completed my pre-seed funding, followed by my seed round in September. Having experienced both sides of fundraising— as an investor and as a founder— I’d like to share some valuable insights:
Before Initiating a Raise
Do You Actually Need to Raise Funds?
Not every business model requires extensive funding to launch. Many software solutions can be developed through bootstrapping. If your venture necessitates hiring technical experts or specialists in fields such as medicine or logistics, it’s worth questioning whether you should move forward with that particular business model.
Is Your Business Suitable for Venture Capital?
Not all startups are fit for venture capital, and that’s perfectly acceptable. Companies that attract venture funding typically exhibit rapid, or hypergrowth, in a condensed timeframe. It’s entirely viable to establish a cash-flow positive business or a lifestyle enterprise without seeking venture backing. In fact, numerous successful publicly traded companies have never engaged with venture capital.
Understanding Fundraising Leverage
Awareness of your fundraising situation is critical for strategic planning and setting realistic expectations. A high-leverage fundraising scenario may involve securing millions with a robust valuation in mere days, while a low-leverage scenario might entail facing numerous rejections over several months. I’ve personally endured hundreds of rejections, and it can be disheartening to face multiple declines weekly.
You might find yourself in a high-leverage fundraising situation if any of the following apply: - Significant Growth: Consistent weekly growth of 10% or more in important metrics. - Exceptional Product: Addressing a challenging problem effectively, such as cancer treatment. - Prior Success: A track record of founding a successful business. - FOMO (Fear of Missing Out): Rapidly closing commitments or having notable investors dominating your round.
Most first-time founders may need to leverage FOMO to gain high-leverage fundraising. More on this later.
Preparing for Fundraising
If you’ve concluded that you will pursue venture capital instead of alternative funding sources, here are some common queries I encounter during preparation.
Establishing Fundraising Objectives
What amount should I raise? Start by working backward from these two questions: (1) What milestones do you want to achieve before your seed? (2) What is the funding required to reach those milestones and sustain operations? This total, plus a small contingency, should dictate your fundraising target. While a detailed five-year projection isn’t necessary, it’s crucial to outline how funds will be allocated to achieve your goals, considering the revenue you expect to generate.
> On average, avoid raising excessive amounts that may dilute your stake during the pre-seed or seed stage. The amount raised doesn't correlate with your company’s success—remember, your company should take precedence over personal ego.
What valuation should I aim for? Valuation at this stage often leans more toward art than science. Traditional valuation methods may not apply, as they depend on market pricing. Therefore, creating a market for your venture and fostering FOMO is crucial. From my observations, first-time founders might find a post-money valuation of $3–5 million reasonable, while second-time founders may aim for $8–10 million. However, with fluctuating tech multiples and available capital, these figures can vary widely.
Considerations Around Valuation Risks
When evaluating high and low valuations, keep in mind: - High Valuation Risks: Two primary concerns arise: (1) A high valuation may lead to unrealistic expectations for milestones in your seed or Series A round, sending negative market signals. (2) If investors deem the valuation excessive, they may hesitate to invest, potentially forcing a mid-raise valuation reduction that creates legal complications. Remember, different investors have varied tolerance for valuation caps; angels and family offices often show less sensitivity compared to early-stage venture funds, which focus on potential upside rather than dilutive concerns.
- Low Valuation Risks: While undervaluation can mean leaving potential funds untapped, it’s essential to note that at this stage, valuation concerns may be less significant. Founders often focus more on the implications of low valuations than those of high ones.
> Ultimately, dilution is what you should prioritize, which often stems from raising excessive funds rather than merely accepting a lower valuation.
Understanding Investor Contributions
Many founders tend to overestimate the tangible value that investors bring to their ventures. While some investors offer substantial support, those who contribute capital without imposing undue pressure are often the most beneficial. Conversely, investors who excessively involve themselves can be detrimental, placing all risks on the founders. Although there are excellent investors out there, it’s essential to recognize why venture capitalists often have limited capacity to support their portfolio companies relative to private equity counterparts.
Private equity firms typically hold 100% ownership of their portfolio companies, meaning every dollar generated directly benefits them. In contrast, venture capitalists often own less than 20%, resulting in only a fraction of the value generated being returned to them.
That said, don’t overly fixate on the composition of your investor base. Having an investor willing to support subsequent funding rounds can ease future fundraising efforts, but if they don’t participate in later rounds, it may send undesirable signals.
Establishing Foundational Elements
Equity Distribution: If you have co-founders, it’s crucial to clarify equity splits early on. Delaying this conversation can complicate the fundraising process.
Legal Framework: Ensure that your company is prepared to accept investments before you start fundraising. Some founders opt to address this post-commitment, but that can lead to delays in capital transfers. Incorporating as a Delaware Corporation can be straightforward and cost-effective, often under $1,000 using services like Clerky or StripeAtlas. If you’re hesitant to invest this amount, it might reflect a lack of confidence in your idea or a need to mitigate other career risks prior to launching your venture.
Minimum Viable Product & Traction: Aside from specific sectors like deep tech or healthcare startups, having a functioning product or some evidence of traction is vital. Investors need to know what they’re funding.
Preparation of Materials: This will be discussed in more detail below.
Essential Materials
Concise Overview: Summarize your business in 2-3 sentences, clearly detailing who your users are, what you do, and how you do it. Avoid jargon like “platform,” “big data,” and “machine learning.” Use straightforward language and refine this summary with each investor interaction to see what resonates.
Core Messaging: Prepare key points you want investors to remember. By the end of your 30-minute meeting, they should retain your primary message. Control the narrative to ensure this occurs.
Core messages typically include: - (1) The concise overview mentioned above. - (2) Your strongest asset, whether it’s product traction, your background, or founder-market fit. - (3) Why you will succeed, often linked to unique insights from your experiences or user feedback. You must demonstrate why your idea or product stands out from competitors and why that differentiation matters. - (4) Business model and unit economics: Explain how you generate revenue and the sustainability of that model. Investors are generally familiar with the pros and cons of various business models. - (5) Market size and competition: Avoid misrepresenting your competitors, as this can lead to perceptions of ignorance or insincerity. - (6) The amount you’re raising and what milestones it will help you achieve.
Presentation Deck: While some prefer informal discussions, I believe it’s crucial to consider both your preferences and those of the investors. At a minimum, provide materials for their due diligence; err on the side of creating a presentation.
The choice of presentation format is less important—some use slides, others prefer Canva, and I’ve even encountered Medium articles as pitch materials. Most investors are accustomed to slide presentations.
The deck should expand upon your core message across 5-10 slides. Each slide title should encapsulate your core message, and the content should provide adequate evidence for its validity. When refining your deck, focus on the core message before tweaking individual slides to save time.
Typically, meetings should be conversational. Allocate around 15 minutes for Q&A in a 30-minute session.
Structuring Your Fundraising Round
While there are numerous approaches, here’s one method to consider: - Schedule investor calls within a condensed timeframe—aim for 80-120 calls over 3-6 weeks. Begin with warm introductions and plan calls a month or two in advance to secure time in investors’ calendars. The hierarchy of introductions usually follows: warm contacts > introductions from portfolio companies > introductions from investors > cold outreach.
- Organize investor calls in waves. The initial wave should focus on speed and conversion, engaging angels or funds known for quick decision-making. The second and third waves can involve smaller VCs and family offices capable of committing the required capital. Ideally, by this stage, you’ll be positioned to close your funding round if desired. Subsequent waves can involve your ideal investors, leveraging FOMO and negotiating power, allowing you to continue building your business without their support.
This approach helps generate FOMO while ensuring you raise sufficient capital quickly to refocus on your business.
Tools and Resources
- Investor Tracking & Dilution: Use a dashboard to monitor investor discussions. Build your list of potential investors before initiating fundraising.
- Discovery: Compile a list of investors to target. The typical hierarchy is warm contacts > introductions from portfolio companies > introductions from investors > cold outreach.
- Pitch Deck Creation: Develop your pitch, outlining the minimum information needed to engage interest. This generally includes a brief description of your company and key strengths. Choose a communication medium, usually in the form of a pitch deck.
- Pitching Tips: Ensure clarity in your pitch, starting with a straightforward description.
- Deck Structure: Familiarize yourself with YC deck structures and advice.
- Sharing Materials: When distributing your pitch deck, assume it will be circulated widely. To gauge which sections investors engage with, consider using tools like Docsend (paid) or Brieflink (free). For example, if investors only focus on your competitive landscape slide, that may indicate a potential issue.
- Document Signing: Utilize tools that streamline the signing process for investors and centralize all legal documents. Many of these services offer free trials, including Docusign and Hellosign.
- Cap Table Management: While less critical with SAFEs, cap table management may become essential during priced rounds. Companies like Carta provide this service.
Disclaimer: The insights shared here are based on personal experience and opinion and should not be construed as financial advice or a definitive guide to fundraising.