Hard truths about your first VC round Part III : tactics to beat the VCs at their own game
So you’ve decided to build a startup, not a regular company. You are clear on where your stand in terms of benchmark for the 6 pillars, and believe you have what it takes to start your process. Then how can you craft the best fundraising process? I believe that it can be summarised by two quotes:
- “To get good terms you need multiple offers. To get multiple offers, you need to tell a good story to several investors at the same time”
— Fred Destin
To improve your chances and terms, you need to setup a (1) structured process with (2) a lot of people at the top of the pipe (3) to whom you pitch a compelling story.
But what makes a good story, a good message?
2. “Le propre d’un pitch est de faire rêver et de rassurer les investisseurs” “Your story has to both stir dreams to investors and reassure them”
— Christophe Chausson
It means that you’ll get an optimal result by telling a story that will generate a strong sense of amazement and surprise to the investors, backed by cold reassuring facts and referrals. From experience, the more positive emotion you generate during the first twenty minutes of your first meeting, the best your chances are.
Statistically, here’s how your process will look like (the assumption here is that you want only one lead investor). Assume you’ll need 6 months from step 1 to 6.
If you’d like to know more about the different steps, I’ve covered the specifics of the fundraising tactics here:
- how to get a meeting with a cold email
- what to (not) do during your first meeting
- what to do during your first meeting
- once you have done the first meeting and got a “no”, it is over for 6 months and you won’t have the chance the make a dazzling impression again because the investor will have moved on to someone else (we tend to have a super short attention span, that’s frustrating but part of the job)
- if there is a better season in the year for you businesswise, pick it for your process (free traction!), and don’t start a process when it’s the worse season in terms of growth for you
- avoid starting processes in July or November, because (short attention span, again), people tend to want to meet new people after the holiday breaks
- do start your process with more than just 6 months of cash in the bank, because things can go horribly wrong and you might need a few extra-months to put the company on breakeven or find an alternative source of financing. Terrible things have happened to the best people, including future investors backing away at the last second, even post termsheet. Don’t let the shortcomings of others kill your company.
Corollary: be extra paranoid during the whole fundraising process. Never assume it’s done unless you’ve seen the money in your company’s bank account.
Last piece of advice: absolutely do the reverse due diligence on the VCs who produce a termsheet (first question: how much time they have left before they have to liquidate their fund) and on the partner who will be at your board. Most vanilla VCs in Europe are okay, but be aware that there are some investors who you should, in my opinion, never accept in your capital.
On this note, I hope this article will help succeed in raising your next round, and that you found some useful insights.
If this is the case, please recommend and share this post to more entrepreneurs :-)
Take care ❤
ps: the slide version of this article are also on the interweb, right here
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Leading Venture Capital investor with 250 M€ under management, dedicated to support great innovative startups.
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At Serena Capital, we are early-growth investors, investing in European companies which have proven business models and the capacity to grow quickly and become market leaders.
Our investment range goes from €3 million to €15 million with a focus on a variety of technology sectors including internet and media, big data, software, telecom and mobile, consumer electronics, IT services .
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