Running a Fundraising Process 💸

Part 2: How to secure your term sheet

Raising venture capital is hard, only 1% of small businesses in the US are venture backed. Fundraising is important but it’s a distraction keeping founders away from daily business operations. This is why you want to run a tight process to give yourself the highest chances of success without dragging on for months on end. 

After reading Part I, you understand the importance of targeting the right investors, how to get connected with them, and why you need to build a relationship before you start raising. All of this sets the ground for what we will cover in today’s article: How to run a successful fundraising process. 

4. Preparing for the fundraise

   1. What to include in your pitch deck

   2. Structuring your Virtual Data Room (VDR)

5. Running the fundraise process

6. Staying connected after the fundraise

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4. Preparing for the fundraise

Before telling your preferred investors of your intention to raise, there are few items you need to figure out:

1. How much money do you intend to raise?

2. What type of security (Priced Round, SAFE, Convertible Note)? 

3. How much dilution are you willing to accept/what valuation are you targeting? 

These parameters might change as you receive feedback from investors or advisors, but you need these ironed out as a starting point. You need to have your own threshold for what you’ll accept because some investors, even if they like your company, might pass right away if you are too far apart on the funding amount or valuation. At the earlier stages, it’s common to opt for a SAFE to delay the dilution/valuation question, but it becomes increasingly relevant over time.

This is why it’s important to keep an eye on fundraising trends for other companies at similar stages and verticals since investors will often reference these. You can find benchmarks from different resources such as Carta or different VC reports . With these details ironed out, you must create a pitch deck. The pitch deck is arguably the most important part of your fundraising process; this is what generates excitement from investors, convincing them to take a closer look. These days, at the earlier stages some founders are opting for Loom videos, investment memos or other formats, these can work too. You just need to ensure you pass this first gate to convince investors to invest time and resources in performing due diligence. (see The Ultimate Pitch Deck Collection)

4.1 What to include in your pitch deck

You can design or structure your pitch deck any way you like but at a minimum, what is important to investors is that you address the following:

1. Concept/Product

   1. What are you building/product overview

   2. The opportunity (TAM)

   3. Why now (trends)?

   4. Company vision

2. Team

   1. Founding team profiles

   2. Why are you the right group to achieve this vision

3. Commercial

   1. Go to market motion (direct sales, partners, marketplace etc.)

   2. Current traction (signed customers, pilots, pipeline etc.)

   3. Product feedback

There are many other slides or sections you can include but at the earlier stages, VCs will mostly focus on the concept and the founding team. At the later stages they will be more focused on commercial execution and financials. It’s common to have different versions of the pitch deck, a shorter version that you can share externally and a longer one reserved for investors that have demonstrated more interest. 

Just like with Investor Updates, you need to be careful with whom you share it, since it could be passed to other investors or competitors. If your pitch deck is well done, it will filter out investors that are not a fit while simultaneously exciting those that are. These interested investors will need more information than what is in the pitch deck, which is why you need to prepare a Virtual Data Room (VDR).  

4.2 What to include in your Virtual Data Room (VDR)