I’ve seen many entrepreneurs raise follow-on rounds during my time in the venture world. And while I’ve seen many different fundraising strategies used, there’s one that I’ve seen reliably produce good results time and time again. Here it is:
- Assemble a list of all potential new investors. Leverage your board and all of your existing investors to help ensure you have the most complete list possible. Don’t forget about potential strategic investors.
- Perform some basic research on the firms on this list. Are any investors in competitive companies? Remove them. Do any focus on stages or geographies that make them a poor fit? Remove them, too. The goal is to end up with a list of firms that you wouldn’t mind telling about your company — and who won’t have any obvious objections to taking an initial meeting.
- Stack rank the remaining firms based on whatever criteria you feel appropriate. Are you looking for a top-tier brand? Seeking a firm that is hands-on? In need of a team that really understands your space or can address a gap on your board? Score the firms on the list in each of the areas that matter to you, add up the points for each firm, and arrive at a total score for each investor. Now sort the list in decending order by total score.
- Add individual partner names to the list. Are there specific partners in a firm who would cause you to increase the firm’s score? If so, include those folks’ names on the list and adjust the score appropriately. If not, work your network to determine who the best partner would be for your company.
- Start fundraising by reaching out to the top five firms on your list. Use your network to ensure you receive warm introductions to the right partners. Contact them simultaneously and aim to have inintial meetings with them in the same week. Get feedback from them as quickly as possible.
- The minute you receive a turndown, reach out to the next firm on your list. Repeat this whenever an investor drops out of the process. Aim to keep five investors in your process at all times. More than this is hard to manage. Fewer than this is likely to result in no term sheets or too few term sheets to enable a competitive process.
- One final hack. If you use this methodology, you may find yourself at different stages with different investors at any point in time. You will often be asked by investors where you are in your fundraising process. Be careful what you share. If investors feel they are too far ahead of others, they may stall. If they feel too far behind others, they may feel they won’t be able to catch up in time to be considred. Manage your communications on this topic carefuly.
Do you have any other fundraising tips? Feel free to share them in the comments.