Raising Venture Capital

Something that most people don’t understand is what makes some start up companies so valuable and grow so quickly. The reality is that these valuations are usually based on venture capital rounds alone. If a company raises $100,000 and gives away 10% of its business for it, then they are worth $1,000,000 even if they don’t have any revenue as a business. Venture Capital allows you to get valuations based on the potential of your start up business and raise money to grow it to that potential. In this section we will go over how the different rounds of venture capital work and where to find new investors.

The first step to raising venture capital is to make sure that you have what is needed to impress investors so that they will invest in your company. You should already have a team of professionals that are dedicated to your company. This will show investors that despite the fact your team members could get a job with big reputable companies, they choose to work for you because they believe in the brand and see its potential. You should also at the very least have a high-quality prototype of your product and a pitch deck that will help you plead your case to your investors. You can check out our section on how to make a pitch deck for an in-depth tutorial on how to create one. In today’s day and age most people are pitching investors with much more traction than they used to have. Although it is not needed you should have some revenue or at the very least a patent or a ton of preparation, work, and research that you can clearly relay to your potential investors. Basically, you do not just want to go to investors with simply an idea and some slides about that idea. Prove that you are putting in the hard work and have a lot of evidence that supports your claims of this becoming a profitable business.

Once you have everything that you need to impress investors it is time to find some and start raising capital. However, before raising money from traditional investors I recommend trying to apply for some startup accelerators. These are independent or government owned entities that help fund startups, give them advice, and even provide office space for your business in some cases. Look up some startup accelerators on Google and submit some applications to see if you can get some easy funding right away. The nice thing about these accelerators is that some don’t even take equity and are there to help with your success. Some accelerators that you can check out include Techstars, Y Combinator, 500 Startups, Angel Pad, and Seed camp. It can’t hurt to apply to these so be sure to check them out!

Now it is time to find some traditional investors. The basic rule of thumb is that for every 100 investors you pitch you should raise around $500k. If you use LinkedIn, start by making use of your connections on there. Talk to people that you know have a lot of connections on LinkedIn and ask for some help getting connected to VCs and Angel Investors. You can also pay $100 per month so that you can send DMs to people you are not connected to. This will allow you to take a shotgun approach with contacting investors, however this will take a lot of messages to get some responses. When messaging these people, you should share your pitch deck with an introduction of yourself and tell them to have a look. Use a link for this like google drive rather than a file because most investors are hesitant to download files from strangers.

On top of making use of LinkedIn, you should also attend any startup events in your area that you can. Start befriending people from these events, collecting business cards and having conversations with people that they will remember. Introduce yourself to investors, let them talk at first and then when it feels right, introduce the problem you are trying to solve with your start up and the solution you have created. You should not be asking people for investments at these events but rather making introductions, exchanging contact info with business cards, and leaving things open for you to take them to lunch or have a zoom call later on.

You can also make use of the accelerators that we talked about to get access to the investors that they already know. If you do not get into an accelerator, then you can also make use of other services online that allow you to get connected with their networks of investors. Services like Angel Investment Network or Crunch Base will help connect you with investors in their databases for a fee. I recommend trying to find investors on your own first, but these can also be helpful to gain some traction.

Another way to find investors is on Facebook and other groups online about your industry. You should join every group you can that is related to investing and your industry and start adding value to other people’s posts and making a positive name for yourself in these groups. Once you have gotten your name out there you can make a post about the problem you are solving with your startup and even link your pitch deck in those groups for people to look at.

You can even make use of Tik-Tok and Reels marketing just to grow some social proof and brand recognition for your startup. You can do paid ads or just post for free on different accounts with volume. Make a couple pieces of short form content about the problem you are solving as a video hook and then introduce your startup as the solution. Be sure to check out our marketing sections and our section on creating quality video ads for more tips on this. You can add a link to a page on your site with information on becoming an investor and set up a form that allows people to give you their contact information so that you can reach out.

Once you have found and talked to some investors, you will want to keep a spreadsheet that will track all the interactions you have had. It will be easy to forget who you have sat down with, where each conversation ended and if you should follow up unless you write it all down. Make sure you log all this information so that you can stay organized and not lose any potential call backs based on you forgetting where you left off with people.

When you begin meeting with investors and pitching your startup for them to invest in, there are a couple of different responses they will give you. They will either tell you that it is a bad idea or that it is not going to work, they will tell you that it is too early to start raising capital, or they will show real interest in investing. If you consistently get one of the first two responses we mentioned, then you should get back to work on your traction and brainstorm how you can continue working without raising outside money. For example, if marketing is a big reason for raising money, then check out our marketing section for a ton of tips on how you can market for free or for cheap. Make use of posting on short form content platforms frequently and on multiple accounts, hire people to work for equity, learn new skills that you need to continue your project if you need to. There is almost always more you can do if you think hard enough. If they show interest in investing, then you can give them the wire info they need to invest on the spot or continue to follow up if they need more time to think. If they need more time, you should always reach out when you are almost done with a round of investing. If they know they will be getting less equity for their money soon then they may jump on board right away.

Now let’s go over the different rounds of investing you will raise. The first round of capital you will raise is called the seed round. This is where people will get the most bang for their buck when investing in your company because they are one of the first investors. You will want to come up with an amount you are going to raise for this round that will allow you to get things done for your company that will grow traction to raise more rounds with higher valuations. You may want to raise $500,000 to hire more developers, marketers and pay employees. For this $500,000 you may be offering 10% of your company. This would mean that your company is valued at $5,000,000! Whatever you choose to offer and the valuation you are giving yourself should make sense for the traction you have so far. Make sure that if you are asking based on a valuation like this, that you have either some revenue, a patent, or unbelievable research and planning to support what you are asking for.

Once you have raised your seed round and you have used that money to prepare yourself for the next one, it is time to move on to your series A round. At this point you should definitely have some revenue coming in that makes sense for the valuation you will be raising based on. You should show clear signs for growth and future profitability and be able to show the improvements you have already made with your seed round money. For series A you may want to raise $1,000,000 for another 10% of your company, making your new valuation $10m based on the improvements you have made. Again, make sure that you have a clear plan for that money and that it will set you up to raise more money for your next round. Be sure to understand that depending on the amount of money you are looking for you may be focusing on venture capital firms rather than individual investors at this point. The average Series A round aims to raise $15 million today so if you are looking for money like this then you should start reaching out to some firms. You will need to get a lead investor that is willing to do all the research and due diligence on your startup so that it makes it easier for other investors to follow suit. Try to update your pitch deck at this point if needed to provide a bit more research and updates on things you have accomplished since your seed round.

The next investing round is the Series B round. The average investment amount for a series B these days is $33M so at this point you should be truly disrupting the industry you are in and showing a lot of traction. However, if you do not need this much money that is fine. What is important is that your asks and your traction make sense for your own business and that the money you are raising is sufficient to help get you where you are going. Your startup should show some very clear signs of growth at this point, and you should be hitting the milestones that you outlined in your pitch deck. These are the most important things when it comes to moving on to new rounds. If you can show people that you are executing well on your plans and that your business is on track for your projections, then there will be much less objections from new investors as you show them how you are growing. You should also be able to clearly outline the next steps you are planning to take and how you will be able to scale your business even more with the new money you are looking to invest. Do you have scalable marketing strategies that are working? Do you have new areas that you are looking to expand to that you have done research on? Are you going to expand your products and services to reach a bigger market? These are the things you should be thinking and talking about as you progress to new rounds.

After your series B round you can continue moving on to new rounds as you need it. The key is to try to keep as much ownership of your company as you can, so don’t just raise money if you don’t need it. You should only start new rounds when you have reached your potential with the money you have already raised and are looking to scale again with a plan on how to use your next potential round’s investments. At some point you can even do an IPO with your company that will allow anybody to buy stock in your company on the stock market. This is where early investors will be able to see returns on their investments and you can also liquidate more of your shares to pay yourself or put back in the business.