Below we outline the most important resources you need to create and questions you need to have answered regardless of the type of investor you approach.
Determine how much you're raising
How much you raise affects which type of investor you approach. If you're trying to raise half $1 million in a seed round, you want to target angel investors, seed-stage VCs, super angels, and early-stage investors. However, if you're going to raise $10 million and you need a larger VC (because the lead investor will have to invest at least $5 million).
The most important question to answer in determining how much money you are trying to raise is how long you need to fund your company to reach the next meaningful milestones. How much time you need varies depending on your company's stage and industry. Most seed-stage companies should be able to make meaningful progress in 12 months. Make sure you raise enough money to get to a point where you can clearly demonstrate that your startup is succeeding. While your target milestones will determine how much you're trying to raise, be careful not to commit to these milestones with investors. You don't want investors to withhold future funding if progress is slower than you anticipated. And you don't want these milestones to be written into the agreement.
Don't try to raise significantly more money than you need. If you do, you could find yourself in a situation where an investor is interested but decides not to invest because they don't believe you can hit your fundraising goal. Investors want to be part of an oversubscribed funding round. The closer you get to your fundraising goal, the easier it will be to get other investors on board. You can always raise more money if you have more interested investors but have already reached your investment goal.
Never try to raise money within a range. Investors don't like to hear that you're raising between $4 and $6 million. They want to know exactly what you need and assume that you are giving a range because you don't actually know. The amount you raise can be a significant factor in an investor's interest in the deal. If The biggest check a VC can write is $2 million, they can't be the lead investor $6 million round. Always be specific about how much you're trying to raise and clearly explain how the amount of time and team members will make it possible for you to achieve the next significant milestones.
Choose the right investors
When you need money, it can seem like any investor is a good investor. Unfortunately, that's not true; investors Have different ways of relating with founders and expectations regarding economics and control. Your relationship with your investors will affect your company's future. You have to deal with them regularly for years, so it's essential to make sure that you're aligned with your investor before taking a deal. It's also important to mention that investors may someday be in a position to replace you with a more experienced executive. This is not necessarily a bad outcome if it's in the company's best interest, but you want to make sure that the people making those decisions are people you like and trust.
The best way to find the right investor is to ask friends and other entrepreneurs you know. You can learn a lot online by visiting investor websites, blogs, and social media channels and looking at the companies they've backed. Try to figure out what types of companies they like and what funding round they prefer to invest in. Some investors, particularly VCs, spend a lot of money on marketing, so it's important to get first-hand accounts from founders they've backed in the past.
If you start to get serious with the particular investor, you can ask for a list of companies they have previously backed. Plan to talk to founders of successful and failed companies to ensure you get a balanced perspective.
Find an Introduction
It can be hard to get noticed by investors when you cold call or email them. By far, the best way to begin a conversation with an investor is through a warm introduction from someone they know and respect.
"VCs are generally bombarded by requests for meetings, so a warm introduction helps an entrepreneur's request float to the top of the list." - Chris Wand, Foundry Group.
You need to start networking if you don't know anyone who can make warm introductions for you. While you develop new relationships, work on growing your business to the point where you become more challenging for investors to ignore. Remember, the more traction you have, the easier it is to get investment.
Nail your high-concept
When you're networking and approaching investors, you need people to understand your company's vision quickly. We call this the high concept summary, a tool to help friends, fans and investors spread the word about what you're doing.
"Summarize your company's business on the back of a business card." - Sequoia Capital, investors in Google.
A high-concept summary communicates your company's vision in a single sentence or phrase. It's helpful to reference something that people already know, like a brand or institution. For instance, YouTube said it was "Flickr for video." Google said it was "organizing the world's information."
Find the simplest way to explain what you do so that people can immediately understand it. When you reach out to investors or people that can make introductions to investors, your high concept will be the first thing you communicate, followed by your elevator pitch. Having a clear and compelling high-concept summary helps you stand out from all the other startups trying to raise money for the same investors.
Master your elevator pitch
When talking to investors, your elevator pitch is a brief introduction to your company. It's worth noting that you will likely have an elevator pitch for customers, which will be very different than your elevator pitch to investors. The most important differentiation is that your customer is interested in buying your product or service, but investors are interested in buying your company. For the investor elevator pitch, focus on your traction, team, product, and customer response.
"I know it sounds a little crazy, but I've come to believe that a clear, compelling elevator pitch is essential to growing a business. And I've paid dearly for the evidence." - David Cowan, Bessemer
Craft your elevator pitch to be 30 seconds or less if spoken and 120 words or less if written. Use your elevator pitch to introduce your company to investors in your first interaction.
Create a pitch deck
A pitch deck is basically a PowerPoint presentation that is shared in PDF format. The purpose of a pitch deck is to communicate your company's story and business model. Pitch decks are used for many things, including sales, recruiting, partnerships and fundraising. It's a potent tool that communicates everything great about your business using words and images and is easily shareable.
A pitch deck is a 10-page PDF presentation with a slide for each of the following topics.
The goal of a pitch deck is to keep your slides simple, so plan to use a size 30 Or larger font. There's no reason to put too many words since pitch decks will usually not be read Word for Word.
"Obey the 10/20/30 Rule of PowerPoint. It's quite simple: a PowerPoint presentation should have ten slides, last no more than twenty minutes, and contain no font smaller than 30 points." - Guy Kawasaki
Check out our course "designing your pitch deck "to get started on yours.
Outline your business plan
Most investors won't ask you for a business plan anymore. In the early days of venture capital, business plans were used the same way pitch Decks are today. It's important to know what kind of investor you're talking to; some early-stage investors would ignore your pitch if you sent a business plan. As a rule of thumb, it's important that you've mapped out your business plan so that you can talk intelligently with investors. Still, developing a comprehensive 30+ page business plan is not necessary.
Side Note: We have a simple business plan course that helps you answer the important questions without wasting time.
Below we outline the most important resources you need to create and questions you need to have answered regardless of the type of investor you approach.
Determine how much you're raising
How much you raise affects which type of investor you approach. If you're trying to raise half $1 million in a seed round, you want to target angel investors, seed-stage VCs, super angels, and early-stage investors. However, if you're going to raise $10 million and you need a larger VC (because the lead investor will have to invest at least $5 million).
The most important question to answer in determining how much money you are trying to raise is how long you need to fund your company to reach the next meaningful milestones. How much time you need varies depending on your company's stage and industry. Most seed-stage companies should be able to make meaningful progress in 12 months. Make sure you raise enough money to get to a point where you can clearly demonstrate that your startup is succeeding. While your target milestones will determine how much you're trying to raise, be careful not to commit to these milestones with investors. You don't want investors to withhold future funding if progress is slower than you anticipated. And you don't want these milestones to be written into the agreement.
Don't try to raise significantly more money than you need. If you do, you could find yourself in a situation where an investor is interested but decides not to invest because they don't believe you can hit your fundraising goal. Investors want to be part of an oversubscribed funding round. The closer you get to your fundraising goal, the easier it will be to get other investors on board. You can always raise more money if you have more interested investors but have already reached your investment goal.
Never try to raise money within a range. Investors don't like to hear that you're raising between $4 and $6 million. They want to know exactly what you need and assume that you are giving a range because you don't actually know. The amount you raise can be a significant factor in an investor's interest in the deal. If The biggest check a VC can write is $2 million, they can't be the lead investor $6 million round. Always be specific about how much you're trying to raise and clearly explain how the amount of time and team members will make it possible for you to achieve the next significant milestones.
Choose the right investors
When you need money, it can seem like any investor is a good investor. Unfortunately, that's not true; investors Have different ways of relating with founders and expectations regarding economics and control. Your relationship with your investors will affect your company's future. You have to deal with them regularly for years, so it's essential to make sure that you're aligned with your investor before taking a deal. It's also important to mention that investors may someday be in a position to replace you with a more experienced executive. This is not necessarily a bad outcome if it's in the company's best interest, but you want to make sure that the people making those decisions are people you like and trust.
The best way to find the right investor is to ask friends and other entrepreneurs you know. You can learn a lot online by visiting investor websites, blogs, and social media channels and looking at the companies they've backed. Try to figure out what types of companies they like and what funding round they prefer to invest in. Some investors, particularly VCs, spend a lot of money on marketing, so it's important to get first-hand accounts from founders they've backed in the past.
If you start to get serious with the particular investor, you can ask for a list of companies they have previously backed. Plan to talk to founders of successful and failed companies to ensure you get a balanced perspective.
Find an Introduction
It can be hard to get noticed by investors when you cold call or email them. By far, the best way to begin a conversation with an investor is through a warm introduction from someone they know and respect.
"VCs are generally bombarded by requests for meetings, so a warm introduction helps an entrepreneur's request float to the top of the list." - Chris Wand, Foundry Group.
You need to start networking if you don't know anyone who can make warm introductions for you. While you develop new relationships, work on growing your business to the point where you become more challenging for investors to ignore. Remember, the more traction you have, the easier it is to get investment.
Nail your high-concept
When you're networking and approaching investors, you need people to understand your company's vision quickly. We call this the high concept summary, a tool to help friends, fans and investors spread the word about what you're doing.
"Summarize your company's business on the back of a business card." - Sequoia Capital, investors in Google.
A high-concept summary communicates your company's vision in a single sentence or phrase. It's helpful to reference something that people already know, like a brand or institution. For instance, YouTube said it was "Flickr for video." Google said it was "organizing the world's information."
Find the simplest way to explain what you do so that people can immediately understand it. When you reach out to investors or people that can make introductions to investors, your high concept will be the first thing you communicate, followed by your elevator pitch. Having a clear and compelling high-concept summary helps you stand out from all the other startups trying to raise money for the same investors.
Master your elevator pitch
When talking to investors, your elevator pitch is a brief introduction to your company. It's worth noting that you will likely have an elevator pitch for customers, which will be very different than your elevator pitch to investors. The most important differentiation is that your customer is interested in buying your product or service, but investors are interested in buying your company. For the investor elevator pitch, focus on your traction, team, product, and customer response.
"I know it sounds a little crazy, but I've come to believe that a clear, compelling elevator pitch is essential to growing a business. And I've paid dearly for the evidence." - David Cowan, Bessemer
Craft your elevator pitch to be 30 seconds or less if spoken and 120 words or less if written. Use your elevator pitch to introduce your company to investors in your first interaction.
Create a pitch deck
A pitch deck is basically a PowerPoint presentation that is shared in PDF format. The purpose of a pitch deck is to communicate your company's story and business model. Pitch decks are used for many things, including sales, recruiting, partnerships and fundraising. It's a potent tool that communicates everything great about your business using words and images and is easily shareable.
A pitch deck is a 10-page PDF presentation with a slide for each of the following topics.
The goal of a pitch deck is to keep your slides simple, so plan to use a size 30 Or larger font. There's no reason to put too many words since pitch decks will usually not be read Word for Word.
"Obey the 10/20/30 Rule of PowerPoint. It's quite simple: a PowerPoint presentation should have ten slides, last no more than twenty minutes, and contain no font smaller than 30 points." - Guy Kawasaki
Check out our course "designing your pitch deck "to get started on yours.
Outline your business plan
Most investors won't ask you for a business plan anymore. In the early days of venture capital, business plans were used the same way pitch Decks are today. It's important to know what kind of investor you're talking to; some early-stage investors would ignore your pitch if you sent a business plan. As a rule of thumb, it's important that you've mapped out your business plan so that you can talk intelligently with investors. Still, developing a comprehensive 30+ page business plan is not necessary.
Side Note: We have a simple business plan course that helps you answer the important questions without wasting time.