How to structure a startup fundraise

Raising money for your startup is part art and part science. In this post I'll dive into the science portion, which I like to call: creating a fundraising process.

(Quick note: this is meant to be a quick overview & is by no means comprehensive. There’s more than one way to organize a raise - this is just a common strategy employed by many founders. It’s also important to note that a process won’t help much if you don’t have a great story & a VC backable business)

What is a fundraising process?

A fundraising process is way to prepare, plan, and organize a fundraise and increase your chances of raising. A fundraising process consists of three phases:

1. Preparation & planning: ~8-16 weeks

2. Time bound investor pitches: ~2-3 weeks

3. Closing the rest of the round ~2-4 weeks

Below I'll break down what goes on into each of these steps, but before that…

Why you should create a process

The key to raising money quickly is creating urgency & FOMO . That's because (generally speaking) investor's fear missing out on a great deal. Urgency & FOMO is possibly the BEST leverage a founder can have to quickly raise money.

Most founders approach a fundraise without a process & take meetings with investors whenever they can get them (does this sound like you?). Investors can tell when this happens, and they realize there's no reason for them to commit early. Instead they'll tell founders to come back when they hit arbitrary metrics or just tell founders to 'keep them posted'. An organized fundraise helps manufacture urgency and increases your chances of hearing YES or NO.

Quick anecdote: when I raised for my last company we had ~50 pitches without raising from a single institution. Many of these folks said to come back when we hit certain metrics or were raising another round. A month or so later we manufactured urgency & were in the midst of a competitive round. Many of those same investors who claimed to be looking for certain metrics, ultimately gave us money even though our traction materially did not change. So what made them invest or reconsider? Urgency & FOMO.

Phase 1: Preparation and Planning (8-16 weeks)

Your goal in this phase: Book as many investor meetings in a 2-3 week window as possible

How you get these meetings

1. Warm intros: you need to build a network of founders, investors, and startup people who can make warm intros to investors. Most warm intros are double opt in, meaning someone forwards an investor your deck + a blurb about your startup and the investor opts in to meet you. When someone agrees to make warm intros for you, be prepared to send them an email with your deck + blurb to make it easy for them to forward.

2. Cold outreach: many of you (like me) won't have great network in tech when you start a fundraise. You'll need to reach out and get people interested in what you're doing. The best place to reach out to investors/founders is Twitter. IF YOU’RE NOT ON TWITTER, GET ON TWITTER NOW. LinkedIn and cold emails are significantly less effective for cold outreach to investors (especially LinkedIn). Below is an example DM that worked really well for my last startup. (I’ll probably do another post about outreach if this is helpful, lmk)

p.s. Roham actually invested in my last company! I promise you this works.

How to prepare

1. Create a list of the VCs that invest in your market: a spreadsheet with every investor you can identify will be very useful. Here's an investor list to help you get started and find investors (shout out to Trace Cohen). Twitter threads like this are also GREAT for finding investors.

2. Find fundraising sherpas: fundraising sherpas are founders who have raised a bunch of money from the kind of investors you want. Founders generally love helping other founders. Before you go out to raise, befriend a bunch of founders on twitter and try to find 1-3 that will make intros & guide you through the fundraising process. These people will be there to help you not fuck up when it’s most important.

3. Create a spreadsheet with all the people who can make introductions for you: create a list of all the founders, investors, & tech employees you know. These should be people you have a genuine relationship with & are bought into your companies vision. As you catch up with these people, ask them who they can introduce you to. DON'T ask them for intros right away. Instead create an organized spreadsheet with WHO can introduce you to WHO. You’ll save the best warm intro’s for right before your 2-week fundraising window.

4. Understand the different fundraising documents & how raising money works: you should know what a SAFE does, what convertible notes do, what a priced round is. This stuff isn't fun, but not understanding the fundamentals can fuck shit up when you're actually pitching. Know the basics. A couple great books to learn the basics: Venture Deals & Secrets of Sand Hill road. At the end of this post I’ve also listed a bunch of helpful resources.

5. Prepare the right materials: prepare your deck, forwardable blurbs, investor documents, 1-pagers, and any supporting materials you need to pitch your company. I highly recommend you raise your pre-seed or seed rounds using the standard YC SAFE. You can raise millions in 24-48 hours via a SAFE. My lead investor in my last company signed a SAFE and wired us $1.5M within days.

6. Raise small checks from angels: There are tens of thousands of angels. Angels write checks from $1-25k in size and can be found on twitter. We raised ~$200k from angels and most of the time it took 1 meeting for them to make a decision and wire us the money that same day/week. Our small checks made dozens of introductions to great investors. These angels are often founders, investors, and tech people (PMs/engineers are tech companies).

7. Create a catalytic event: a catalytic event is something gets investors talking about your company. This could be a launch, a viral tweet, an article about your company in the NYT/tech crunch, etc. For our startup, we created a launch event which was a series of video calls starting Nov 23 2020. At first no one cared about our launch, we sent HUNDREDS of twitter DMs to investors/tech twitter asking them to sign up for our launch & to tell us if our product sucked (literally was my wording lol). By Nov 23 we had about 150~ signed up for the launch. These were mostly investors/angels/tech people and they started talking about our company. Our launch on our shitty broken MVP was the catalyst for our fundraise. If you can time your catalytic event to happen around the same time as your 2-weeks of investor meetings you significantly increase your chances of getting a termsheet. This makes sense. Because many of the investors you have booked during this 2-week window will now be hearing about your startup from the catalytic event you planned.

At the end of your preparation phase you should have some angel money & a spreadsheet with all of the people who can introduce you to investors. It's safe to assume that 20-30% of your warm intros will convert into meetings. Remember: during phase 2 you want at least 20 meetings over 2-weeks. During our 2-week fundraise we had 30+ meetings a week. The more meetings the better.

Below is what a REALLY great week of meetings looks like. Shout out to Bruno Faviero for sharing this. Check out his thread here. 

Phase 2: Time bound investor pitches (2-3 weeks)

Your goal in this phase: GET A FUCKING TERMSHEET!!!!!

If you've prepared well you should have at least 20-30 meetings booked over 2-weeks. Having back to back meetings will give you more leverage going into meetings. It will also signal to angels/investors that you are organized and know what you're doing.

Your focus should be getting your first termsheet. It doesn't really matter who that first termsheet is from. Once you have your first termsheet, leverage that termsheet against the other investors you're speaking with and get a 2nd. If you get 2 termsheets you're off to the races and have a good shot of being in the midst of a competitive round.

At the end of this 2nd phase you should have a lead investor. A lead investor will fill out at least half of your total round. Assuming you're raising $2M, a lead will invest $1-1.5M.

What do you do if you don't get a termsheet during the 2nd phase?

If at the end of your 2-week fundraising window you don't have a termsheet, end the process and STOP fundraising. Go back to the drawing board, figure out what was wrong with your pitch & how you positioned your company. You're a founder, you're gonna face tons of failures along the way. Be self-aware and learn from them. It’s better to re-evaluate and try again with a new traction and a new story. In my experience, just continuing to take meetings without success is worse than stopping and trying again. You can always run another process.

Phase 3: Closing the rest of the round

Your goal in this phase: fill out the rest of the round with great people.

If all went well in phase 2 you should have a lead investor and most of your money already in the bank. The rest of phase three will be devoted to you filling out the rest of the round.

During our 2 week time bound investor meetings, we got our lead investor to put in $1.5M and had an additional 200k from angels (total of $1.7M). We spent another 3 weeks through December taking checks from awesome angels/strategic funds that we wanted on our cap table.

Once you have your lead investor you have A TON of leverage. Everyone wants to follow on. You can be really choosy and pick great people to have on your side.

Closing out the round can be the hardest part because you're mentally exhausted from pitching to get your lead. Stay strong and get the rest of the money in your bank account.

At the end of phase 3 you'll have finished your fundraise. In our case we closed out an additional 500k from some really great founders & funds we liked. These later checks were some of the more valuable ones from impressive people. In total we had 15 investors on our cap table. (Note: we ended up taking an additional couple small checks from founders and VC funds over the following couple months)

Closing thoughts

Like I said at the beginning, this strategy isn’t one size fits all & is by no means the only way to successfully raise money. What I’m trying to emphasize is how important it is to approach a raise with a well thought out strategy. Startup founders have a tendency to take quick action & deal with the consequences. This is great for iterating on products & getting momentum. But I assure you, strategy goes a long way when it comes to raising money.

Best of luck with the raise - feel free to reach out to me at [email protected]

Other AWESOME resources related to process & fundraising

Evaluate your startup idea first (YouTube) - Kevin Hale from YC talks about evaluating startup ideas

Learn about SAFEs and Priced Equity Rounds (YouTube) - Kirsty Nathoo, YC partner, talks about SAFEs and how they work.

Paul Graham created a fundraising survival guide (Essay)

The Techcrunch List (investor list)

CooleyGO Startup Documents (early stage startup docs + explanations on what the docs do)

The YC Guide to building your seed deck (pitch deck template)

YC Process and Leverage in Fundraising (THE OG FUNDRAISING PROCESS GUIDE)

Celine Halioua's Seed Raise Guide (Founder's account of her $11M seed raise)

Twitter threads about a fundraising