The Ultimate Guide to Start-up Funding

By
Published
December 2, 2021

No matter how big your company, there’s one essential skill you need to master as a start-up founder: How to raise funds.

We’re here to help you. 

We’ve designed this comprehensive guide to walk you through the whole fundraising process for a growing start-up: From pre-seed funding to closing larger rounds later on in your start-up funding process. 

You’ll learn how to prepare yourself and the company for fundraising, find potential investors and make the most out of these valuable meetings. 

Let’s not waste time. Jump straight to the section that’s most useful to you: 

Part 1: What is start-up funding? 

Part 2: How does the start-up fundraising process work? 

Part 3: How you can prepare yourself and your company for the fundraising process

Part 4: Finding potential investors

Part 5: What you can do to make the most out of your meetings with investors 

Part 6: Choosing the right investor for your company

Part 7: Closing the investor deal 

Part 1: What is start-up funding?

Start-up funding is the process of obtaining money from external parties to start or grow an existing business. 

Three ways raising funds can help grow your start-up

1. More upfront cash enables you to scale quickly

Speed is crucial for start-ups. 

Closing a funding round means an upfront cash infusion to scale your business. Quickly get the resources to hire the right talent, invest in product development or expand into a new market.

2. Securing funding from prominent VCs lends credibility to your start-up

When an investor is willing to give you a large sum of money to build your business, it’s a vote of confidence that your start-up is on the right track. Being linked to prominent investors gives you credibility and usually leads to significant media coverage. 

3. Investors come with other intangible resources beyond money

Investors come with their professional expertise and networks that can help you grow your business even more beyond the cash injection. 

These investors can serve as business advisors, and introduce you to business development or talent acquisition opportunities. They can also make warm introductions to other investors.

How does start-up funding work? 

Start-up funding rounds typically involve two parties.

  • The individual looking to raise funds for their start-up:
    This responsibility usually falls to the founder and CEO of the company or a founder in charge of fundraising.

    Start-ups go through various funding rounds as the business matures: From pre-seed to Series A and beyond. Each round progression involves more significant sums of money and a bigger pool of investors. With each round, the founders of the company give up some equity and ownership of the company.

  • The potential investors looking to invest in promising start-ups:
    Some investors invest in promising companies because they genuinely believe in what the start-up wants to accomplish. They also seek returns from their initial investment.

    Investors gain partial ownership of a start-up from their initial investment. If the company becomes profitable, the investor can earn ongoing profits depending on the business’s success. 


“Investors evaluate start-ups the way customers evaluate products, not the way bosses evaluate employees.” Paul Graham.

Comparing the different methods of funding a start-up 


Let’s have a look at the advantages and disadvantages of some common start-up funding methods

1. Friends and family

What: People you know with some money on the side. 

Pros: Easy to access

Cons: 

  • You mix business and personal life, possible conflict of interest.
  • Not as well-connected as angels and venture firms.
  • These are usually unaccredited investors, which can complicate matters if your start-up makes it to the initial public offering (IPO).

How to find them: Personal introductions

2. Angel investors

What: Individually rich people

Pros: 

  • Angel investors are usually veteran entrepreneurs with their business expertise and professional networks.
  • Shorter closing time and more straightforward due diligence compared with VCs.

Cons:

  • Investment amounts are usually smaller than institutional investors. 
  • Fund-raising through angel investors doesn’t prepare you for a more process-driven fundraising process with institutional investors.

How to find them: Personal introductions, warm introductions, network with other successful founders.  

3. Seed funding firms

What: Seed firms invest small amounts at early stages. They invest as a company and not as individuals like angel investors. Seed firms are also known as start-up incubators or accelerators. 

Pros: 

  • Easier to reach than individual angel investors.
  • A standardised investment process can avoid unreasonable terms.
  • Provides ongoing advice and support on growing your business.

Cons: 

  • May distract from running your business as you’re encouraged to participate in social events.
  • Not all mentors you meet may be relevant for your business.

How to find them: Search for curated lists and databases like Map of the Money and Aspire’s investor glossary.

4. Venture capital funds:

What: Venture capital funds pool investment money from private investors to invest in high-growth companies. 

Pros: 

  • Larger investment amounts.
  • Potential for improved professional network and credibility, especially for more well-known VCs.

Cons: 

  • Challenging to get and more complicated agreement terms.
  • Founders have to give up some control to investors.
  • May need to set up a formal reporting structure and company board of directors, impairing the decision-making process.

How to find them: Warm introductions, cold pitching, participating in start-up incubator programs. 

When should you start approaching investors to raise funds?

Extra funds are always useful but generally, investors aren’t waiting to give you their money. That’s why timing is crucial. Look out for these four indicators to smoothen the fundraising process. 

  1. You see strong business traction: It’s easier to pitch your business when you’re doing well. Potential investors like to see signs of solid business traction in the market and growth figures.
    If you see increased demand for your product and services, and it’s tough to meet it based on your existing resources, you’re in an excellent position to raise additional funding.

  2. You have at least 8-12 months of financial runway: Ensure your business has enough money in the bank so you can approach investors from a position of confidence.

  3. You have the time to commit to fundraising: Raising funds takes longer than you expect. During this time, you’ll need to juggle running your business with approaching investors, pitching and doing paperwork. This can be draining on top of your business responsibilities.

  4. You have a clear vision for the next phase of business growth: What do you plan to do with the funds? Fundraising is persuasion and investors are more inclined to write checks to confident founders with a real opportunity in the market and a clear plan forward.

 Source: Lenny’s Newsletter

How much should you aim to raise? 

With each funding round, you should aim to raise enough money to get to the next phase of your company’s growth. To figure out how long that’s going to take, think about what company milestones you need to hit before your next funding round. On average, it takes 12-18 months. 

Aim for a growth milestone like customer acquisition, or a product development milestone like a product launch in the next six months.

You could also aim to raise enough money to reach profitability. Doing so increases the time between funding rounds to focus on growing your business. 

Part 2: How does the fundraising process work?

A start-up goes through multiple funding rounds, typically securing more funds as they grow. 

Types of funding rounds for start-ups:

Pre-seed

Investor type: Angel investors, start-up accelerators, crowdsourcing, friends and family 

Product stage: Pre-product

Spend on: Prototyping and minimum value products (MVP). 

Seed

Investor type: Angel investors, early-stage VCs, start-up accelerators

Product stage: Early signs of traction and product-market fit 

Spend on

  • Exploring a business idea, finding product-market fit, and product development.
  •  Hiring the first team members beyond the founders.
TIP: Pick your seed funder carefully. They lay the foundation for future funding rounds by making the proper introductions or steering your business in the correct direction.

Series A

Investor type: VCs, super angels

Product stage: Accelerating initial growth and initial product-market fit

Spend on: Improving sales and marketing processes, catering to an ideal customer 

Consider going for this round after you’ve found a few key customers in your market and once you’ve demonstrated you have an initial product-market fit.

Series B

Investor type: VCs & late-stage VCs

Product stage: Scaling 

Spend on: Expensive hires, expanding into other markets and experimenting with different revenue streams

Series C and beyond

Investor type: VC, banks, private equity firms 

Product stage: Large-scale operations

Spend on: Acquisitions, moving into new markets 

Common fundraising questions for early-stage start-up founders

How many investors do I need to contact to close a funding round? 

An average funding round involves about 50 meetings with investors. To increase your chance of success, prepare to reach out to 60 tailored investors and funds with relevant industry backgrounds.

How many times should I expect to get rejected? 

Get ready to hear a lot of “no’s”. If you aren’t ready to hear at least 50 rejections, you should think carefully about whether you’re ready to fundraise. 

Fortunately, there are ways to reduce this number. Work on getting to know investors early on in the process, prepare a strong pitch and ensure your business traction excites investors. 

How does one fundraising round work into the next? Will I be doing this forever? 

Don’t worry, you won’t be doing this forever. Each funding round should be sufficient to help you realise your next business milestone and provide enough financial runway for the next 12-18 months of operation. Every stage of fundraising denotes a new stage of company growth, more capital raised and a more mature organization. 

How can I eventually make gains from fundraising?

As a startup founder, fundraising successfully gives you a money injection to quickly grow your business. You and your co-founders also have a stake in the company (also known as equity) which dilutes as you bring more investors on board during fundraising. 

Besides your ongoing salaries from company profits, you and all other shareholders eventually make a profit when they sell part or all of the ownership in the company. 

There are two common scenarios

  • Going public during an initial public offering (IPO).
  • Getting acquired by another company during a merger and acquisition (M&A).

Consider how you want to ‘cash out’ on your company and build your company in that direction. For example, if you’re targeting an acquisition, you need to think about building a company that’s a valuable asset to an acquirer. 

Part 3: Preparing for the fundraising process


Now you know why you need the money and where to get it, it’s time to get you ready for some action. First of all, you need to prepare well, because a successful fundraising cycle always starts with thorough preparation.

How long it takes for you to get funding, depends on how well-prepared you are. Below, you’ll find some of the items you should take care of before you start reaching out to potential investors.

Have a clear answer on why you want to raise funds

Why do you want to move to the next funding round? How will the investment help your business capitalise on its current growth? 

Having a compelling reason behind your fundraising campaign will put you in a stronger position.

TIP: Look at the typical ways start-ups spend their funding round money according to the stages above to get inspired. 

Plan out your high-level funding goals 

To have a clear idea of what you want to achieve with each funding round, ask yourself these three questions: 

1. How much do I want to raise and at what target valuation?

Assuming your next fundable milestone is in 12-18 months time, look at your average monthly burn rate, or how much you’re spending to stay in business. Include six months as a buffer for unexpected costs and marketing costs to both grow your business and close the funding round.

Also think about how much you need to spend to achieve your next business growth milestone. Include costs for hiring, research and other operational needs. 

Use the development stage valuation approach as a quick and easy way to give yourself a target valuation. This model assesses your business’s valuation based on your progress.

2. How much time do I give myself to close the funding round? 

The typical start-up fundraising process takes about three to six months. But depending on the round you’re raising, add extra time to sort out paperwork, legal agreements and other documents. Set a timeline based on your available financial runway, internal priorities and the time you have for fundraising. 

3. How will I track and measure my progress? 

Think like a project manager and commit to the process. Build a tracker to measure your progress. See example trackers from Notion and investor Lenny Rachitsky’s Google Sheets template

Develop the personal characteristics investors look out for

When trying to raise more funds, it’s not just about your business and product, it’s also about you. During your pitch, potential investors look for specific features. Be aware of the energy you’re projecting during all communications with potential investors.

Certain qualities indicate a start-up’s future success for investors: 

1. Clear thinking and concise communication 

Can you communicate your business model to your employees, customers, partners, and investors? Are you capable of fielding challenging questions while being respectful? 

Serial entrepreneur and investor Nick Grouf acknowledges achieving this conciseness is difficult. But achieving this clarity helps you identify potential challenges and avoid million-dollar mistakes later in your company’s life cycle. 

2. Leadership skills and personal connection to the product you’re building

Investor Marc Andreessen wants to understand why the founder created the product. 

“Usually the first question I ask is "What inspired you to create this product?"—I’m hoping that it’s based on a personal problem that that founder had and this product is the solution to that personal problem.”
(Source: How To Raise Money

3. Intellectual integrity: 

Nick Grouf also looks for academic integrity and self-awareness. He prizes people who can introspect, understand their strengths and weaknesses, and aren’t afraid to be vulnerable in professional situations. 

Compile your key business metrics and wins

Yes, your vision, product and personality are crucial. But investors also care about numbers. They invest in a start-up’s potential, and the best way to gauge that is with metrics

Find data points that will get your investors excited about your business. 

  • Growth rates
  • Revenue numbers
  • Customer testimonials (even better if they are market leaders in your customer segment. If you’re raising a pre-seed or seed round, show early feedback from your initial customers).
  • Achievements: Did you launch an essential product or surpass a certain amount of traction? Make it clear in your materials. 

You’ll want to continue showing business traction during the fundraising process as investors can ask you for updated numbers towards the end, and you want to avoid shaking their confidence. 

Putting it all together: Crafting a strong investor pitch

What are the stakes of making an investment for a VC? 

As we’ve seen, the chances of receiving a round of funding are pretty slim. There’s a good reason for this.Each partner at a fund only makes 1 to 3 early-stage investments per year. 

Their career is tied to how well these investments perform. That’s why investors are typically skittish about any start-up that comes to them asking for funding. You need to show that you’re confident about using their money to bring your business to a new level. 

Storytelling elements are key

Pitches delivered as stories can be up to 22 times more memorable than just facts

When pitching, your audience doesn’t remember data and figures, especially when presented with cold data points multiple times a day. They do, however, recall a compelling story with critical characters, drama, and emotion. Use the materials you’ve prepared to weave storytelling elements into your pitch. 

Three types of investor pitches to prepare 

1. Your one-sentence pitch

Explains what your product does in one sentence to help the investor picture the product in their mind

A great example structure from The Founder Institute

“My company, name of the company, is developing a defined offering to help a defined audience solve a problem with secret sauce.”

2. Your 30-second pitch

Start a conversation about your company in three sentences:

  • 1st sentence: Explain what your company does in a simple, straightforward manner. Think of it as explaining to your parents or a sibling what you do in one sentence.
  • 2nd sentence: Explain how ample your market opportunity is.
  • 3rd sentence: Explain how much traction you have? Think about your revenue, sales, or user numbers. For example, “We launched this in May, and we’re seeing 50 percent month-on-month growth”. 

3. Your 2-minute pitch

The 2-minute pitch is similar to the 30-second pitch but with a few additional components: 

  • What’s your competitive advantage? What can you do better than the competition? Condense all the reasons that make you stand out from the competition in two sentences. 
  • How do you make money? Explain in one sentence. 
  • Information on your team: Emphasize your team’s accomplishments and experience. For example, if you’re the founders of a high-growth company or if you’ve held senior positions in a notable company in your space, call these out.
Other things you want to mention here:

1.  How many founders your team has.

2. How long you and your founders have known each other.

3. What’s your ask? How much money are you raising, and what form does that money take? Are you raising on a convertible note or a simple agreement for future equity (SAFE)? Do you know your minimum check size? 

What presentation materials should you prepare for a pitch?

Spend at least a month building out your presentation deck and supporting materials. You will need time to tweak your start-up’s narrative and let your points materialise.

A short blurb about your business

Include the one-line summary of what your business does and highlight your crucial impact metrics in a clear, bold manner that shows your business is doing well.

Teaser deck (3-8 slides)

Send this to your potential investor ahead of a meeting. Be careful not to share everything with your VC before meeting your lead partner. 

Longer presentation deck (12-15 slides) 

Use this as your main deck for in-person or virtual meetings.

2-3 year business forecast post-fundraise

What happens when you do get the money? Show your business projections post-fundraise for your potential investor. 

11 elements to include in your investor pitch and pitch deck

  1. What are you building? Describe your product or service and how it’s precisely what your target customers need.
  2. Why are you building it? What problem are you solving? Tip: Tie this to a personal reason for a unique problem you faced and explain how your solution helps solve that issue. 
  3. Why are you the best team to build this solution? Describe your unfair advantage over the competition.
  4. What’s your current business traction? Show your growth numbers. 
  5. How will your current strategy capture market share and business revenue in the future? Tip: Speak to the broader trends happening in the world that you see as an opportunity for your business strategy. 
  6. Business model: How do you make money? 
  7. Describe your marketing and sales strategy.
  8. Describe your founders and key team members.
  9. High-level financial details. Show charts that describe your sales figures, total customers, profit and expenses breakdowns.
  10. What are you asking for? 
  11. What are you going to do with the money? How would your business change after an investment? 

Test your pitch with an audience before reaching out to potential investors

Investor Lenny Rachitsky recommends you take time to test your pitch with live audiences. Prepare your materials to 70% completeness, then find people to practice your pitch. 

Speak to fellow entrepreneurs, friendly investors or other people in your network to test your materials and pitch. It’ll build your confidence and provide helpful feedback on how to improve your pitch before going into real meetings. You may also get introductions to relevant funds.

Creating your pitch deck

Five tips to give your pitch deck the best chance of success 

  1. Keep it simple: Use the golden rule of presentations: One idea, one slide. You want your slides to convey simple, high-level concepts that are easy to grasp and leave room for questions.
  2. Use large fonts and images instead of excessive bullet points.
  3. Weave stories into your pitch and use your deck to illustrate critical moments, emphasise the pain of a problem or build excitement in your account.
  4. Keep your deck up-to-date during the fundraising process.
  5. Your deck should stand alone without your presentation. Investors will evaluate it before and after your presentation. You want to ensure it can communicate a message without you being there to present it. 

Examples of winning pitch decks

OpenDoor Series A

WanderJaunt Seed Round

Piktochart’s 30 best start-up pitch deck examples

Documents to prepare post-investor pitch 

These are the appendixes to your high-level pitch deck. Investors may or may not ask for this information, but it’s a good sign when they do. 

1. Executive summary of your business 

The first document you’ll need is a two-to-three page summary of your business for your investor to share with others in their firm. 

2. Technical documentation

If you’re a tech company, investors may ask for more information on your technology. Prepare your documentation, workflows, and diagrams.

3. Detailed financial information

This is the meat behind your high-level financial forecasts. Investors keen on investing will want to do their due diligence by examining your plans for expenses across your business functions. 

4. In-depth market research 

Further market research should support your points and validate your initial market research on your market size and competition.

Part 4: How to find investors to raise funds

Ok, your business is ready, your pitches are ready and you’re feeling confident. Time to meet some founders. But first, you need to find them. 

Treat the process of finding investors like going through the sales funnel. It’s a mix of carefully nurturing connections, finding out whom your network knows, and putting yourself in a solid position to meet people who invest and are interested in partnering with you on your business. 

Step 1: Planning your outreach process 

A meticulous organisation of every step is critical, so start at least 6-12 months before the fundraising process. 

Approach this like a project manager, planning each step intentionally and methodically. 

First, you want to prepare a tailored list of investors who are potential lead investors before you start reaching out to them.

Where to meet investors 

  • Find investor profiles on Crunchbase.
  • Ask your current investors (for Series A and later) for introductions.
  • Attend start-up events like pitch competitions and demo days.
  • Ask your personal and professional networks if they can provide a warm introduction.
  • Enroll in accelerator and incubator programs.
  • Pitch private investors.

Deciding when to fundraise: Avoid these timelines when planning your fundraising season

Avoid summer holiday periods and mid-November towards the end of the year. This is when venture capitalist firms typically start to slow down. So make sure you start well before these periods. Finishing your fundraising process at those times shouldn’t be a problem. 

Step 2: Identify and build a list of the right investors

Aim to make a comprehensive list of potential lead investors. Remember you’ll need about 60 meetings, but don’t just add anyone, take this into account:

  • Industry expertise: Look for investors who have prior experience in your company’s industry and understand the nuances of the market you’re targeting.
  • Investment category: Find investors who invest in your round type. For example, look for investors focusing on raising seed funding if pitching a seed funding round.

Once you’ve got a list of about 60 funds, identify the partner you’d like to work with at these funds. 

Don’t be afraid to get specific here. You want people with relevant industry backgrounds and who can make an investment decision about your company.

Once you have your list, go through your personal and professional network to see if you know people who can make warm introductions to these target partners. Look out for fellow founders within that fund’s existing start-up portfolio who are doing well. 

What is a warm introduction, and why is this important?

A warm introduction is when the founder has an existing relationship with an investor or when someone with a current relationship makes an introduction. Potential investors come with more interest and excitement if they are referred by someone they already have a solid pre-existing relationship with. 

Warm introductions to a VC make a significant difference in your chances of getting funding. Data from VentuRank shows companies with a friendly introduction to a VC had a 26% chance of getting to an investment committee and a 4.6% chance of getting funding. 

Companies with cold introductions, in comparison, only had a 1.19% chance of getting to an investment committee and a 0.38% chance of getting funding. 

Image source: VentuRank

Step 3: How to ask for warm introductions from your network 

Warm introductions give you a big boost but you still need to do most of the work yourself. Write a concise email introducing yourself and your company for your contact to forward to your person of interest. This email helps your reference provide context for your target investor on why a meeting would benefit both of you. 

What to include in an introduction email

  • Clear subject line. For example: “Introducing (Company Name) and (an attention-grabbing hook)”. 
  • Thank the person for the introduction and specify which partner you’d like to be introduced to.
  • Include your ask: usually a quick call or a meeting. 
  • Your company elevator pitch.
  • Attach your pitch deck.
  • Contact information.

See Oracle’s example of how this email should look. 

How to build relationships with investors if you don’t know anyone

What if you don’t have any potential connections who can introduce you to potential investors? 

It’s still possible to raise funds without any start-up connections.

  1. Ask friends who are entrepreneurs to introduce you to their investors and professional network.
  2. Meet new people at conferences and networking events.
  3. Ask people going through a start-up accelerator or incubator program.
  4. Enrol in a start-up boot camp.
  5. Cold email potential investors.
How to write effective cold emails to investors


1. Keep it short:
Your email should take no more than 60 seconds to read.

2. Include your pitch elements into your cold email:
For example, your solution, the problem you’re solving, your competitive advantage, information on your team growth and traction.

3. Avoid immediately asking for an in-person meeting:
focus on sparking the investor’s interest, so they want more information from you.

4. Don’t send multiple follow up emails:
use tracked opens to gauge their interest.

5. Describe what your company does and show traction:
Even if you’re cold-emailing them, investors will be more excited to meet with you if you can showcase your business wins and milestones.

Step 4: Building relationships with potential investors

What if you’re preparing for a fundraising round in the long run but don’t know enough potential investors? 

Pick a series of three to five investors with whom you want to build relationships and ask them to meet casually. Avoid sharing everything about your business during these meetings, but share an overview of your revenue and growth numbers organically.

Here, you want to focus on keeping these relationships warm and supply them with updates on your progress so your potential investors can keep you top-of-mind when fundraising season rolls around again. 

Tip: After the meeting, put your discussion items in writing and send a summary to the potential investor. 

Meeting investors as a female founder

Does the start-up funding experience change when you’re a female founder? 

Unfortunately, yes, it does. 

The venture capital industry is 95% male. Harvard Business Review reports women-led start-ups in Southeast Asia received only 16.5% of VC funding in 2020 from a total of $8.6 billion raised. 

Yet, the scene isn’t all doom and gloom for female start-up founders. Data from PitchBook shows that United States venture-backed companies with a female founder or co-founder took in $25.12 billion in the first six months of 2021, surpassing other years. 

While the investment space is currently in flux, this means that as a female founder, your experience fundraising may differ from men. So what can you do about it

  • Approach female VCs or lookout for investment funds that feature women in senior positions: Note that the preparation steps still apply here to get a chance at speaking to any investor, regardless of gender.
  • Work on your storytelling skills & know your material/numbers: You may not be able to influence how a VC perceives you. But you can focus on wowing people with your pitch and the passion for your business. 
  • Look out for other female founders who have fundraised: They can introduce you to investors whom they’ve personally vetted to be supportive of women-led businesses. Find networks like She1K that connect corporate women, angel investors, and female start-up founders in Singapore. 

Part 5: Talking to and meeting investors

Now that you’ve got all your materials ready, it’s time to prepare you for dealing with investors face to face. We’ll also explain how to coordinate your outreach for maximum effectiveness. 

Coordinate your outreach 

Aim to have first meetings with all your shortlisted investors within a 2-3 week period. 

Keeping this tight timeframe is crucial as you want all your funds to navigate the outreach process along a similar timeline for information and completing due diligence. This will help you evaluate your funds evenly, when they are keen and come back with a term sheet.

Track your progress:

Build a tracking template to track your progress and log each meeting with each investor. Investor Lenny Rachitsky has a handy Google Sheets template that can help you track all relevant information. 

Prepare a plan of action at each step during the outreach cycle

  1. First pitch meeting: Pitch to an investor and answer their questions. Remember to send your pitch deck in PDF format in advance and prepare a product demo if relevant.
  2. At the end of the first meeting: Get clarity on the next steps and timelines. Find out what due diligence is necessary to build their confidence and what parts of the business they resonated with. Make sure you walk out of these meetings knowing what’s supposed to happen next.
  3. Waiting period: Aim to stay top of mind in your follow-ups. Write information-rich emails that help the potential investor understand what you’re doing and why you’re doing it. If there's no interest after more than a week, it’s better to de-prioritise those potential investors and focus on the ones who are responsive.
  4. Second pitch meeting: This may be similar to the first meeting, only involving a second partner who becomes the second pair of eyes for the budding partnership. Use the same format as the first meeting. If possible, confirm what your fund partner needs from you to help them with their due diligence in your initial meeting to help move the process forward.
  5. Due diligence: During the diligence phase, investors will take a deeper look into your numbers and business metrics here to validate the opportunity. Have your customer references, detailed business and financial projections ready. This is also the best time to get to know your VC partner and if they’re a good fit for your business.
  6. Partner meeting: If you’ve made it here, the partner you’ve spoken to is convinced but now needs to convince the rest of their team. Treat them like you’re on the same side, strategise and think with them about how to best present your business to persuade the others. 
  7. Negotiation and decision-making: You’ve done all the work. Now it’s time to wait for a decision from your potential investor. The next step either looks like a term sheet offer where you may negotiate, or your potential investors decide not to proceed. 
Note: Due diligence can happen either before or after participating in partner meetings, but it’s done before you and your investors agree to terms and close the deal

Keeping yourself motivated during the highs and lows 

Fundraising is a gruelling process, during which you’ll question yourself and the value your company is creating. 

Use these tips to stay motivated during the highs and lows of start-up fundraising:

  • Prepare for silence or rejection: Some investors may not be interested in your company or understand what you do. Remember that your goal is to find those keen to help you achieve your business’s vision.
  • Get ready for a high failure rate: Y Combinator estimates you need to speak to 30 funds to get one term sheet. So expect to fail with more than 90% of the funds. Treat this as part of the fundraising process, temper your optimism with conservative expectations.
  • Take care of yourself: Keep your mental, emotional and physical health in check. Fundraising will test your resilience, and you need to find ways to process all the emotions that come with repeated rejection. Have a close friend or fellow founder on hand to vent, and keep your mind focused on what you can do to make progress with other funds.

Continue working on your start-up during the fundraising process

Raising money can take up the majority of your time. It can also take longer than expected. But you still have a company to run. One of the risks with fundraising is that you start neglecting your business which will ultimately harm your fundraising process too.

How do you balance both demanding responsibilities without getting burned out? 

Prioritise your company over investors. If you have a co-founder, you can discuss a temporary handover of your operational responsibilities for you to focus on fundraising. Prioritise business success and keep your company moving while fundraising.

If you keep growing the company during your investor outreach process, it will increase your attractiveness to potential investors, and you’re more likely to have productive conversations. 

Releasing new features, signing and onboarding new customers, and getting more outreach done means more growth for your company, and it will help with morale. 

Consider adjusting your schedule to free up more time for fundraising and communicate this to the rest of your team. 

  • Reduce your time spent on one-to-one meetings with your direct reports: Keep them effective by structuring your meetings with written updates so you can still keep these meetings effective. 
  • Keep your team updated on the process: You’re likely to be around less during fundraising, and your team may feel curious or anxious about how this process is going. Look at assembling all-hands meetings, town halls or conduct ask-me-anythings (AMA) to address their concerns.
  • Say no to spontaneous help requests and reduce the instances where you become the operational bottleneck: Review all the processes you’re involved in, from making payments to approving access to software tools or authorisations.

Can you delegate some responsibilities to another team member so you can focus on other priorities? Encourage your direct reports to gather all the help requests they need and raise them at your one-on-one meetings. 

Part 6: Choosing the right investor for your start-up

You’ve done the hard work, pitched the investors on your list, and you’ve shortlisted a bunch of potential investors that you’re keen to work with. Which one is the right one for you? 

Choosing your investors is a crucial decision, as they will be with you and your business as partners throughout the rollercoaster ride that is building a start-up. You want someone you can trust, respect, and work with. 

Bringing a lead investor on board, especially when you’re past the Series A and B stage, marks the beginning of a 10-year relationship with them. During those ten years, they will have a say in how you run your company. Take the time to get to know them seriously. 

While you’re speaking to potential investors, form some pre-qualification criteria for your ideal investor. 

Some example criteria: 

  • They have expertise in the domain of your company.
  • They have existing connections to help you make introductions for either business development or pave the way for your subsequent funding round. 
  • They are someone you can respect and learn from, and you trust them to get involved with your company.
  • They respond to failure or stressful situations in a positive way.
  • You can be honest with them.
  • You share the same goals, understanding, and ethical views.
“The choice of key investors, of particular investors who are going to be on the board for a company is just as important as who you get married to. These are people you are going to be living with, partnering with, relying on, and dealing with in positions, in conditions of great stress and anxiety for a long period.” - Marc Andreessen

Part 7: Closing the investor deal

You’re now in the last stage of start-up fundraising.

First, pat yourself on the back. You should now have built some relationships with potential partners who are serious about investing in your start-up. 

At this stage, your primary contact or fund partner likely wants to complete the deal. But they need to convince the rest of their partnership first. 

This is where the relationship with your fund partner changes. 

They switch from someone you need to convince to someone championing the effort to invest in your business. Recognise this change in dynamic and treat your partner like you’re on the same side because you are. Openly discuss strategies to convince their partnership or agree on timelines for a term sheet or what terms they’ll agree to. 

What is a partner meeting? 

Partner meetings are arguably the most critical interaction for closing the deal, and investment decisions are made almost immediately after you meet with them. Ask your fund partner for tips on how to navigate this meeting. 

Your aim here is to go for the direct ask for funding and push for a clear decision from them. A positive outcome at the partner meeting leads to the presentation of a term sheet. 

What is a term sheet?

A term sheet summarises the terms and conditions of an investment deal. It’s a non-binding document but serves as a basis for more detailed, legally binding records (also known as the stock purchase agreement). 

Usually presented by a VC, a partner meeting is their opportunity to talk about their firm and talk through terms. By accepting a term sheet, you agree to reject other VCs for some time until the firm completes the due diligence process required for the deal.

Closing the deal: negotiating successfully with a VC

If you’ve got a term sheet, congratulations! Here’s how to bring the process to a smooth close.

Making a decision

Once you receive a term sheet, you have a tight deadline to accept, reject or renegotiate. Timelines to make a decision may range from 24-48 hours to a week maximum.

If you need more time to decide, inform your investor how much time you need.

Understand that your potential investor may withdraw the timesheet if you don’t decide within this time. You can ask to speak to references for a fund to help you make a more informed decision. 

Understand the terms of the offer: 

Read the terms of the offer and ensure you know what they’re asking for. Consult a more experienced advisor or your legal team to get a second or third opinion. 

Informing the other funds you’re speaking to that you have a term sheet 

It’s best to keep the firm’s name who offered you the term sheet confidential as investors will talk to each other. If your term sheet is from a top-tier fund you’re keen on working with, informing additional funds may influence the process by forcing them to make a snap decision or passing on your investment opportunity within 24-48 hours. 

Preparing for questions from your lead partner 

Be prepared to answer questions about which funds are still involved with your fundraising process, your valuation of the business, and how much equity you’re willing to sell.

After signing a term sheet

Hurray! You’re now looking at the post-term sheet diligence process, which is essentially a checklist of reference checks for both the business and legal sides. This includes examining your business metrics, confirming customer references, or founder background checks. If you’ve prepared all your documents well, this process should be smooth. 

Expect this process of due diligence to take about 4-5 weeks after signing the term sheet. Be aligned with your investors on urgency if you have a shorter timeline to meet.

Once all these processes are done, your funds should arrive in your bank. If your investor joined your board of directors as part of negotiations, their tenure begins here. 

You can then celebrate your massive accomplishment with your team and make media announcements about your new funding round. 

A successful funding round will give your company a fresh burst of energy and build more momentum to ensure your continued success. 

Tip: For pre-Series A funding rounds, investors may give you a verbal agreement. It’s best to continue pursuing alternatives until you have a term sheet or agreement ready to sign.

What happens if a deal falls through? 

Unfortunately, the world of start-up funding is risky. A good deal with an investor can fall through, whether by change of heart or something off during the due diligence process. So don’t overcommit yourself to any investor or deal structure until actual paperwork is signed and funds are in the bank. 

If this happened to you during your search for funding, it’s normal to be disappointed, even discouraged.  But don’t give up just yet. Take a moment to catch your breath and recover, then revisit the other parts of the funding process in this guide. 

Conclusion

Start-up funding is a dreadful but rewarding process for all founders. Prepare well and be patient. You are now equipped with all the tools and techniques you need to succeed in your start-up funding journey.

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