Founders are exponentially talented in their respective fields. They either have dedicated industry knowledge or a strong technical background to solve real-world problems. But based on past experience as an investment analyst in venture capital, founders often struggle to get enough attention from investors due to reasons that can be mitigated before or during the fundraising process.
Creating a comprehensive and easily understandable pitch deck
A pitch deck should cover the most important topics with equal weighting. A deck typically contains the problem, value proposition, technology, business model, go-to-market plan, competitive analysis, team, financial projections, current status and traction. All slides should be self-explanatory and easy to understand, as many investors do not have a scientific or technical background, nor do they have the necessary industry experience. It's best to test your deck with someone who has a completely different background. A great job is done if such a person understands your presentation without further explanation and would love to join the company.
Targeting a relevant market
As a rule of thumb, a $2 billion market is attractive enough for a venture capitalist. There are two variables to change the market potential of a company. Find a way to address more potential customers with your offering or increase the price.
Having a clear business strategy
Economic studies show that particularly successful companies master the main components of a strategy right from the start. These are in particular vision, mission and market positioning. Therefore, investors will ask the founders about these three strategy components already at the first meeting. A thorough market and competition analysis as well as one's own industry and business experience provide the insights to start formulating a clear strategy. Important business decisions in the areas of R&D, marketing & sales and operations should be closely aligned with the strategy, with the aim of creating sustainable unique selling propositions.
Demonstrating sustainable traction
Venture capitalists like calculable risk. Rapid sales growth combined with good predictability of the business significantly increases the chances of an investment. The best way to show growth and predictability is through a company's operational and financial metrics. The presentation of key figures such as lead velocity rate, conversion rate, customer acquisition costs and customer lifetime value help founders to make a good impression on venture capitalists.
Managing valuation expectations
In a world without information asymmetries, startups simply determine their fair value and investors receive a share according to their investment. In the real world, however, many factors play a role in how a startup is valued. First, the personalities and sales skills of the founding team play an important role. Second, demand and supply for startup deals overall or in specific industries can drive valuations up or down. Third, market trends shape investor sentiment and can have a positive or negative impact on valuations. Evaluating comparable deals and asking investors about the state of the startup economy can support founders manage valuation expectations. Ultimately, founders need to balance speed, growth and appropriate investor ownership.
Running a structured fundraising process
The fundraising process resembles a sales process. It starts with the preparation of documents suitable to present the company to investors and ends with the exchange of company shares for capital. The process mainly consists of finding and contacting ideal investors, providing monthly updates, attending pitching events, defending the business plan and settling the terms with a main investor.
At Startupmetrics, we love working with passionate entrepreneurs. We support them with our know-how gained from previous fundraising projects to increase their likelihood of getting funded at a fair valuation.