How to Find Your Lead Institutional Investor?
Design your fundraising process for success
Fundraising is Hard.
I have personally raised a pre-seed round after 40+ meetings. I also failed to raise a Seed round for Lever Health after 92 Investor meetings, 6 partner meetings, and getting close on due diligence with 1 fund after 4 months of fundraising. I also pitched over 30 funds to raise a Series A for Facet Data. At MoPub, I helped prep fundraising materials with our CEO for Series A and Series B. At OneSignal, I met with VCs with our CEO as part of our Series A fundraise. I’ve also helped multiple portfolio companies with their fundraising. Here are a few lessons that I have learned.
- The story matters the most — Fundraising is a storytelling exercise that CEOs tell VCs to convince them that the company can grow 100–1,000x or more. VCs need to believe that this company has “venture scale”…
- Sell the vision of where you are going by Sean Byrnes
- Metrics matter — The easiest fundraising processes come from a great story backed by great metrics.
- Prepare for the worse and hope for the best — Depending on the stage, your story, and your metrics fundraising can be as easy as 1–2 weeks — I’ve had a portfolio company pitch 6 funds, get 5 term sheets and sign a term sheet 10 days after their first pitch. On the flip side, I’ve personally fundraised for 5 months and failed. This is also why as the CEO you need to spend 100% of your time fundraising.
- Listen to feedback — The most important thing you do while fundraising is listening to the feedback that angels and VCs give you on why they are not going to invest… The goal is to fix those issues so you have a better chance to succeed. At the pre-seed stage, most of the time VCs don't believe that you, the CEO can build this business. Most other feedback on product, market, GTM, sales, etc can be solved.
- The odds are NOT in your favor — VCs see 100s of deals for each investment they make. More than 50% of deals don’t make it past the email intro phase. Getting a meeting is a huge win. VCs are very focused on pattern matching, the team, product, gtm etc looks like another successful company in the market.
MoPub was Doubleclick for in-app
OneSignal was Twilio for Push
How to set yourself up for a successful raise?
Regardless of what round you are raising from pre-seed to Series C and beyond, as the founder/CEO you can build a process to set yourself up for fundraising success.
Nothing matters besides finding a lead investor for your institutional fundraising round. Some might tell you that finding a few angels is helpful before you get a lead investor and in general, I agree with this but whether you are raising $500k or $50M the most important thing is to find a lead investor who sets the price, leads the due diligence, writes the term sheet and invests between 20% and 50%+ of the total amount that you are raising as part of the round.
If you are raising $1M pre-seed round for B2B Saas for Sales Teams in NYC, then you are looking for a partner who is actively investing in NYC B2B Saas companies to lead $300-$500K of the $1M that you are raising.
Find your lead and the rest will follow.
Your ideal investor has the following characteristics. Your search is to find the partner in a specific fund that is active and leads deals of the check size, stage, geo, and industry that match your company's fundraising goal.
- As a fund the investor is active — Investing 10–20+ deals a year
- The fund is investing in your industry and stage — Most funds in their Fundraising documents MUST invest a specific check size and industry with a specific ownership target.
- The partner in the fund who is focused on your industry is still active and writing checks BUT has not invested in a direct competitor (Defined by the companies in their portfolio — If the partner asked their portfolio company Litmus test — Ask the CEO of the portfolio company
“Do you consider this company competition? Would you be mad if I invested in them?” - You want to be able to say clearly that you want partner name at fund name to invest in your company because of their investments in companies A and B.
Once you know what your ideal, most likely partner is to lead your round looks like, we now have to build a list of 25–50 potential lead investors for your round.
I use the following data sources to find active investors
- Crunchbase ($49/month) — You can search funding rounds
- Signal NFX (Free) — Great list of funds, partners and check size along with some of the deals they have done previously, they also have great lists of investors by industry and stage.
- Pitchbook ($$$) — For later-stage rounds, A and beyond, Pitchbook is great for finding out the details of rounds and the full list of investors in each round. Ideally, one of your angels or VC friends can look for deals in pitchbook and share them with you.
- Shai’s List — For finding the right fund, especially for Pre-seed and Seed funds, Shai keeps an amazing list of Funds that have raised less than $200M, great start for your list.
- Twitter — There are great lists and tweet threads on Twitter of funds and VCs that are actively looking to lead deals. Jason Calcanis is notorious for being open to a cold DM or email. There are also great threads.
The next step is to build the list of 25–50 potential leads and begin the process of getting an introduction. You should be ready to share a pitch deck and/or deal memo along with potential due diligence questions the lead may ask for if they want to invest. The process typically takes 1–4 meetings to go over the pitch and the company, 1–2 meetings to reach a term sheet, and then 2–12 weeks depending on if the term sheet is a SAFE or priced round to close.
The best thing to do is create a spreadsheet with the following columns and start doing your research on who would make an ideal lead from a fund & partner perspective.
- Lead Fund Name | Firm Industry Focus | Firm Check Size / Stage | Firm Partner to Lead | Status Next Step | Portfolio Company Matches | Intro via (multiple is better) | Why is this Fund a fit?
Airtable also has several fundraising templates.
The goal is to generate multiple term sheets in order to get the best price for the round, either by raising more money at the same dilution, same money at less dilution, or most ideal raising more money at less dilution. To do this you want to batch all of your VC pitch meetings into a 2–3 week time period in order to get all the funds to do due diligence together and ultimately give you term sheets at the same price to then play them off each other for the best price.
A good article about negotiating with VCs
Additional Medium Articles about fundraising and term sheets
Feel free to reach out to me directly via Twitter
