Beginners Guide: 

Startup Fundraising

Finding investors can be hard. Finding investors during Covid-19 can be even harder.

The competition for a potential investment rises and the rule of thumb says that you would need to pitch 100 investors for every EUR 500K of funding. Needless to say, fundraising is not only about the number of investors you talk to – what matters the most, is always the quality of your team, product, technology, and the competitive edge you bring to the table. Competition for investors is high, therefore the right fit of the company, its valuation, and type of investors create a deal fundament.

If you have not built a solid network through your personal track-record or collaborations within an existing network you will have a major disadvantage in comparison to your peers seeking funds at the same time. Having said this, network, connect, and become part of your local startup ecosystem to play the game with better odds.

In this guide, you will find a set of best practices we have discovered over the past years following numerous rounds of fundraising from all kinds of startups globally.

1. Know how to start

First things first, start by defining the type of investor you are looking for. There is a huge variety of investors: venture capital funds, business angels, angel networks, crowdfunding, corporate venture, family offices, venture debt, peer-to-peer lending, etc… We will focus on business angels or venture capital funds, as they are the most common early-stage investors. However, there is a huge difference if you want to target either a fund or a business angel.

Speaking of similarities, both types of investors are generally interested in early-stage, tech, high growth – highly scalable startups in particular. The ideal case for both would be startups that can show a 3x annual market growth within a huge developing market. While business angels would also commit to working out the right product market fit, most venture capital funds would seek projects which are already more mature and ready to scale.

In addition, venture capital funds are generally paying more attention to exit potentials and they stick tight to their contracted investment thesis. Funds need to de-invest in a given timeframe (usually 5 to 7 years), this needs to fit the estimated time a startup needs for its growth. On the other hand, business angels usually tend to be more “agnostic”, they have less time pressure and support startups additionally (hands-on) with their own expertise, network, and advice along with an investment – this will leave more room for development, in early stages, but will impact the valuation (to keep in mind).

If you are building a more traditional type of business that fails to prove this kind of growth potential, your business might not be the right fit for either one of the above.

2. Your equity story

Your first connection with a potential investor can happy in multiple ways. Maybe through an online or offline pitch, an introduction through Linkedin, a website application, etc. No matter how this contact was established, you should always be prepared to pitch your (outstanding) story within a couple of minutes. Investors listen to a lot of pitches throughout their daily activity and you should make it as easy as possible to understand your value proposition fast.

There are multiple angles to showcase your startup, however, including answers to the core questions will help you to prepare properly:

  • What is the problem you are solving?
  • What are the benefits for your customers?
  • Why will customers pay for your services?
  • Why is it a great opportunity for an investor to invest now?
  • How did (objectively) you come up with your valuation?

3. Leverage and build your network

So far, the best way to approach an investor is through direct contact or a personal referral. The investor is much more likely to take some time to hear your pitch if it is sent to him via a familiar, trusted contact. Nowadays, it comes as no surprise that using LinkedIn to find out mutual, first- and second-degree connections will help to open doors to potential investors for those who seek funding. 

Before any reach out to an investor you found via LinkedIn, make sure that the person you target is active and investing in your field and stage. Find a way to get a warm introduction. Keep in mind that timing matters a lot. A pitch is likely to be attractive to an investor if he/she is seeking to source new deals at the moment.

You can also use public sources like Crunchase, to see if an investor has recently invested or if he has been not active for a while. Keep in mind, that such databases can be misleading, and that data might not be up-to-date due to an insufficient curation. You might want to cross-check through multiple platforms.

4. Become active within the startup community

Investors are not only interested in dealflow. Investors like to change the world. Active ecosystem shapers tend to be better connected and have solid ties to peers which will increase their odds to be successful in their venture. Investors know this and will have an eye on your activities in the overall community. They might ask other investors, about their opinion regarding your startup. 

Active startup community stakeholders are also more likely to get introduced to investors or even to be scouted by investors. Members of investment- or business angel clubs do attend pitch events, where curated deals are presented on a regular basis. Make sure you apply to such networks.

You cannot pitch too much. Your pitch will improve over time and you will benefit from feedback and professional interaction with smart people within your local ecosystem. You never know when or how these new connections might lead you to the perfect investor for your company. 

A „pay-it-forward“ culture is key. If you introduce people within your network, you will benefit yourself in the long run. Be open and help others, they will remember and help you down the road. Overall, be sure to attend startup events, and build your network. Ask investors about their strategic preferences, ask them for feedback and advice. 

For startups, it is hard to stick out from the crowd. Prominent angel networks, like European Super Angels Club, can be quite rewarding if you win a challenge or a pitching event award. However, going through a detailed startup screening and approval process is a tough part of this route. These clubs tend to showcase only the best startups to their members and investor network. On top of regular startup events, such events give you the chance to extend your network, increase media reach, and shed light on your company. 

5. Keep an eye on your progress

To avoid forgetting or confusing information, you would commonly want to keep a track of your discussions and status with each investor – a race-sheet – which you should keep updated.

For additional tips and tricks, you can start the Udemy online course “Hacking Fundraising” by Berthold Baurek-Karlic, CEO of DealMatrix.

Sign up for the “Hacking Fundraising” course online:

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6. Fair valuation

Since you have decided on fundraising and prepared yourself the needed documentationfor a deeper due-diligence – do not forget to have a solid and fair valuation to ask for. Valuation turns out will be the basis of how much of your company you will have to offer, in exchange for the capital invested. You need to base your fair valuation on solid assumptions and be ready to negotiate it when a deal becomes reality.

Dealmatrix startup valuation engine helps you to calculate a valuation regardless if your company is pre- or post-revenue. Prepare for your upcoming negotiations by having the first valuation overview in hand. 

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