For many startup founders, fundraising is one of the most grueling parts of building a company. In a recent three-part fundraising series, Andrea Palten, VP of Marketing at Techatars, hosted Kerty Levy, Managing Director of Techstars Anywhere Accelerator, who shared invaluable insights on investor readiness. 

This post summarizes the key takeaways from Part 1 of the Techstars Fundraising Series, covering crucial considerations before you even start raising capital, common pitfalls, and strategies for success.

Is Your Business Venture Scale?

Before diving into fundraising, it's essential to honestly assess if venture capital funding is the right path for your business. Not every successful business is a venture-scale business.

Revenue Potential: Are you aiming for $50-$100 million in revenue, leading to a potential billion-dollar valuation? VCs look for businesses with this kind of explosive growth potential.

Market Opportunity: Is your market large, growing, and disruptible? VCs are interested in businesses that can fundamentally change an existing market.

Capital Utilization Plan: Do you have a clear plan for how you'll use the capital to achieve specific milestones, not just extend your runway? Investors want to see a strategic roadmap.

Team Collaboration: Are you open to working with investors who will have a vested interest in your business and offer advice, or do you prefer to be a "lone ranger"?

Timing: Is the market timing right for your product or service?

Are You Personally Ready?

Fundraising is an all-consuming process that demands significant time and mental fortitude.

Business Stage: Is your business at a stage where meeting with investors is worthwhile? Without sufficient traction for your stage, you might be wasting valuable time.

Mental Preparedness: Are you prepared for weeks of day-in and day-out fundraising efforts?

Team Coverage: Do you have a team in place to keep the business running successfully while you focus on fundraising?

Is VC Funding the Best Way to Get Capital?

Consider alternative funding sources before solely focusing on VC.

Revenue: The best way to get capital is through revenue. It offers complete control, no dilution, and proves your business works, which excites investors.

Customer Financing: Can you get enterprise customers to pay upfront for game-changing solutions?

Non-Dilutive Capital: Explore grants, Small Business Innovation Research (SBIR) programs, or leveraging receivables.

Adjusting Pace: Strategically adjust your pace to gain enough traction before needing to raise capital.

Common Reasons Why Fundraising Rounds Fail

Many rounds fail due to preventable issues.

Lack of Traction or Customers: Investors need proof that your idea is wanted in the market.

Lack of Founder-Market Fit: Demonstrate why you are uniquely suited to solve the problem you're addressing, whether through personal experience, industry background, or mission-driven passion.

No Clear Go-to-Market Strategy: Have a well-thought-out plan for how customers will find and buy your product.

Ignoring Competition: Know your competitors inside and out, including direct competitors and alternatives.

Small Business Opportunity: Clearly articulate how your product can grow beyond an initial "wedge" to a significant market.

Lack of Focus: Investors look for clear metrics and a focused approach to measuring success.

Targeting the Wrong Investors: Research investors to ensure their thesis aligns with your business and industry.

Bad Pitch: Craft a compelling story with a unique value proposition that clearly outlines the problem you're solving.

Poor Process Management: Be prepared with all necessary materials (data room, financial model) to maintain credibility.

Preparing for Investor Meetings

A structured approach is crucial for increasing your odds of success.

Develop a Strategy: Create a vision-to-execution map or use OKRs and KPIs to define your business's direction and milestones.

Craft Your Investment Memo: Write your own investment memo, anticipating what investors will say about your company. This memo will be the foundation for your pitch, one-pager, and forwardable emails.

Key Questions to Address in Your Memo:

• What problem are you solving?

• What is your current solution?

• What are your team's strengths and why are you unique?

• What is your market size and opportunity (aim for $100M+ annual revenue potential)?

• Who are your competitors and what is your unfair advantage?

• What moat will you build (data, technology, etc.)?

• What is your business model, traction, and go-to-market plan?

• What is your product roadmap, and how will you execute quickly?

• Include your financial model, summary, uses of capital, and identified risks.

• Demonstrate capital efficiency.

Build a Target Investor List: This is critical for effective fundraising.

Research: Use databases like Crunchbase, Pitchbook, and Signal NFX. Look on LinkedIn, conference lists, and Google.

Qualify: Understand why each investor would be interested in your company, considering their past investments, stage preference, and industry focus.

Find a Path In: Prioritize warm introductions from mutual contacts, current investors, or mentors. In-person events are also valuable. Cold emails should be a last resort and highly personalized.

Maintain an Investor Pipeline Spreadsheet (CRM):

• Track investors by stage, fund name, contact person, email, fund size, check size, and investment themes.

• Record your last contact, next steps, and reasons for any passes (e.g., "too early"). This data is invaluable for future raises and maintaining sanity.

Q&A Highlights

Solo Founders and Team

While impressive to generate revenue as a solo founder, investors look for a strong team for scalable businesses. Focus on building a focused customer profile and a team to support growth, customer success, and product development.

Best Time to Raise

The "seasons" for fundraising are typically September-October (after Labor Day) and March-May. While possible to raise outside these times, activity is generally lower.

Generating FOMO in VCs

Be honest about other investor interest. The most effective FOMO comes from strong business performance, especially significantly growing revenue and an exceptional team.

Pre-Seed Equity Benchmarks

While there are exceptions, pre-seed rounds typically involve 10-20% equity. Before a Series A, founders generally aim to retain 60%+ control of their company.

Valuation Caps (Pre-Seed SAFE)

Valuation caps are highly dependent on the uniqueness of your offering, customer interest, and potential future revenue. It's recommended to engage with investors in your industry before raising to gather their insights on your company's potential valuation.

Prototype Investment

Funding specifically for prototyping is challenging to secure from VCs unless you possess exceptionally rare expertise or are solving a groundbreaking problem. Incubators, bootstrapping, and friends/family are more common sources for initial prototype funding.

Founders Still Employed

While building a product while employed can demonstrate resourcefulness, VCs (especially at the pre-seed stage) prefer founders who are "all in." It's prudent to test hypotheses on your own time and transition to full-time startup work once there's clear market signal and early revenue.

Regional Nuances in Raising Capital

Investors in regions like the Midwest tend to be more conservative, preferring to see established businesses rather than high-risk ideas. However, a truly strong, growing company in such a region can attract significant interest due to less competition among founders.

Fundraising is a marathon, not a sprint. By understanding these considerations, preparing thoroughly, and executing strategically, founders can significantly increase their chances of securing the capital needed to build a successful venture.

The Techstars team hosts virtual events regularly. These events are free and invaluable to anyone looking to develop their skills. Visit the Techstars events page to find out more about our upcoming events.

The Accelerator Hub is another great resource for founders interested in learning more about Techstars and the programs we offer.

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