Founders who have already gone through this process will know: Raising funding is no piece of cake. Since EO Accelerator asked me to share some insights, I took the opportunity to write down 10 learnings from 10 years of fundraising – for zenloop, my previous venture Flaconi as well as multiple different startups I have invested in as a business angel over the years. Based on these experiences, I hope to share some valuable insights I wish I would have gained before my first financing round.
Raising funding, just like closing deals, getting PR, hiring the best talent, or other things has a lot to do with building relationships and, above all, trust. Try to sustainably build up a network of long-term contacts, even if you do not profit from it immediately. Early and consistent catch-ups with potential investors offer the opportunity to receive useful feedback, e.g. which KPIs are expected to be met or which VC prefers to invest at which company stage. Gathering this information in a timely manner gives you the opportunity to qualify VCs early which will be very useful later on.
Given it’s not your first financing round, make sure to align with your existing shareholders first before reaching out to potential new investors. Continuously supplying your existing partners with updates regarding relevant business developments creates transparency. But it is also a great sign for potential new investors if your shareholders decide to put their trust in you once more by making follow-up investments. Maintaining a close relationship to your shareholders really is key because it can lead to valuable intros later on.
Make no mistake: Raising funding is a full-time job. Speaking simply from a time management perspective, in my experience it is impossible to commit yourself fully to the task at hand and stay up to date with all daily business decisions at the same time. For that reason, I suggest you empower your team to cover for you – in everyday business as well as in supporting you with the financing round. You need help with collecting relevant internal data? Get help from the team. The pitch deck needs to be updated? Get help from the team. On the one hand this allows you to focus solely on the most important tasks, on the other hand, you are creating an environment of transparency and trust by involving the team at every step of the journey.
Another important learning: Put effort into your pitch deck. Not once, but multiple times over and over again. A process which has proven to work well for us in the past is to first set up a general storyline which we then present to a limited number of friendlies to receive initial feedback. Things to look out for here: Are there any questions coming up? If so, go back to the drawing board and work on your storyline. If not, proceed to a first outreach to potential investors. Feedback you receive at this point should then again be used to refine your pitch deck once more. Repeat this process until no more questions come up.
Furthermore, invest a small amount into a professional design. A great design is not going to win you the financing, but an unprofessional looking pitch deck can for sure cost you one.
Raising funding is a complex process. To make sure you’re sticking to your own timeline and do not run out of runway, setting clear milestones for your team is hugely important. Until when do you need the final due diligence report? Which contracts need to be signed when? Also include this roadmap into your pitch deck. First of all, this not only keeps potential investors up to date with regard to which milestones have already been achieved, but it also allows you to identify VCs which might not be able to adhere to your timeline. Sometimes, standardized internal processes do not allow VCs to move as fast as you want them to, so this is something you want to know rather sooner than later.
Another best practice which has proven to be very useful for us is to manage VCs like sales leads. Work with a CRM to make forecasts easier and assign each investor the stage they are in, e.g. outreach, first meeting, partner meeting, term sheet, due diligence process, etc. At the same time, try to keep your contacts on an even level. This allows you to develop a routine in the specific stage you are currently going through. Pitching, for example, is a skill that needs to be practiced on a regular basis in order to achieve maximum proficiency. Being able to tackle one thing at a time and focus an entire stage only on pitching and not including other tasks, such as setting up term sheets will help with optimizing the process.
After you entered the final stages of your financing round, make sure to provide the first contract drafts yourself. This will help to save resources because you do not need to invest time and effort in becoming familiar with documents you did not set up yourself. Additionally, you will not have as much leeway if you start the negotiations with foreign contracts. It pays off to invest in high-quality legal support at this point to be able to deliver VC-ready documents.
Something that is not done enough in my opinion is leveraging your network to benchmark the deal terms after you receive the first offer. Financing rounds are something you do not do everyday, so do not hesitate to reach out to your network to obtain an overview of the current market standards. How much equity should I allocate for VSIP? How many years should we consider for our vesting period? How should the liquidation preference be structured? Standard clauses like these can be benchmarked easily which will then help to sift out VCs that offer clearly unacceptable deals.
Investors will do it, so you should do it, too: reference checking. Especially companies that were not as successful as expected often hold valuable insights. Did they get the support they needed from their investors? If they did, to which conditions? Imagine the relationship between you and a VC to be like a marriage. Ideally, it should last forever and if it doesn’t, it takes a lot of time and resources to get out of it – so make sure to get to know your partner before putting a ring on it.
After you have managed to raise funding, realize that the next round is most likely just a few years or even months away. To already prepare for this period, make sure to continuously communicate to your investors as transparently as possible. How are your KPIs developing? Does your business plan work out as expected? Always keeping all shareholders on the same page creates trust and will make it much easier for you to raise funding next time.
About Björn Kolbmüller
Björn Kolbmüller is a co-founder and managing director of zenloop, the leading integrated experience management platform (IXM). After finishing his studies in business administration at HHL Leipzig Graduate School of Management, Björn Kolbmüller began his professional career at Mister Spex before he joined Procter & Gamble's brand management team in 2008. Together with Paul Schwarzenholz, he founded the online perfume retailer Flaconi afterwards which was successfully sold to Pro7Sat1. At Flaconi, Kolbmüller was responsible for marketing, product, and tech. In addition to zenloop, Björn Kolbmüller is an active business angel advising young start-ups.