Texts with Founders: Fundraising Prep (Part 2)

Funding viability and building an investor pipeline.

Julian Weisser

Nov 21, 2023

This is the 22nd weekly post from Texts with Founders — tested tactics for early-stage startups.

News and Updates

ODF19 received higher feedback than any cohort we've ever run. If you're exploring starting a company, consider applying for ODF20, which kicks off on 1/26. We've helped over 1,000 companies get started and raise over $2B. Learn more at beondeck.com.
- Jacob Rice is a former senior software engineer from Airbnb. He did ODF19 and wrote about his experience on his Substack.
New podcast episode:
- Mike Slagh on Defense Tech: Opportunities to support America and our allies. (Spotify | Apple). Mike is a US Navy veteran and founder of Shift — an organization that has built the most significant bridge between the Department of Defense and the startup ecosystem.
Company updates:
- Sunnyside (ODF4) — an app to help people develop mindful drinking habits — announced their series A.
- Puzzle (ODF8) — modern accounting software — announced another $30M round.

3 Core Elements of Fundraising Prep

[This is part 2 in a 3-part series]

There are three core elements to prepare for your fundraise:

External Materials ← previous post
Internal Materials/CRM (← today's post) + Fundraise Plan (coming soon)
Tactical Fundraising Knowledge

Getting these elements in place before investor meetings will put you in a better position to close your round successfully.

Part 2: Internal Materials + CRM

When founders have trouble fundraising, it's often because they should have put more effort into reaching funding viability and/or preparing for their fundraise.

Funding viability comes down to doing the things that make your company investable. Sometimes, startups require only an experienced team with a memo pursuing a solid idea in a killer market to be fundable.

More often than not, investors will want to see some form of traction or momentum in your business before getting excited enough to invest. This is especially true for founders with less prior experience or when the startup is in a market that investors might believe will be hard to sell into.

Funding viability is outside the scope of today's post, but if you'd like to read more, check out TWF4: Customers understand before investors do. One sign that you're reaching a point of funding viability is if people ask unprompted if they can invest in your startup.

Preparing for your fundraise is what this post is all about. A common mistake is going into fundraising underprepared. Sometimes, it's because founders have unrealistic expectations about how hard the raise will be. Other times, it might be because an investor exhibits interest (see TWF1: Handling Investor Inbound) which causes you to start your raise prematurely.

Regardless of the reason, going into a fundraise underprepared can cause the process to stall out or, even if ultimately successful, take much longer than necessary.

Preparation can be boiled down to two distinct areas:

Building a pipeline of investors
Determining a plan for how to structure your fundraise

Building an Investor Pipeline

There's plenty of discussion about whether or not warm introductions are appropriate for the tech industry. While those might be meaningful discussions for the industry, they are entirely pointless if you're fundraising today. The fact is that currently, 9 times out of 10, you'll benefit from getting a warm introduction to an investor.

The best type of introduction is from a founder that an investor has previously backed. The worst introduction is from an investor passing on investing in your round, even though it should be in their sweet spot. If you want to learn how to get introductions, check out TWF13: Intros and Forwardable Emails.

If you've worked in the startup industry long enough, you'll likely have met investors, but perhaps only a few of them. The best way to meet investors is through other founders (this is partially why communities like ODF and YC are so valuable).

As you get closer to funding viability, you can contact the founders you know for feedback on your raise. They'll often volunteer introductions if they like what you're working on. Instead of taking people up on these offers as they happen, hold off on all intros and add them to your Fundraise CRM. Next week, we'll talk about starting your raise with angels. In short, many sophisticated angels know other angels and VCs. Getting them involved early can quickly grow your investor pipeline.

Fundraise CRM

Founders often overcomplicate the hell out of their CRM. You want the minimum amount of data necessary to keep track of investor intros and conversations.

Here are some suggested columns:

Investor Name
Affiliation (fund or company)
Connect (who can connect you to the investor)
Relationship Status (you can go crazy here with various statuses — keep it relatively simple)
- Intro Needed
- Intro Pending
- Scheduled Meeting
- Diligence
- Pass
- Invested
Investor Type (Lead VC, Angel, Participating VC)
Notes
Connections (Other people who know the investor)

Honestly, even that amount of data could be too much.

You mainly want to be sure you have a strong pipeline of investors to meet so you don't get 10 meetings into your raise and realize you have no one else to speak with. Having a list can keep you honest. You likely only want to start a fundraise once you have a pipeline of at least 30-40 investors who could be a potential fit (meaning no series A funds on your list if you're raising a pre-seed).

Next week, we'll cover planning a fundraise — determining how much to raise, building momentum early on, and much more.

That’s all for this week — thanks for reading.

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TWF is now on Twitter and LinkedIn where we’ll be sharing additional tactics and ideas.

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- Julian

Texts with Founders