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Texts with Founders: 3 Core Elements of Fundraising Prep
Part 1: Successfully fundraise in 2-3 months
This is the 19th weekly post from Texts with Founders — tested tactics for early-stage startups.
News and Updates
Exploring starting a company? Take a look at the upcoming On Deck cohort kicking off mid-January.
Two new podcast episodes:
Max Greenwald of Warmly (Spotify | Apple) shared his journey of numerous pivots and hard-earned lessons to build something people wanted to pay for. This is one of the most useful short (~20 min) podcast episodes I’ve come across for founders who are just getting started.
Elaine Zelby of Tofu (Spotify | Apple) about deciding what your startup should build first, what to consider when evaluating potential co-founders, how to think about fundraising in 2023 (they just raised their seed from Index), and the current capabilities of generative AI.
Portfolio Update: Traba raised another $22M from Founders Fund. FF does something interesting: they pick their best company from the prior fund to double down on as their first investment from their new fund. The past three were Anduril, Rippling, and Affirm. Not sure I’ve seen that before from other firms!
3 Core Elements of Fundraising Prep
[This is part 1 in a 3 part series]
The best founders are biased towards action (see "Responsiveness"). That often means when they decide to raise for the first time, they are eager to jump right into investor meetings (see "Handling Investor Inbound"). In the case of fundraising, however, the best way to achieve a positive outcome is to prepare sufficiently.
At a high level, there are only two metrics by which to measure the outcome of a fundraise:
Was the raise successful? This is a binary outcome. Either you succeed in raising the amount you set out to raise, or you do not. You might close some money, but anyone who knows you did not reach your goal will consider it a moderate failure.
How long did the raise take? The best fundraises take weeks. The worst case is they take 6 months or more. The ideal outcome most founders should shoot for is ~2 months from first conversations to a wire landing in your bank account from a lead.
Focus on three core elements to prepare for your fundraise:
External Materials ←Today's post
Internal Materials + Plan ← Next week
Tactical Fundraising Knowledge
Getting these elements in place before investor meetings will put you in a much better position to successfully close your round.
Part 1: External Materials
Your external materials consist of a Pitch Deck and a Blurb.
At some point, we'll do an even deeper dive on pre-seed decks. For now, here's the 80/20:
Title Slide — include a one-liner that makes it clear what you do.
Each slide should have one easy-to-understand and remember takeaway — if you try to make more than one point per slide, you will end up trying to convey too much at once
Construct a story arc — there should be a narrative with a beginning, middle, and end. The best decks flow brilliantly from one idea to the next. In contrast, the weakest seem to arbitrarily jump around from topic to topic.
Problem slide — many believe the solution slide is the most important, but they're wrong. Many decks fail to properly articulate that there is a genuinely significant problem that needs solving. The best issues often incorporate a "why now" (for instance, "these days teachers are having to do more with fewer resources" or "advertising is increasingly unviable for brands").
Focus on highlighting momentum — show where you have made significant progress in a core area of your business (waitlist signups, paying customers, week-over-week user growth, etc).
Team page — usually better towards the end of the deck. Don't include advisors or investors. Avoid including logos of past companies you've worked at that most people will not recognize.
No "use of funds" page — you can talk about this live, but no slide is needed.
Images are great if they are additive to your story — but avoid random clip art and stock photography as they always seem out of place and distracting.
Avoid Good Guy Phrases — Don't write in your deck that your tech is "ground-breaking" or "cutting edge." Instead, let the readers come to that conclusion themselves.
Over 15 slides? You can probably cut back and make the narrative tighter.
A blurb is a brief (3 short paragraphs or less) description of what your startup does. You can share this blurb with friends or other founders who will help by forwarding it to other potential investors.
Establish credibility — both due to your personal background and your progress to date.
Show a clear understanding of the problem — and why what you're building solves it.
Here's an example of a compelling blurb used to raise an oversubscribed seed round earlier this year—all identifying information was removed.
I'm building [Startup Name], [what the product does]. We save [type of customer] hours per week by handling things like [specific task 1], [specific task 2], and [specific task 3], and more common industry tasks out of the box.
I know this problem first-hand — prior to founding [Startup Name], I [describe previous relevant experience or achievement]. [Startup Name] addresses one of the biggest gaps in [industry], simplifying how [target users] can utilize and manage [key technology or process].
[# of people who need this product] need this. In [time since launch], over [number of users] have signed up and we're growing at [growth rate], largely due to word of mouth. We also just secured our first deal with a [type of partner or customer] to have them roll [Startup Name] out [scope of rollout] in the [timing of rollout]. You can learn more about us in our deck here [link to docsend].
We're raising a [type of fundraising round] now - excited to chat with any investors or partners you believe would be value-add.
Simply filling in the blanks will result in an inadequate blurb but hopefully this example helps to give a sense of solid structure and layout.
See also “Intros and Forwardable Emails.”
Part 2: Internal Materials + Plan
Coming next week — stay tuned!
That’s all for this week — thanks for reading.
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The Student (Dis)Advantage - Overcoming the credibility gap
Company Values - Use them to attract and repel
Support - Create the headspace to help others
VCs that Ghost - Dealing with investors that drag out the process
Intros and Forwardable Emails - Make it easy for connectors to facilitate introductions
App Launch: Valuation Calculator - Counterintuitive fundraising strategies
Tranche Fundraising - Give early investors a "buy-it-now" price
MFNs - Are they a lousy deal or free money?
Weekly Investor Updates - Keep investors close and yourself on track
Check Size Doesn’t Matter - Forget minimum amounts and optimize for quality people
Raise the round behind you - Avoid a drawn-out process and optimize for the best investors.
Conditional Commitments - Why they aren't commitments and what to do about them.
Handling Inbound From Investors - Avoid distractions and keep potential investors warm.
How “Good Guy” Phrases Torpedo a Pitch - And how to win over customers and investors
Avoid Hiring Too Early - Navigate external pressure focused on vanity metrics
Customers understand before investors do - And some investors will never understand
The Benefits and Downsides of Responsiveness - Where it can help and where it can backfire.
Avoiding Gossip - Nimbly navigate an awkward scenario.
No identifying information is shared in texts.
"Texts with Founders changed my life. Using all the advice l've managed to raise 320k as a solo founder with an MVP."