Make sure you pave the way for future funding rounds by not making mistakes in this one. The following is by no means an exhaustive list.
We know it probably seems crazy to think about future funding rounds when you are just trying to get through the one in front of you. However, there are some things you should keep in mind that can help set you up better for the next round.
Build Relationships Early and Often by Asking for Advice
If you are an early stage startup, you might be too early for VCs and some angels or networks. However, that doesn’t mean you shouldn’t engage with them. Also, better to do it when you aren’t approaching them to fundraise. It’s a completely different conversation and much more relaxed.
When you are thinking ahead to a future round, do some research on who the relevant investors might be. Most importantly, start finding ways to connect with them and build relationships with them.
A great way to build these relationships is to ask for advice. They will have experience that will be helpful. Figure out what that is and use it as a way to arrange a quick feedback session.
Some ideas here:
- They might be an investor in a similar startup previously that did well (or didn’t do so well). Perhaps they have some insights they could share with you on what went right, and what to avoid.
- They shared an update on social media that aligns with your product/service or world view. It can be an excellent opportunity to engage and explore their thoughts in more detail and help you confirm that you are working on the right problem/solution.
Of course, the added benefit of this approach is getting expert advice that can help you as a founder beyond your fundraise. In our experience, generally, investors are happy to give feedback. Approaching them outside of the fundraise context changes the dynamic and relieves a bit of the pressure.
Do a Regular Monthly Update Newsletter
When out raising you are hopefully getting lots of meetings with angels or VCs. The vast majority of them are going to pass on this round inevitably, and this could be for a variety of reasons. Maybe you are too early for them, or they want to see a bit more validation. Perhaps they are between funds or don’t have the liquidity to invest at the moment. Maybe they want to follow another investor, not lead the round. Whatever the reason, unless you are very obviously not a fit for one another, these are warm leads and relationships with people that could either invest in a future round or connect you to someone that might.
We recommend adding potential investors or introducers that you are in touch with on the round to a mailing list and sending them regular updates on your progress. You might do this in the same update that you send out to existing investors (how we do it currently) or with roughly the same content, omitting sensitive data as required.
Some of the people we include on the list (apart from our existing investors of course):
- All VCs we know and received advice from previously, even ones that passed on us
- Former colleagues who we know invest or are interested in startups (we have the luxury of having former investment bankers in our team, so this includes some high net worth types)
- Accelerators that we didn't get into but were interested in seeing our progress
The purpose of the update is to build some momentum and show your progress. You might even include asks, such as provide feedback or recommend new hires. In the meantime, you develop some goodwill with investors who might be involved in a future round in some capacity.
There are several resources out there that are helpful if you do a quick search on how to structure your update email. We generally make it super high level and use bullet points so it’s a quick read. It typically includes:
- Quick intro
- Highlights - what are we most proud of since the previous update, what maybe hasn’t gone as well
- Asks - we often have one or two things we’d like to request from our readers, such as feedback on a product feature
- Product updates
- OKRs - we use the objectives and key results framework and give an update on the current ones
- Metrics - Updates on our key performance indicators (sometimes combined with the above)
- Team updates - new hires, open roles, etc.
Timeframes and Runway
When thinking about how much to raise, the general rule is to give yourself around 18 months. The reason is you'll have to be back out in the market raising six months before you need the funds (at least). As a founder, you need to get off the fundraise treadmill and focus on product, customers, employees, scaling the business and all the other more important stuff. Make sure you have some time to build momentum between rounds to give yourself the runway.
There are many smart people who have written on this topic previously, and we suggest you give them a read: