Fundraising is one of the most important things a founder can do for their company. But the actual process of fundraising is a bit of a black box. My company asked hundreds of founders to participate in a research project to find out what investors are really looking at when they're reading your pitch deck for a seed investment.
Here are the four things you can do to give yourself the best chance of securing funding for your company.
1. Know who youre aiming for.
There are many ways to make up your initial fundraising round. Most founders start with a friends and family round. This usually leads to a seed (or more commonly now, a pre-seed) round. But there are different types of early stage investors. Two of the most common are angels and institutional investors (VCs). Angels are high net worth individuals who invest their own money, and VCs are part of investment firms that invest their funds in multiple startups to make money for their investors.
Courting angel investors is more time-consuming. We found that founders contacted 68 angels over 13.5 weeks and had 45 meetings. All that work led to just under $1 million in funding. Hackernoon estimates the average angel check at $10,000 to $250,000, so depending on how much you're trying to raise, you could be looking at a lot of small checks to make up your round.
However, when raising money from investment firms, the average founders contacted 29 investors over 9.6 weeks and had 27 meetings. All that netted those founders roughly $2 million in funding. So targeting VCs will typically take less time and lead to more money.
That doesnt mean there isnt a place for angels in your round. Based on the data, you should target a VC firm for your lead investor. But once you have that term sheet in place, you can fill your round out with strategic angels that can offer you key counsel for your company.
2. You dont have to hit them over the head with information.
When youre putting together your pitch deck, youre probably going to try to add way too much information. You know your company best, and its easy to fall into the trap of adding every detail you can think of in order to sway an investor. But the data shows us that you only have a few minutes to make an impression. We found the average time an investor spends reading a pitch deck is only 3 minutes and 44 seconds.
The data shows us that when a deck makes sense, an investor will read through it at a consistent speed. But if they dont understand your deck, or you pack too much information into a single slide, they tend to stop to interpret what theyre looking at. For successful pitch decks (those that resulted in raising money), investors spent around two minutes from start to finish.
This also makes sense considering the average length of a successful pitch deck. Our data tells us you should aim for 19 pages, though Guy Kawasaki recommends keeping it to just 10 slides. Most experts agree your pitch deck should include a few pages on your problem, solution and company purpose, as well as a page on your team and a few pages on your product. You should also include a few slides on the secret sauce for your business.
3. Be clear about your special sauce.
The odds that your company is solving a problem no one has ever thought of is low (but it does happen). Its far more likely that previous companies have tried to solve the problem, but havent quite cracked it. So what separates you from the founders that have come before? One standout in decks that successfully raised was the prevalence of why now or why me slides. Only 46% of decks in our study included a why now section. But 65% of those decks were able to raise money, likely because timing is the biggest predictor of a startups ability to succeed. Investors are looking for the special sauce you bring to the table. A why now slide is a clear way to differentiate yourself.
Some founders will try to show why its the right time to invest by focusing on their financial or traction slides. This can be a blessing or a curse. The data shows that if you include these slides, that's where an investor will focus their time. In fact, theyre going to spend more than double the time on your financial slides than they do on any other section. If you only have an investors time for three minutes, they could spend as much as 25% of that time on your financials.
If youre an early stage startup, your financial slides are likely to show that youve been losing money (which is normal). So unless theres an interesting angle youre trying to show, you can leave these slides out.
4. Give yourself the best chance with timing.
Did you know that the time of year you fundraise can dramatically affect your outcome? We found that there are two clear times when VCs are reading pitch decks. Founders tend to send out most of their pitch decks between August and November. But we found VCs were very active in October and November, but also again from January to March. What this means is that many investors are coming back from the holidays ready to make a deal, but most founders dont start sending their decks out until later in the year. If you want to maximize the chance that a VC is going to read your deck, send it in the first three months of the year.
Good luck, and happy fundraising.
Excerpt from:
Raising Your First Dollars? The Anatomy Of Startup Pitches That Work - Forbes