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In the intricate world of venture capital and private equity, liquidation preference is a pivotal concept that dictates financial outcomes during critical junctures like company sales or bankruptcies. Our article delves into the nuances of this key mechanism, exploring how it prioritizes investors' returns over common stockholders and its impact in various low-return scenarios. We'll guide you through the five primary types of liquidation preferences, each with distinct implications for investment returns and company dynamics. Particularly crucial for startups, understanding liquidation preferences is essential for navigating future funding and maintaining financial health. Join us as we unravel the complexities of liquidation preference, a crucial element in balancing the risk-reward equation in business finance. Liquidation Preference Defined Liquidation preference is a key term in venture capital and private equity, defining the order and magnitude of payments to investors in events like company sale or bankruptcy. This provision in preferred stock agreements prioritizes the return of capital to investors before any distribution to common stockholders. It's an essential mechanism in venture capital contracts to safeguard invested capital, especially in scenarios yielding low returns. For example, in a real-life scenario, if a company with a liquidation preference clause is sold, preferred investors are entitled to receive their investment amount before any payouts to common stockholders. This ensures that in a liquidity event such as a company sale, the downside risk to preferred investors is minimized, as they are guaranteed a return on their investment before others. However, if preferred stock converts to common stock in a qualified initial public offering (IPO), the liquidation preference often ceases to apply, aligning the interests of all shareholders​. The Importance of Liquidation Preference The importance of liquidation preference in venture capital and private equity cannot be overstated. Primarily, it provides financial security to investors by ensuring they recover their investment before any payouts to common shareholders in the event of a liquidation, such as a company sale or bankruptcy. This makes investing in high-risk ventures more attractive, as it reduces the potential losses in scenarios where the company does not perform as expected. Additionally, liquidation preference can influence company strategies and decision-making. It can impact negotiations during funding rounds, as terms can significantly affect how proceeds are divided in a sale or liquidation event. Moreover, for entrepreneurs and common shareholders, understanding liquidation preference is crucial in assessing how much control and financial benefit they retain in their company after external funding. In essence, liquidation preference is a key element that balances the risk and reward equation for both investors and company founders, making it an indispensable part of venture capital and private equity deals. Related resource: 5 Ways to Make Investor Communication Better The 5 Primary Types of Liquidation Preference As we delve deeper into liquidation preferences, it's important to understand that there isn't a one-size-fits-all approach. This financial tool comes in various forms, each with its unique characteristics and implications for investors and company founders. We will explore five primary types: Single or Multiple, Non-Participating and Participating, Participation Caps, Seniority Structures, and Dividend Preferences. Each type represents a different way of structuring payouts in liquidation events, offering distinct advantages and considerations. In the following sections, we'll break down these categories, providing clarity on how each operates and their potential impact on investment returns and company dynamics. 1.) Single or Multiple Single and Multiple liquidation preferences are two common structures used in venture capital and private equity to determine the payout order and amount to investors in a company's liquidation event. A Single liquidation preference, typically set at 1x the original investment amount, means that an investor with this preference gets paid back their full investment amount before any shareholders lower in the priority stack receive their payouts. This is the most common type of liquidation preference and is seen as a standard protective measure for investors​​. A Multiple liquidation preference, on the other hand, is less common and involves a multiple greater than 1x, such as 2x or 3x. In this scenario, an investor with, for instance, a 2x liquidation preference would be paid back double their original investment amount before any other shareholders receive anything. While it offers greater protection for the investor, high multiple liquidation preferences can become contentious in subsequent funding rounds and may negatively impact the ability of founders and employees to see a return, as these groups are pushed lower in the preference stack​​. For an example of a Single liquidation preference, consider a scenario where an investor invests $1 million for a 25% stake in a company that is later sold for $2 million. With a 1.0x Non-Participating Liquidation Preference, the investor would receive $1 million from their 1.0x preference, ensuring the recovery of their full investment. In this case, the remaining $1 million would be distributed to the common shareholders​​. An example of a Multiple liquidation preference is more complex and less common. For instance, if an investor has a 2x liquidation preference and invests the same amount in a company with the same sale price, they would be entitled to receive double their investment (i.e., $2 million) before any payouts to common shareholders. However, in this example, since the sale price is only $2 million, there would be nothing left for common shareholders after fulfilling the investor's 2x liquidation preference. This highlights how a multiple liquidation preference can significantly impact the distribution of proceeds, potentially leaving common shareholders with little to no return. 2.) Non-Participating and Participating Non-Participating Liquidation Preference allows investors to choose between receiving their initial investment back (usually at a 1x multiple) or converting their preferred shares to common shares and receiving a proportionate share of the sale proceeds. In other words, they can either get their initial investment back or participate in the profits like common shareholders, but not both. Participating Liquidation Preference, on the other hand, enables investors to receive their initial investment back (again, usually at a 1x multiple) and then also participate in the remaining distribution of proceeds as if their shares were common stock. This means they first recover their investment and then also get a share of any remaining proceeds. For example, if a company with a Non-Participating 1x Liquidation Preference is sold, and an investor's initial investment was $1 million, they would have the choice to either take back their $1 million (if the sale proceeds allow) or convert their shares to common and take their share of the total sale proceeds. In contrast, with a Participating 1x Liquidation Preference in the same scenario, the investor would first take their $1 million and then also receive a portion of the remaining proceeds as if they were a common shareholder. 3) Participation Caps Participation Caps in liquidation preference set a limit to how much preferred investors can receive in liquidation events, essentially capping their payout. This cap is usually expressed as a multiple of the original investment. For instance, in a capped participation preference scenario, an investor may have a cap set at 2x or 3x the original investment. This means they will participate in the liquidation proceeds on a pro-rata basis until their total proceeds reach this set multiple. After reaching this cap, they no longer receive additional proceeds, and the remaining funds are distributed to other shareholders. For example, suppose a venture capital firm invests $5 million in a company with a capped participating preference set at a 3x cap. If the company is later sold or liquidated, the VC's payout preference would be capped at $15 million (3 times the $5 million investment). In this scenario, the investor will first receive their $5 million preference and then share in the remaining proceeds until their total proceeds equal $20 million. After reaching this cap, the remaining funds are distributed to other shareholders, such as co-founders​​​​​​. This cap serves as a safeguard to prevent preferred shareholders from over-dominating the payout distribution, thus ensuring a fairer distribution among all shareholders, including founders and common shareholders. 4) Seniority Structures Seniority Structures in liquidation preference determine the order in which investors are paid in the event of a company's liquidation based on the seniority of their investment. This structure can vary, but generally, it prioritizes the most recent investors over earlier ones. A common form of seniority structure is Standard Seniority, where the liquidation preferences are honored in reverse order, starting with the most recent investment round. For instance, Series B investors would receive their liquidation preferences before Series A investors. Another form is Pari Passu Seniority, where all investors are treated equally regardless of their investment round, meaning they all receive a part of the liquidation proceeds proportionate to their initial investment. Lastly, there's Tiered Seniority, a hybrid model where investors are grouped within their funding rounds, and within each tier, payouts follow the pari passu model​​. An example of how seniority structures work can be illustrated as follows. Assume a company has received investments from seed investors who committed $2 million and Series A investors who committed $1 million, each with a 1x liquidation preference. If the company's assets after a sale amount to only $1 million, according to Standard Seniority, the Series A investors would receive the entire $1 million, leaving the seed investors with nothing. This example demonstrates the "last in, first out" principle, where investors who funded the business in its later stages, perhaps during more challenging times, are paid out first​. 5) Dividend Preferences Dividend Preferences refers to the rights of preferred stockholders to receive specific dividends before common stockholders. These dividends are usually set at a fixed amount or rate and are prioritized over dividends to common shareholders, especially in liquidity events. This clause ensures that preferred stockholders not only get priority in the distribution of dividends but also in the accumulation of those dividends if the underlying asset faces a liquidity event. For example, participating preferred stockholders with Dividend Preferences might be entitled to a set dividend rate, in addition to having a liquidation preference. In a scenario with a 2x liquidation preference, these stockholders would receive twice the amount of capital they initially invested in the company in the event of a liquidity event, provided there are sufficient funds to meet this requirement. Additionally, they have the right to convert their participating preferred shares into common stock if they choose to do so​​. This type of preference is significant in providing an extra layer of financial security to preferred stockholders, ensuring they receive their due dividends in addition to any capital returns in the event of a company's sale, merger, or other liquidity events. How Liquidation Preference Works As we've explored various types of liquidation preferences, it's clear that they play a critical role in shaping the outcomes for investors and company founders in liquidity events. Essentially, liquidation preference determines the order and amount in which different shareholders are paid in the event of a company sale, merger, or bankruptcy. This system prioritizes the returns for preferred shareholders, often venture capitalists, over common shareholders, such as employees and founders. The preference can be structured in multiple ways, each having distinct implications on the distribution of proceeds from a liquidation event. Understanding how these preferences work is key to grasping the dynamics of venture capital and private equity investments, as they significantly influence the financial returns for all parties involved in a company's journey. The Best Liquidation Preference For Startups Determining the best liquidation preference for startups depends on various factors including the company's stage, the nature of the investment, and the interests of both investors and founders. Generally, a simpler liquidation preference, like a 1x non-participating preference, is often considered favorable for startups. This type ensures investors get their investment back in a liquidation event, but doesn't excessively dilute the payouts to founders and other common shareholders. A 1x non-participating preference is balanced, offering protection to investors without overly penalizing common shareholders. This type of preference is vital for early-stage startups where future funding rounds might require more attractive terms to new investors, and excessive liquidation preferences can make follow-on funding difficult or unattractive. However, the "best" preference can vary. For more established startups with a clearer path to profitability or exit, different structures might be more appropriate. It's crucial for startups to consider how liquidation preferences might impact future funding and the company's overall financial health. Consulting with financial and legal experts is advisable to determine the most suitable liquidation preference for a startup's specific circumstances. Related resource: What Are Convertible Notes and Why Are They Used? Visible: The Ultimate Resource for Founders We've explored liquidation preference, a key aspect of venture capital and private equity that shapes the financial outcomes in events like company sales or bankruptcies. This mechanism ensures that investors' capital is prioritized over common stockholders, especially in low-return scenarios. We've examined the five primary types of liquidation preferences – Single or Multiple, Non-Participating and Participating, Participation Caps, Seniority Structures, and Dividend Preferences, each with its implications on investment returns and company dynamics. The choice of liquidation preference is crucial for startups, influencing future funding and overall financial health. Overall, liquidation preference is an essential tool in balancing risk and reward for investors and founders in the complex world of business finance. Let Visible help you succeed- raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days. Related resource: Navigating the World of QSBS: Tax Benefits and Eligibility Criteria Explained

Raising funding for a business is challenging. At Visible, we like to look at the fundraising process similarly to a traditional B2B sales and marketing process — like a funnel. At the top of the funnel, you are finding potential investors via cold outreach and warm introductions. In the middle of the funnel, you are nurturing potential investors with meetings, pitch decks, updates, and other communications. At the bottom of the funnel, you are working through due diligence and hopefully closing new investors. Related Resource: A Step-By-Step Guide for Building Your Investor Pipeline Building relationships with leads is crucial to success for both a sales and fundraising funnel. Investors are typically investing hundreds of thousands or millions of dollars so building a relationship with investors will help them build conviction. Having a game plan for networking with potential investors can set you up for fundraising success. Check out our tips for networking with potential investors below: The Importance of Networking for Investors According to Brett Brohl of Bread and Butter Ventures, the average early-stage fundraise should take around five months. This means that investors are trying to deploy hundreds of thousands or millions of dollars within just a few months of meeting founders. In order to better your odds of fundraising success, this means that you need to start networking and building relationships with investors in advance of a fundraise. This will help investors build conviction and move quickly when it does come time to raising capital. Related Resource: 7 of the Best Online Communities for Investors Key Benefits of Effective Networking Founders have to take on countless roles and responsibilities when starting their business. For many founders, fundraising can turn into a full-time job — on top of their other daily responsibilities. By investing in networking throughout the year, you will be able to build momentum when it is time to “actively fundraise.” You will have already formed relationships with investors and will allow them to build conviction quickly so you can get back to your day-to-day. Check out a few key benefits of networking with potential investors below: Momentum when it comes time to fundraise. By networking with potential investors you’ll be able to speed up your fundraise as you’ve already built relationships. Introductions to other investors. Most investors will pass on a potential investment. However, they can make introductions to other investors that might be a fit for your business. Building out your network. The startup world is a tight-knit circle. Forming relationships with investors will allow you to grow your network and find introductions to peers, potential customers, hires, etc. Related Resource: 6 Helpful Networking Tips for Connecting With Investors Breaking Down the 9 Effective Networking Tips Networking might be easier said than done for many founders. Finding an introduction or way to network with potential investors can be challenging. Check out our tips for how you can effectively network with potential investors below: 1. Attend relevant investment seminars Investors are typically involved with different events in the venture capital space. Many are geared towards helping founders network with investors. If you are located in/near a larger city, chances are you will be able to find local events that are full of local investors and VCs. 2. Cultivate a strong online presence Venture investors typically have a strong online presence. One of the best ways to network with potential investors is by having an online presence yourself. You can start by following ideal investors and slowly start to engage with them. 3. Prioritize genuine relationships over quantity There are thousands upon thousands of investors. However, not every investor will be a good fit for your business. We recommend identifying your needs and building a list of “ideal investors” for your business. By focusing on building relationships with these investors, you’ll be able to make sure you are spending time on investors that will be beneficial to your business. 4. Stay updated with industry trends Investors seek to stay in the know when it comes to different industries and verticals. By staying up to date with your industry or focus area, you will improve your odds of being able to offer investors something of value and start building your relationships. 5. Master the elevator pitch If attending different networking events or seminars it is important that you have a plan for how to engage with investors. An aspect of this is likely having your elevator pitch dialed. A shaky or uncertain elevator pitch will be seen as a red flag to many potential investors. 6. Join investor groups and associations As we previously mentioned, the startup and VC world is a tight-knit community. There are countless investor groups and associations — some based in a specific region or city and others based on a vertical or market. Investor groups are a great opportunity to network with investors and peers who are a good fit for your business. Most will host different events and workshops that will allow you to further deepen relationships. 7. Leverage technology for networking In recent years there has been a rise in different technologies to help founders and investors connect. These tools typically include investor profiles that surface their firm’s vital information (some support profiles for startups as well). Related Resource: How Startups Can Use an Investor Matching Tool to Secure Funding Visible Connect, our free investor database, enables startup founders to filter and find the right investors for their business. We use the data and information that is crucial to finding the right investor — like check sizes, investment focus, investment geography, etc. From here, you can add investors directly to your Visible Pipeline to keep tabs on your fundraising conversations and actions. Give it a free try and find the right investors for your business using Visible Connect. 8. Consistent follow-ups Fundraising can be a long and arduous process. Investors are incentivized to move slowly and wait as more data and information about your company and market becomes available. It is critical to stay persistent and continuously follow up with potential investors. At Visible, we recommend adding potential investors to your monthly investor updates to keep them in the loop with your progress. Check out a template to nurture potential investors here. Related Resource: How To Write the Perfect Investor Update (Tips and Templates) 9. Mentorship and being mentored One of the best ways to network with potential investors is to seek out advice and mentorship from them. Going in with a true intent to learn from their experiences is a great way to hone your skillset and build a strong relationship — with them and their network. Related Resource: Startup Mentoring: The Benefits of a Mentor and How to Find One Find Out How Visible Can Help You Connect With the Right Investors As we mentioned at the beginning of this post, a venture fundraise often mirrors a traditional B2B sales and marketing funnel. Just as a sales and marketing team has dedicated tools, shouldn’t a founder that is managing their investors and fundraising efforts? Use Visible to manage every part of your fundraising funnel with investor updates, fundraising pipelines, pitch deck sharing, and data rooms. Raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days.

Venture Capital (VC) plays a pivotal role in the entrepreneurial ecosystem, fueling the growth of innovative startups and established companies alike. This comprehensive guide delves into the various stages of venture capital funding, from early seed investments to late-stage and bridge financing. It also explores exit strategies and offers real-world examples to elucidate the VC landscape. Whether you're an aspiring entrepreneur or an investor, understanding these facets of venture capital is key to navigating the complex world of business finance. An Overview of the Three Principal Types of Venture Capital Funding Venture capital funding, a critical catalyst for business growth and innovation, encompasses more than just the three principal types: early-stage financing, expansion financing, and acquisition/buyout financing. Within these broad categories lie several specialized types of funding, each tailored to different stages of a company's lifecycle and specific needs. Seed financing, for instance, caters to businesses at the idea or concept stage, providing the initial capital to get off the ground. Startup financing then takes over, helping slightly more established businesses that are ready to market their product or service. First-stage financing supports those in the early stages of selling their products. As businesses grow, they may seek second-stage financing for expansion, or bridge financing to cover short-term needs while preparing for a significant event like an IPO. Third-stage (mezzanine) financing is often used for further expansion or to prepare a company for acquisition or IPO. In the acquisition/buyout category, acquisition financing helps businesses acquire specific assets or other companies, while management (leveraged buyout) financing is used to buy out a company's existing owners. Each of these funding types comes with its own set of criteria, risks, and opportunities. The following sections will delve deeper into these various forms of venture capital funding, providing insights into what they entail, who typically funds them, the risks involved, potential exit strategies, and real-world examples to illustrate these concepts in action. This comprehensive exploration aims to provide a clear understanding of the intricate landscape of venture capital funding. Related resources: A Quick Overview on VC Fund Structure How To Find Private Investors For Startups Early Stage Financing Early-stage financing is provided to companies to set up initial operations and basic production. This type of financing supports activities such as product development, marketing, commercial manufacturing, and sales. It's intended for companies in the development phase, which are typically beyond the seed stage and require larger sums of capital to start operations once they have a viable product or service​​. Early-stage companies are generally defined as having tested their prototypes, refined their service model, and prepared their business plan. They might be generating early revenue but are usually not profitable yet​​​​​​. An example of a business that would seek early-stage financing is a tech startup that has developed a working prototype of a new software or hardware product. This company would have validated its product idea, perhaps through initial customer feedback or small-scale deployments, and now requires funding to scale up its production, enhance its product features, and expand its market reach. Regarding the overall market related to early-stage financing, the trends in 2023 indicate a mixed picture. While venture capital investment in Q3 2023 remained flat, with VC-backed companies raising $29.8 billion, which is comparable to the $29.9 billion raised in Q2 2023, there is a continued interest in certain areas like generative AI. Although economic uncertainty and the overhang from existing money in the market have limited investor appetite, early-stage companies are expected to experience more success in fundraising compared to companies trying to raise funds in later-stage rounds​​. However, the fund formation has continued to decline since the highs of Q1 2022, and Q3 2023 ranked as the lowest quarter for fund formation since Q3 2017. Expansion Financing Expansion stage financing is a type of funding used to scale businesses and expand their market share. This stage is typically reached when a startup is growing, the product is selling, and the company is generating significant revenue. It characterizes a new phase of development, often involving expansion into new markets and distribution channels, and can also be used for external growth through mergers and acquisitions​​. This stage of financing is usually pursued after a company has moved past the startup and early stages of its business life cycle​​. An example of a business that would seek expansion financing is a tech startup that has successfully launched a product in a local market and is now looking to expand its reach nationally or internationally. Such a company might use expansion financing to enter new markets, scale up operations, increase production capacity, or diversify and differentiate its product lines. The overall market trend related to expansion financing, the venture capital landscape saw a slight increase in deal count and invested capital in Q3 2023 compared to Q2 2023. Cooley reported 225 venture capital financings in Q3 2023, representing $6.8 billion in invested capital, an increase from 221 financings and $6.4 billion in the previous quarter. This upward trend began in Q2 2023 and ended the steady decline observed from Q4 2021 to Q1 2023. However, this increase in deal count was more pronounced in early rounds, with mid-stage rounds (which include expansion stage) showing a decrease, and late-stage rounds remaining consistent with the previous quarter​​. Despite these upward trends in deal numbers and amounts raised, the percentage of down rounds increased to 27% of deals for Q3 2023, up from 21% in Q2 2023. This marks the highest percentage of down rounds and the lowest percentage of up rounds since 2014, indicating a challenging environment for raising funds at higher valuations​ Acquisition/Buyout Financing Acquisition/buyout financing refers to the capital sources obtained to fund the purchase of a business, comprising a mix of debt and equity in the capital structure. It is specifically used in transactions where a business, usually by a private equity firm or a financial sponsor, is acquired with debt constituting a significant portion of the financing​​​​. The use of leverage (borrowed capital) is a key characteristic of this type of financing, especially in leveraged buyouts (LBOs), where the acquired company's assets are often used as collateral for the loans. An example of a business that might seek acquisition/buyout financing is a medium-sized enterprise in a mature industry, with stable cash flows and strong market presence, looking to acquire a competitor or a complementary business to consolidate market share, expand product lines, or enter new markets. Regarding the overall market trend for acquisition/buyout financing, it has faced significant challenges over the past year, akin to the most prolonged challenges since the 2008–2009 financial crisis. Factors like rising interest rates, geopolitical tensions, and recession fears have led to a sustained downturn in deal activity, which bottomed out in the first quarter of 2023. However, since then, there has been a cautious return to deal-making, and M&A activity seems to be stabilizing, although the pace of recovery varies across regions and sectors​​. According to BCG in 2023, M&A activity was significantly subdued compared to the frenzy observed in 2021 and early 2022. Through the end of August 2023, there was a 14% decline in deal volume and a 41% drop in deal value compared to the same period in 2022​​. Additionally, private equity and venture capital sectors experienced dramatic declines in deal activity, with existing investments facing sharp devaluations and numerous "down rounds" for VC-backed companies​​. This trend indicates a more cautious approach in acquisition/buyout financing, influenced by broader economic uncertainties and tighter financing conditions. Related resource: What is Acquihiring? A Comprehensive Guide for Founders What About Seed Financing, Bridge Financing, and the Other Types of Venture Capital Funding I’ve Heard About? VC funding is not a one-size-fits-all approach; it encompasses a diverse range of types beyond the principal categories of early stage, expansion, and acquisition/buyout financing. These include specialized forms such as seed financing, which nurtures business ideas into reality, and bridge financing, which provides interim support in critical business phases. In the following sections, we'll explore in detail: Types of Early Stage Financing: This includes seed financing, startup financing, and first stage financing, each addressing different needs of nascent businesses. Types of Expansion Financing: Here, we'll look at second-stage financing, bridge financing, and third-stage (mezzanine) financing, crucial for businesses in their growth phase. Types of Acquisition/Buyout Financing: Covering acquisition financing and management (leveraged buyout) financing, this section addresses the needs of businesses looking to expand through acquisitions. Each of these sections will delve into the specifics of what each financing type entails, who typically provides and receives the funding, associated risks, potential exit strategies, and real-world examples. Related resource: Understanding the Advantages and Disadvantages of Venture Capital for StartupsTypes of Early-Stage Financing Seed Financing Seed financing, the earliest stage in the capital-raising process for startups, is fundamental for getting a business off the ground. It is used for several initial operations, including market research, prototype development, and covering essential expenses like legal fees. This form of financing is typically equity-based, meaning investors provide capital in exchange for an equity interest in the company. Startups that receive seed funding are at their inception stage, and have a business idea or concept/ prototype. These businesses are typically pre-revenue and are seeking funds to turn their ideas into a viable product or service. Seed financing is often sourced from family members, friends, or angel investors, who are pivotal in this stage due to their ability to provide substantial capital. Some VCs or banks may shy away from seed financing due to its high risk. It's considered the riskiest form of investing, as it involves investing in a company far before it generates revenue or profits. That being said there are also many VCs that focus solely on investing at the seed stage. The success of a seed investment heavily depends on the viability of the startup's idea and the management's ability to execute it. If this is strong then the likelihood of finding seed funding from any investor is strong. Related resource: List of VCs investing at the Seed stage from our Connect investor database Seed financing is considered the riskiest form of investing in the venture capital spectrum. The primary risk stems from investing in a business far before it has proven its concept in the market, often without a clear path to profitability. This high risk, however, is balanced by the potential for significant returns if the startup succeeds. Exit strategies for seed investors might include acquisition by another company or an Initial Public Offering (IPO), but these are long-term outcomes. Another exit strategy could be the sale of shares during later funding rounds to other investors at a higher valuation. Despite its risky nature, seed financing can yield high returns. A famous example is Peter Thiel’s investment in Facebook. In 2004, Thiel became Facebook’s first outside investor with a $500,000 contribution for a 10% stake, eventually earning over $1 billion from his investment (source). Related resource: Seed Funding for Startups 101: A Complete Guide Startup Financing Startup financing refers to the capital used to fund a new business venture. This financing is essential for various activities, such as launching a company, buying real estate, hiring a team, purchasing necessary tools, launching a product, or growing the business. It can take the form of either equity or debt financing. Equity financing, often sourced from venture capital firms, provides capital in exchange for partial ownership, whereas debt financing, like taking a loan or opening a credit card, must be repaid with interest​​. Startup financing is commonly funded by angel investors, venture capital firms, banks, and sometimes through government grants or crowdfunding platforms. These entities typically fund startups that exhibit high growth potential, innovation, and a solid business model. Startups that receive funding usually have a unique business idea or a promising market opportunity. They are often in their early stages but have moved past the initial concept phase and have a detailed business plan and, in some cases, a minimum viable product (MVP). Investing in startups is inherently risky, given that about 90% of startups fail. The risks include market risks, where even a great idea may fail if there's no market for it or due to unforeseen changes in the market. The potential for high returns is counterbalanced by the high probability of failure​​​​. Common exit strategies for equity financing include acquisition by another company or an Initial Public Offering (IPO). Acquisition allows access to resources and can lead to economies of scale and diversification. An IPO provides access to capital for further growth or debt repayment. However, these strategies come with challenges like integration issues, financial risks, and regulatory hurdles​​​​​​. A classic example of successful startup financing is Airbnb. In its early stages, Airbnb raised funds from venture capital firms and angel investors, which helped it scale its operations globally and eventually led to a successful IPO in 2020. First Stage Financing First-stage financing, often referred to as Series A funding, is a pivotal moment for startups, marking their first significant round of venture capital financing. This phase is crucial for companies that have moved beyond the seed stage, demonstrating initial market traction and a working prototype of their product or service. The primary uses of Series A funds include further product development, bolstering marketing and sales efforts, and expanding into new markets. The funding for first-stage financing often comes from a variety of sources. Initially, startups might rely on funds from family, friends, or angel investors. As they progress, professional investors like venture capitalists or angel investors become significant sources of capital during the seed round, which is typically the first formal investment round in a startup​​​​. As for who gets funded, it's generally startups that have moved beyond the initial concept stage and are ready to ramp up their operations. This involves increasing production and sales, indicating that the company's business model is being validated​​. Typical exit strategies for investors within a 5-7 year timeframe include: IPO (Initial Public Offering): Offering shares on a stock exchange, providing liquidity and potential high returns. Acquisition: Selling the company to another entity for an immediate exit and payout. Secondary Offering: Selling shares to private equity firms or institutional investors for liquidity. An example of a company that successfully went through first-stage financing, specifically Series A funding, is YouTube. In 2005, YouTube raised $3.5 million in its Series A funding round, with venture capitalists as the primary investors. This funding was crucial in helping YouTube expand its services and grow its user base, ultimately leading to its position as a major player in online video and social media​ Types of Acquisition/Buyout Financing Acquisition Financing Acquisition financing is a process that involves various sources of capital used to fund a merger or acquisition. This type of financing is typically more intricate than other forms of financing due to the need for a blend of different financing methods to optimize costs and meet specific transaction requirements. Various alternatives available for acquisition financing include stock swap transactions, equity, all-cash deals, debt financing, mezzanine or quasi-debt, and leveraged buyouts (LBOs). Acquisition financing is used to fund the purchase of another company or its assets. It can be utilized for several purposes, including: Expanding a company's operations or market reach. Acquiring new technologies or products. Diversifying the company’s holdings. Eliminating competition by buying out competitors. The financing for acquisitions comes from multiple sources, each with its own characteristics and implications: Stock Swap Transaction: This involves the exchange of the acquirer's stock with that of the target company. It's common in private company acquisitions where the target's owner remains actively involved in the business. Equity: Equity financing is typically more expensive but offers more flexibility, especially suitable for companies in unstable industries or with unsteady cash flows. Cash Acquisition: In an all-cash deal, shares are swapped for cash, often used when the target company is smaller and has lower cash reserves. Debt Financing: This is a preferred method for many acquisitions, often considered the most cost-effective. Debt can be secured by the assets of the target company, including real estate, inventory, or intellectual property. Mezzanine or Quasi Debt: This is a hybrid form of financing that combines elements of debt and equity and can be converted into equity. Leveraged Buyout (LBO): In an LBO, the assets of the acquiring and target companies are used as collateral. LBOs are common in situations where the target company has a strong asset base and generates consistent cash flows​​. Acquisition financing is typically sought by companies looking to acquire other businesses. This includes large corporations expanding their market share, medium-sized businesses seeking growth through acquisition, or even smaller firms aiming to consolidate their market position. Risks in acquisition financing vary based on the type of loan, its term, and the amount of financing. The risks include: Type of Financing Provider: The wrong type of financing provider can pose significant risks, especially if the loan is collateralized, as in the case with most bank loans. Pressure from Lenders: Banks can exert pressure for repayment, particularly if they view the company primarily as asset collateral rather than focusing on future cash flow growth. Capital Shortage Post-Acquisition: Acquiring companies need additional capital post-acquisition for growth, and being capital-short can be a significant risk​​. Exit strategies for investors or owners in acquisition financing might include: Increasing personal salary and bonuses before exiting the company. Selling shares to existing partners upon retirement. Liquidating assets at market value. Going through an initial public offering (IPO). Merging with another business or being acquired. Selling the company outright​​. A prominent example of acquisition financing is Amazon's acquisition of Whole Foods Market. In 2017, Amazon acquired Whole Foods Market in a $13.7 billion all-cash deal. This acquisition allowed Amazon to expand significantly into physical retail stores and further its goal of selling more groceries. The deal involved Amazon paying a premium of about 27% over Whole Foods Market's closing price, indicating a substantial investment in future growth prospects Management (Leveraged Buyout) Financing A Management Buyout (MBO), a type of leveraged buyout (LBO), is a corporate finance transaction where a company's management team acquires the business by borrowing funds. This usually occurs when an owner-founder is retiring or a majority shareholder wants to exit. The management believes that they can leverage their expertise to grow the business and improve operations, generating a return on investment. Lenders often favor MBOs as they ensure business continuity and maintain customer confidence. Financing for MBOs can come from various sources: Debt Financing: This is a common method where management borrows from banks, though banks may view MBOs as risky. Seller/Owner Financing: The seller may finance the buyout through a note, which is paid back from the company’s earnings over time. Private Equity Financing: Private equity funds may lend capital in exchange for a share of the company, with management also contributing financially. Mezzanine Financing: This is a mix of debt and equity that enhances the equity investment of the management team without diluting ownership​​. Risks associated with MBOs include: Interest Rate Risk: High interest rates on financing agreements can be a challenge. Operational Risk: Business efficiencies anticipated may not materialize, causing operational problems. Industry Shock Risk: An unexpected industry shock can adversely affect the success of the MBO​​. Exit strategies for MBOs typically align with general business exit strategies and may include: Increasing personal salary and bonuses before exiting. Selling shares to partners or through an initial public offering (IPO). Liquidating assets. Merging with or being acquired by another business. Outright sale of the company. A classic example of an MBO is the acquisition of Dell Inc. by its founder, Michael Dell, and a private equity firm, Silver Lake Partners, in 2013. The deal valued at about $24.4 billion, involved Michael Dell and the investment firm buying back Dell from public shareholders. This buyout was funded through a combination of Dell's and Silver Lake's cash along with debt financing. The MBO aimed to transition Dell from a publicly traded company to a privately held one, allowing more flexibility in restructuring the business without public market pressures. ​ How to Obtain Venture Capital Funding Obtaining venture capital funding is a multi-step process that requires preparation, strategic networking, and clear communication. Here’s a guide on how companies can navigate this process. Present Your Idea With a Compelling Business Plan When presenting a business plan, start by tailoring your presentation to align with the VC firm's interests, emphasizing aspects of your business that resonate with their investment philosophy. Creating a visually appealing slide deck, complete with graphs, charts, and infographics, can help make complex data more accessible and keep your audience engaged. Practice is key, so rehearse your presentation multiple times to refine your message and improve delivery. During the presentation, begin with an attention-grabbing story or statistic and then provide a structured walkthrough of your business plan. Be prepared for a Q&A session afterward and handle questions confidently and honestly. Remember, if you don’t know an answer, it’s perfectly acceptable to acknowledge it and offer to provide the information later. Following the presentation, be proactive in providing any requested additional documents and maintain open lines of communication for future discussions. Key components of a business plan: Executive Summary: A concise overview of your business, including the mission statement, product/service description, and basic information about your company’s leadership team, employees, and location. Company Description: Detailed information about what your company does and what problems it solves. Explain why your product or service is necessary. Market Analysis: Provide a robust market analysis that includes target market segmentation, market size, growth potential, and competitive analysis. Organizational Structure and Management Team: Outline your company’s structure and introduce your management team, highlighting their experience and roles in the success of the business. Products or Services: Detailed description of your products or services, including information about the product lifecycle, intellectual property status, and research and development activities if applicable. Marketing and Sales Strategy: Explain how you plan to attract and retain customers. This should include your sales strategy, marketing initiatives, and a description of the sales funnel. Financial Plan and Projections: This is critical for VC firms. Include historical financial data (if available) and prospective financial data, including forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. Funding Request: Specify the amount of funding you are seeking and explain how it will be used. Also, discuss your plans for future funding. Exit Strategy: Describe the exit strategies you might consider, such as acquisition, IPO, or selling your stake in the business. This shows investors how they might reap a return on their investment. Your business plan is a reflection of your vision and capability, so ensure it is clear, concise, and compelling. It should effectively communicate the potential of your business and be able to capture the interest and confidence of the VC firm. Attend an Introductory Meeting to Discuss Project Details The introductory meeting with a VC firm is a pivotal moment for entrepreneurs seeking funding. Its purpose extends beyond mere information exchange; it's an opportunity to make a compelling first impression, establish the credibility and potential of your business idea, and assess the compatibility between your company's goals and the VC’s investment philosophy. During this meeting, several critical details will be discussed: Business Model: You will explain how your business intends to make money, focusing on its sustainability and profitability. Market Opportunity: Discuss the potential market size and how your company plans to capture and grow its market share. Competitive Landscape: Outline your key competitors and what sets your company apart from them. Financial Needs: Clearly state how much funding you need, what you will use it for, and your company’s valuation. Future Vision: Share your long-term vision for the company, including potential growth areas and exit strategies. Examples reinforcing the importance of this meeting include: Tech Startup: A tech startup might use this meeting to showcase their innovative technology, provide evidence of scalability, and present market research supporting the demand for their solution. For instance, a SaaS company could illustrate their recurring revenue model and discuss their rapid user growth and engagement metrics. Biotech Firm: A biotech company might focus on their cutting-edge research, its impact on healthcare, and the path to regulatory approval and commercialization. They could discuss clinical trial results or partnerships with medical institutions. Retail Business: A retail entrepreneur might discuss their unique brand positioning, market penetration strategies, and plans for online-offline integration. They could highlight customer loyalty data and plans for expanding their digital footprint. These examples underscore the significance of the introductory meeting as a platform to demonstrate the potential for growth, showcase the strength and expertise of the team, and articulate the viability of the business model. This meeting is not just an informational session; it's a strategic opportunity to begin building a relationship with potential investors. Remember, the goal of this meeting is to leave a lasting, positive impression that paves the way for further discussions and potential investment. It's as much about selling your vision and team as it is about presenting your business plan. Account for Business-Related Queries and Perform Due Diligence The due diligence phase is a critical part of the VC investment process. It's a comprehensive evaluation undertaken by potential investors to assess the viability and potential of a startup before they commit to an investment. This phase allows investors to confirm the details presented by the startup and to understand the risks and opportunities associated with the investment. During this phase, a wide range of information will be requested, covering various aspects of the startup's operations, finances, legal standings, and market position. Some key areas include: Financial Records: Detailed examination of financial statements, cash flow, revenue projections, burn rate, and historical financial performance. This also includes an analysis of the startup’s business model and profitability potential. Legal Documents: Review of legal documents such as incorporation papers, patents, intellectual property rights, legal disputes, and contractual obligations with suppliers, customers, or partners. Market Analysis: Assessment of the startup’s market, including size, growth potential, competitive landscape, and the company's market share and positioning. Product or Service Evaluation: Thorough evaluation of the product or service, including its development stage, technological viability, scalability, and competitive advantages. Customer References and Sales Data: Verification of customer references, sales records, and customer retention data to assess market acceptance and satisfaction. Management and Team Interviews: Interviews with key team members to evaluate their expertise, commitment, and ability to execute the business plan. Operational Processes: Review of internal processes, including supply chain management, production, and delivery mechanisms, to assess operational efficiency and scalability. Examples of Due Diligence Activities Customer Reference Checks: Investors may directly contact a few customers to gauge their satisfaction and understand the value proposition of the startup’s product or service. Product Evaluations: Technical assessment of the product to understand its uniqueness, technological soundness, and compliance with industry standards. Business Strategy Review: In-depth discussions about the startup’s business strategy, including market entry strategies, growth plans, and risk management. Management Interviews: Personal interviews with the CEO, CFO, and other key executives to assess their leadership and operational capabilities. Market and Industry Analysis: Engaging market experts or conducting independent research to validate the startup’s market analysis and growth projections. Due diligence is vital for both investors and startups. For investors, it mitigates risk by providing a clear picture of what they are investing in. It uncovers potential red flags that could affect the investment's return. For startups, this phase is an opportunity to demonstrate transparency, build trust, and potentially receive valuable insights from experienced investors. Related resource: Valuing Startups: 10 Popular Methods Review Term Sheets and Approve or Decline Funding A term sheet is a critical document in the venture capital funding process. It's a non-binding agreement outlining the basic terms and conditions under which an investment will be made. A term sheet serves as a template to develop more detailed legal documents and is the basis for further negotiations. It typically includes information about the valuation of the company, the amount of investment, the percentage of ownership stake the investor will receive, the rights and responsibilities of each party, and other key terms such as voting rights, liquidation preferences, anti-dilution provisions, and exit strategy. During the term sheet review, negotiations are a fundamental part. It's a give-and-take process where both the startup and the VC firm discuss and agree upon the terms of the investment. These negotiations are crucial as they determine how control, risks, and rewards are distributed between the startup founders and the investors. Areas of negotiation can include: Valuation: Determining the company's worth and consequently how much equity the investor gets for their investment. Ownership and Control: Deciding on the percentage of ownership the investor will have and how much control they will exert over company decisions. Protection Provisions: Negotiating terms that protect the investor’s interests, such as anti-dilution clauses, liquidation preferences, and board representation. Vesting Schedules: Discuss how the founder’s shares will vest over time to ensure their continued involvement in the business. Negotiations require both parties to compromise and agree on terms that align the interests of both the investors and the founders. Once the term sheet is accepted and signed by both parties, it leads to the drafting of detailed legal documents that formalize the investment. The actual disbursement of funds typically occurs after these legal documents are finalized and signed, a process that can take several weeks to months, depending on the complexity of the terms and the due diligence process. The funds are generally made available in a single tranche or in multiple tranches based on agreed-upon milestones or conditions. It's important for startups to understand that a term sheet, while not legally binding in most respects, is a significant step in the funding process. It sets the stage for the formal legal agreements and the eventual receipt of funding. The clarity, fairness, and thoroughness of the term sheet can set the tone for a successful partnership between the startup and the venture capital firm. Raise Capital and Keep Investors in the Know with Visible As a founder, it's essential to remember that venture capital is not the only measure of success. The true value of your venture lies in the problem it solves, the impact it creates, and the legacy it builds. Venture capital can be a powerful catalyst, but your vision, tenacity, and ability to execute are what will ultimately define your journey and success. Let Visible help you succeed- raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days.

About Laurel & Hampr Laurel Hess is the CEO and Founder of hampr. hampr is a peer-to-peer, on-demand laundry app that provides magical wash-and-fold service at the push of a button! As the hampr website states, “The idea for hampr came after a chaotic weekend with kid sports games and 3 birthday parties. On top of that, there was still grocery shopping, cleaning the house, and oh, spending meaningful time with the family. Laurel was over it. So she thought “Hold on, why can’t laundry be as easy as ordering groceries with a tap of your phone?” And just like that, bam! hampr was born in 2020.” Quick facts: Founded Year: 2020 Headquarters: Lafayette, Louisiana Total Funding Amount: $9.7M Notable Investors: Techstars,VILLAGEx Learn more about hampr and give it a try yourself here The Power of Investor Updates for Laurel Investor updates can be a powerful tool for startup founders. Most VCS only hear from 10-50% of their portfolio companies on a regular basis. This is a major arbitrage opportunity for founders. Investor updates can help you stay top of mind with investors and secure help with fundraising, hiring, closing customers, strategy, etc — all in just an hour or less. As Laurel Hess wrote in her LinkedIn Post, “It boggles my mind how many founders don't do regular company updates to stakeholders (and potential investors!). So many people I know treat this as a chore - when it can be the highlight of your month (like it is mine!). Taking the time to review your business with your stakeholders is actually a really great opportunity for growth - if you view it that way, there is a ton of potential to unlock. I have gained the following from my regular updates: Intros to potential investors Additional capital for a round I'm working on Intros to new verticals for expansion Advice on strategy for a problem we are working on Intros to new mentors/advisors to unlock the next phase of growth Allllll this for just 1 hour of my time each month? That is the definition of no-brainer." Laurel’s Investor Update Template Sticking to a template and format can help build regular investor updates into your monthly rhythms. Laurel shared her monthly template that she uses in Visible via a LinkedIn Post, you can check it out below as well: “I have used Visible to manage my updates almost since the beginning. I love this company - they make it SO EFFORTLESS to send really factual, data-driven updates. SO, using Visible, this is how my monthly updates are typically structured: 1. Overview - this is a high-level, personal letter from me about the high notes and low notes of the update. Basically a TL/DR section. 2. Asks - I don't always have these but when I do, I have them right after my summary so it's high on the scroll. 3. Performance - I add charts on GMV growth month-over-month followed by membership KPIs in a chart (growth, churn and renewal). Then I add a summary with my insights/thoughts on each chart. Check out an example of a Visible chart below: 4. What we are excited about: A section on 1 or 2 things that the team is working on that we are really excited about - usually with a photo. 5. What we are Improving/Exploring: This is a realness section of challenges and concerns that we have and what we are doing to actively improve on them. AND THAT'S IT! It gives a super high-level overview of where we are, what our focus is, and how we are unlocking new opportunities. It's skimmable, it's concise and it's easy for everyone. AND because I use Visible.vc, it automatically ports in the numbers I need for my charts each month so all I have to do is replicate the previous month's email and then go to town. I can get a very thoughtful email out in 1 hour or less - and it gives me so much more in return.” Check out Laurel's template and add it to your Visible account below: Send Your Next Investor Update with Visible Join Laurel and the 3,300+ founders that use Visible to update their investors every month. Try Visible free for 14 days. Not sure where to get started? Check out our Update Template Library.

The deal flow process is arguably the most important operational functions at a VC firm. From an outsider's perspective, the way a VC firm runs its deal flow process can be mysterious. It’s the secret recipe that helps VC firms find and invest in the best-performing startups resulting in the biggest returns for their LPs. In this article we’re breaking down the deal flow process: what it is and why it matters. Defining deal flow in venture capital Deal flow is defined as the process investors run to attract potential investments, narrow down those opportunities, and then make a final investment decision. How a venture capital firm runs this process, and the quality of investments in their deal pipeline, is what separates great investors from the rest of the pack. The process of building great deal flow is similar to a sales funnel. Investors want a lot of leads (potential investments) coming to them at the top of their funnel to increase their odds of finding winners. What’s most important though is the quality of those leads. Too much inbound interest from startups that are not aligned with the fund’s thesis is overwhelming and distracting for investors. This is why it’s important for startups to do their research before reaching out to an investor. Similarly, it’s why investors often consider companies that come to them from a referral more credible opportunities -- those companies have already been pre-vetted by someone in their network. Ultimately, investors care about both volume and quality when building their deal flow pipeline. Maximizing the number of high-quality leads ensures investors are spending their time reviewing opportunities that can actually result in an investment. Why startups should be familiar with the deal flow process It’s important for startups to be familiar with the deal flow process so they can engage with the right type of investors, in the right way. When startups fundraise with a solid understanding of the deal flow process they can save themselves time and increase their likelihood of securing funding. According to a survey from more than 900 VC’s, investors are most likely to source a deal from the following channels: 30% - former colleagues or work acquaintances 30% - VCs initiating contact with entrepreneurs 20% - other investors 10% - cold outreach from startups 8% - existing portfolio companies What this means for startups is they shouldn’t rely on cold outbound alone. They’re more likely to stand out to an investor if they can get a warm intro from a personal connection, another relevant investor, or even from a current portfolio company. Founders should invest more time deepening relationships in their networks as opposed to a spray-and-pray cold outbound approach. A great way for founders to strengthen their relationships with their networks is to send out monthly communications to keep their potential investors, friends, and colleagues engaged. Get started sending regular updates with Visible. If a company is going to send a cold outreach to an investor it’s important to understand just how much inbound interest investors receive on a weekly basis. It’s reported that small VC firms receive about 30 inbound messages from startups per week while larger firms can receive more than 200 (source). Here's what this means for startups: Don’t be discouraged if an investor doesn’t respond to your cold outreach; they’re busy making their way through all the other inbound interest from the week Your pitch deck needs to be clear, concise, and compelling Make sure you research the investor in advance and are confident your company fits their investment thesis; otherwise, you’re wasting multiple people's time Related resource: Pitch Deck 101: How Many Slides Should My Pitch Deck Have? It’s also important for startups to understand that investors only invest in about 1% of the companies that go through their pipeline. While this may sound daunting, this advice from VC investor Krittr highlights the optimistic mindset founders should take. “This is the first thing that is important to understand — VC firms want you to succeed. We want you to get the money, and grow. All we want is a strong enough reason to give you the money. Remember this, this mindset shift does wonders.” Stages of the deal flow process in venture capital The deal flow process is commonly broken down into seven phases with a decreasing number of companies making it to the next phase. During this process, investors are collecting more information and building conviction about whether a company is a fit for their firm or not. A more in-depth breakdown of each step can be found below. 1. Sourcing Sourcing is the process of VCs finding potential investment opportunities. To source deals investors will do things like attend networking events (demo days, pitch competitions, industry conferences), research market activity, and meet with other VCs or incubators/accelerators to discuss deal opportunities. 2. Screening During the screening process, investors will rely on basic assets such as pitch decks to determine which opportunities are worth digging into on a deeper level. Share your deck with confidence and track engagement rates with Visible. 3. First meeting When investors believe the company has the potential to be a good investment opportunity based on their initial pitch deck, they will be invited to join a first meeting with the firm. At this stage, investors are trying to better understand the dynamics of the leadership team, whether the company has a competitive advantage, and the market health of the specific sector. This may lead to additional follow-up meetings where more in-depth questions are asked by the investment team. Learn more about preparing for the first meeting. 4. Due diligence If the investment team has built conviction on a company based on the initial meetings they will kick off a more thorough due diligence process. During this phase, the VC is trying to gain an in-depth understanding and evidence of the company’s financial, technological, legal, and market opportunities and risks. Here is a breakdown of the topics investors evaluate at this stage Market - The size of the market, level of maturity, predicted growth and trends, competitive activity, and regulatory changes Business - How does the product work, what are the early customer metrics indicating (CAC, Churn Rate, Average Order Size, MRR, Annual Run Rate, Cash Runway, Gross Sales, CLV), how is the team structured, what does the company operations look like Technical - Does the company have any intellectual property or patents Financial due diligence - Analyzing financial statements, unit economics, and performance rations Legal due diligence - Is the company complying with local and federal regulations Related resource: Startup Due Diligence: What Every Founder Needs to Prepare For 5. Investment Committee The next phase of the deal flow process is when the investment committee reviews all the due diligence information, listens to the company present another time, asks additional questions, and then votes on whether to move forward with the investment opportunity. The investment committee is usually comprised of the General Partners who have worked on the deal, some independent investment committee members, and possibly experts in the field. It is during this meeting that the firm decides whether or not to invest in the company. The VC Krittr explains that VCs can have different motivations for choosing to invest in a particular company. VC motivations can include: Conviction that this company will return 10x their investment (the VC power law) Balancing risk in the portfolio construction Building the right co-investing relationships Building a relationship with a great founder even if success may not come from this particular company Publicity or staying true to the firm's thesis/mission As a startup, it is beneficial to identify what is motivating the VC so you can leverage your strengths and build a good relationship with the VC. 6. Term sheet and negotiation Once the VC has decided to invest in a company they will give the startup a term sheet and negotiation begins. VCs and startups negotiate terms until both parties agree on key items such as: Deal size and ownership percentage - how much equity founders are willing to give to investors Cash flow rights - the financial upside that gives founders incentives to perform Control rights - the board and voting rights that allow VCs to intervene if needed Liquidation rights - the distribution of the payoff if the company fails and has to be sold Employment terms, particularly vesting - which gives entrepreneurs incentives both to perform and to stay at the company Pro rata rights - allows investors to retain their initial ownership percentage by participating in future financing rounds The goal of a term sheet negotiation is for both founders and VCs to feel fairly rewarded when the company succeeds, and protected if the company is missing milestones. (Source) Related resource: 6 Components of a VC Startup Term Sheet Related resource: Navigating Your Series A Term Sheet 7. Capital Deployment The final stage in the deal flow process process is the actual transaction of capital from the venture capital firm to the startup's bank account. Related resource: Navigating Pro Rata Rights: Essential Insights for Startup Entrepreneurs Key metrics venture capitalists track in the deal flow process To ensure a Venture Capital firm is running an efficient deal flow process they measure success based on a few key metrics. Volume - Investors measure how many new companies are added to their deal flow pipeline each week. It’s an indication of their brand recognition in the industry and awareness among founders. Relevance - VCs not only care about the number of investment opportunities that land in their inbox but also how relevant the deals are. If they are seeing a high number of irrelevant deals the VC may need to strengthen their branding and messaging to attract the right type of founders. Conversion rates - It’s important for investors to track how many companies are making it to each stage within their pipeline so they can identify any areas of inefficiency. For example, they may have too many deals making it to the first meeting stage and as a result, they may need to set up a more formal application process for companies to go through. Diversity - Investors measure the diversity of the deals they are evaluating to understand and remove bias from their deal flow processes. For example, if they’re mostly receiving referrals or inbound interest from a certain demographic, the firm likely needs to work on diversifying their network as a whole. Related resource: Improving Diversity at Your VC firm Find the right investors for your startup with Visible Understanding the venture capital deal flow process is fundamental if startups want to make a great impression while fundraising. Demonstrating an understanding of each of the seven phases of the deal flow process is a sure way to impress investors. Additionally, understanding what is required from startups at each step will help founders prepare for their next fundraise. Visible helps over 3,500+ startups with their fundraising process.

Raising capital for a startup is challenging. At Visible, we like to look at the fundraising process similarly to a traditional B2B sales and marketing process — like a funnel. At the top of the funnel, you are finding potential investors via cold outreach and warm introductions. In the middle of the funnel, you are nurturing potential investors with meetings, pitch decks, updates, and other communications. At the bottom of the funnel, you are working through due diligence and hopefully closing new investors. In order to give yourself the best odds of raising capital, you need to have a healthy “top-of-funnel” filled with qualified investors. There are a number of different ways and sources you can use to find investors for your fundraise. Check out how an investor matching platform can help below: What is an Investor Matching Platform? An investor matching platform is a tool that founders can use to find qualified investors for their business. On the flip side, investors can use an investor matching platform to find qualified deal flow for their business. An investor matching platform typically involves profiles for both investors and founders with firmographic information. These are used to help founders find investors that are a fit for their business. Related Resource: How To Find Private Investors For Startups Benefits of Using an Investor Matching Tool The average founder has 48 investors in their Visible Pipeline. Many VCs and thought-leaders recommend that founders target 100+ investors over the course of a fundraise. Check out the number of investors a founder should expect to target below: In order to fill your fundraising pipeline with 48+ investors, it is important to have plenty of opportunities to find potential investors. Related Resource: A Step-By-Step Guide for Building Your Investor Pipeline This is where an investor matching tool can help. Check out more benefits of an investor matching tool below: 1. Wider access to potential investors As we’ve mentioned above, a fundraise typically requires a list of 48+ investors. A matchmaking tool can be a great resource to help find the right investors for your business. In the past, most founders have had to look to their immediate network for introductions to potential investors (or cold email) — a matchmaking tool allows you to widen your pool of potential investors. 2. Time and resource savings Finding potential investors can be a time consuming process. You need to identify your needs, find the investors that fit your needs, then find an introduction or write a personalized cold email. With a matchmaking tool, you can quickly find investors investors that are the right fit for your business using filters. 3. Data-driven matching Finding investors is similar to finding the right leads for your sales and marketing team. In order to find the right investors, you need to use data and criteria to find the investors that are a fit. With Visible Connect, our free investor database, you can filter investors using fields and data, such as the following: Investor check size minimums and maximums Investor stage focus Investor sector/vertical focus Investor fund size Investor geographic focus 4. Streamlined communication and negotiation Some investor matching tools have communication built directly into the platform. This allows for quick introductions and a quick yes/no from potential investors. While this can save time and streamline communication this can also come with downsides. For example, potential investors have the ability to pass on your business with little explanation or knowledge. 5. Increased credibility Some investor matching tools require a vetting process for both founders and investors. This leads to increased credibility and ensures both parties that they are talking to a credible person. 6. Community and networking opportunities A fundraise requires conversationsn with many investors, peers, and leaders in the space. While most investors will pass on your business it can lead to an increase in your network. For example, some investors might pass on your business because it is too early stage, this is an opportunity for you to build a relationship with this investor over time. How to Get the Most Out of an Investor Matching Platform For many investor matching tools, you will get out of it what you put into it. You’ll want to approach it with a plan for your fundraise that can be used when finding potential investors. Check out a few examples to make sure you’re getting the most out of your investor matching platform below: Related Resource: 20 Best SaaS Tools for Startups Define your needs First things first, you should define what you are looking for out of a fundraise and start to build out what your “ideal investor” looks like. This typically means identifying the criteria you’d want out of your investor — check size, stage focus, vertical focus, etc. Build a strong profile If your investor matching tool requires a founder/company profile, make sure it is built out. For many investors, this will be their look into your business and how you operate. If your profile is half built out, they will assume you are not taking it seriously. Proactively engage with investors Investors receive hundreds of emails and messages from potential investors every month. Chances are that your initial messagse could get lost in the shuffle. Make sure you are proactive and have a plan to follow up as needed. Be transparent If you are using an investor matching tool, chances are this will be your first interaction with many of the investors. In order to build trust, you need to start the relationship with transparency. Be honest about where your business is at, what you’re looking for out of potential investors, etc. Keep your information up-to-date As we mentioned above, your profile will be a potential investors first look into your business and how you operate. Make sure that your information is up-to-date and relevant. If an investor sees that your information is months or quarters old, they will question how you operate. Match With the Right Investors With Visible As we mentioned at the beginning of this post, a venture fundraise often mirrors a traditional B2B sales and marketing funnel. Just as a sales and marketing team has dedicated tools, shouldn’t a founder that is managing their investors and fundraising efforts? Use Visible to manage every part of your fundraising funnel with investor updates, fundraising pipelines, pitch deck sharing, and data rooms. Raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days.

The technological landscape has been dynamically evolving with the surge of AI, leading to the inception of numerous startups that harness AI's potential to innovate and disrupt industries. These ventures are redefining creativity and productivity, crafting systems that can generate anything from realistic images to sophisticated code, mimicking human ingenuity. They are crafting intelligent systems that can create content, solve complex problems, and generate ideas, ushering in an era where AI is not just a tool, but a creator and innovator. Generative AI startups are not only grabbing headlines but also attracting substantial investments, reflecting the confidence and excitement surrounding their potential to transform every sector they touch. Let's delve into some of the most groundbreaking generative AI startups that are redefining the tech industry. Related resources: How AI Tools are Reshaping Venture Capital: Tools to Know CBInsights Generative AI Bible How AI Can Support Startups & Investors + VCs Investing in AI AI Meets Your Investor Updates 1. OpenAI OpenAI is an artificial intelligence research laboratory consisting of the for-profit OpenAI LP and its parent company, the non-profit OpenAI Inc. It aims to promote and develop friendly AI in such a way as to benefit humanity as a whole. OpenAI's research has led to the development of some of the most advanced AI models in the world, including GPT-3, DALL-E 2, and InstructGPT. These models have been used to create a variety of innovative products and services, including AI-powered content generators, image editors, and chatbots. Its work is centered on advancing digital intelligence in a way that can scale to solve complex problems in a variety of domains, from healthcare to economics. The utility of OpenAI's products stems from their ability to automate complex tasks, process large amounts of data efficiently, generate human-like text, and more, which can significantly impact various industries by enhancing productivity, innovation, and problem-solving capabilities. Year founded December 2015 Founders The list of founders of OpenAI includes: Elon Musk, who has since left the company. Sam Altman, previously president of Y Combinator. Greg Brockman, formerly the CTO of Stripe. Ilya Sutskever, a leading expert in machine learning. Wojciech Zaremba, a researcher with expertise in robotics. John Schulman, a researcher in machine learning and robotics. Funding OpenAI has secured over $300 million in funding in April from prominent backers including Sequoia Capital, Andreessen Horowitz, Thrive, and K2 Global, at a valuation of $29 billion. Additionally, a major investment from Microsoft, closed in January, was reported to be around $10 billion. OpenAI, with Microsoft holding a 49% stake, has projected optimistic financial prospects, expecting to reach $1 billion in revenue in 2023. This anticipated financial success underscores the company's significant impact and innovation in the field of artificial intelligence. Related resource: Top 15 Machine Learning Startups to Watch 2. Chohere Cohere is a Canadian startup that specializes in large language models and generative AI for enterprise use. Founded by a team with roots in Google Brain's transformative research on machine learning architectures, Cohere has quickly positioned itself at the forefront of AI innovation. The company's mission is to empower businesses with AI-driven solutions that enhance chatbots, search engines, content creation, and data management. Cohere's strength lies in its sophisticated language models capable of understanding and responding to text with nuanced comprehension. Their multilingual model breaks language barriers, extending advanced text processing to over 100 languages. By integrating their technology with major platforms like Oracle and Salesforce, Cohere is embedding AI deeply into business operations, automating tasks from copywriting to content moderation. The company's commitment to responsible AI development is underscored by its adherence to international guidelines and its nonprofit arm dedicated to open-source AI research. With its cloud-agnostic platform and strategic partnerships, Cohere not only competes with giants like OpenAI but also paves the way for generative AI's future in the enterprise realm. Year founded 2019 Founders Aidan Gomez Ivan Zhang Nick Frosst Funding Cohere's journey in securing financial backing has been marked by significant milestones. In September 2021, the company proudly announced a $40 million Series A funding round led by Index Ventures, with the added bonus of Index Ventures partner Mike Volpi joining Cohere's board. This round was notable for contributions from Radical Ventures, and respected AI experts such as Geoffrey Hinton, Fei-Fei Li, Pieter Abbeel, and Raquel Urtasun. The momentum continued into February 2022, when Cohere announced a substantial $125 million Series B funding, spearheaded by Tiger Global. The company's financial trajectory reached new heights in June 2023 with a Series C funding round that brought in an additional $270 million. This round saw participation from notable investors including Inovia Capital, Oracle, Salesforce, and Nvidia, elevating Cohere's valuation to an impressive $2.2 billion. 3. Hugging Face Hugging Face, Inc. stands as a unique blend of a French-American company and an open-source community, primarily known for its development and contribution to machine learning technologies. Based in New York City, the company has gained acclaim for its Transformers library, which is pivotal in natural language processing. By emphasizing community collaboration and accessibility, Hugging Face has created a platform that encourages users to share and showcase machine learning models and datasets. Hugging Face's journey from a chatbot app developer to a machine learning platform highlights its adaptability and commitment to innovation. Notable achievements include the launch of the BigScience Research Workshop and the introduction of BLOOM, a groundbreaking multilingual large language model. The company's acquisition of Gradio and collaborations with industry giants like Graphcore, Amazon Web Services, and others further showcase its expanding impact. Through its Transformers library and Hugging Face Hub, the company provides versatile resources for machine learning, catering to a variety of needs in text, image, and audio tasks. Its services have become essential for developers seeking efficient, collaborative, and innovative AI solutions. Year founded 2016 Founders Clément Delangue Julien Chaumond Thomas Wolf Funding Hugging Face's financial journey reflects its growing influence in the AI sector. In March 2021, the company raised $40 million in Series B funding. This was followed by a significant Series C round in May 2022, where it achieved a $2 billion valuation. The funding milestones continued with a substantial $235 million Series D round in August 2023, catapulting the company's valuation to $4.5 billion. This round was led by Salesforce, with notable contributions from Google (GV), Amazon, Nvidia, AMD, Intel, IBM, and Qualcomm, underscoring the tech industry's confidence in Hugging Face. 4. Inflection AI Inflection AI is at the cutting edge of developing machine learning and generative AI hardware and applications. The company's flagship product, the Pi chatbot, represents a leap in AI-driven personal assistants. Named for "personal intelligence," Pi is designed not just to assist but also to provide an emotionally supportive experience. The chatbot aims to engage users with kindness, diplomacy on sensitive topics, and a sense of humor, setting it apart from other chatbots like OpenAI's ChatGPT. This focus on emotional intelligence in AI marks a significant step towards more human-centric technology. Year founded 2022 Founders Reid Hoffman Mustafa Suleyman Karén Simonyan Funding In June 2023, Inflection AI made a remarkable financial achievement by raising $1.3 billion. The company, led by former DeepMind leader Mustafa Suleyman, has achieved a valuation of $4 billion, with its recent $1.3 billion funding round drawing major backers like Microsoft (M12), Nvidia, and high-profile tech billionaires Reid Hoffman, Bill Gates, and Eric Schmidt. With this funding, Inflection plans to expand its computing power and further develop Pi, as well as potentially offer APIs for selected partners. CEO Mustafa Suleyman envisions continued rapid fundraising, opting for strategic investors over traditional venture capital to leverage their experience and network. This aggressive growth strategy underlines Inflection's ambition to be a frontrunner in creating advanced AI models and applications. 5. Jasper Jasper AI stands out in the artificial intelligence landscape as a powerful platform focused on enhancing copywriting and content creation, especially in the marketing sector. Launched in January 2021 in Austin, Texas, Jasper has evolved into a vital tool for creating diverse digital content, ranging from blog posts and social media ads to product descriptions. As a "wrapper" for ChatGPT, it utilizes the OpenAI API, making it a robust solution for businesses and enterprise clients. Jasper's AI-driven approach simplifies the content creation process, offering an 'AI copilot' for marketing. This includes AI insights, campaign management tools, and content scheduling, all seamlessly integrated into the content production workflow. Its technology leverages models from Cohere, OpenAI, and Anthropic, although it's acknowledged to sometimes produce inaccurate information due to the 'hallucinations' typical in large language models. Apart from text generation, Jasper also provides an API for customer-facing applications and has expanded into AI-generated artwork with "Jasper Art," utilizing DALL·E 2 technology. These features make Jasper an all-encompassing platform for creative and marketing needs. Year founded 2021 Founders Dave Rogenmoser Chris Hull John Phillip Morgan Funding Jasper AI has attracted significant investment since its inception, raising a total of $143 million. A notable funding milestone was a $125 million investment round, which placed the company's valuation at $1.5 billion. Despite facing challenges like employee layoffs in July 2023, Jasper continues to innovate and release new products, indicating a strong position in the AI content creation market. This financial backing and continued product development underscore Jasper's commitment to maintaining its status as a leading AI content generation platform. 6. Synthesis AI Synthesis AI is pioneering synthetic data technologies to enable more capable and ethical AI. The platform leverages the power of deep learning and CGI to create photorealistic and perfectly labeled synthetic data for computer vision and perception AI applications. This synthetic data can be used to train AI models more effectively and efficiently, without the need for expensive and time-consuming human-annotation. Synthesis AI's products and services have the potential to revolutionize the way AI models are developed and deployed. By using synthetic data, businesses can develop better models at a fraction of the time and cost of traditional approaches. This can lead to faster innovation and more cost-effective AI solutions. In addition to its commercial applications, Synthesis AI's technology also has the potential to make AI more ethical and responsible. By using synthetic data, companies can avoid the risks associated with collecting and using real-world data, such as privacy violations and bias. Year founded 2019 Founders The company was founded by Yashar Behzadi, PhD, an experienced entrepreneur with a proven track record of success in building transformative businesses in AI, medical technology, and IoT markets. Funding Synthesis AI has raised over $10 million in funding from leading venture capital firms such as Andreessen Horowitz and Khosla Ventures. 7. Anthropic Anthropic has quickly gained recognition for its work in developing general AI systems and large language models. Founded by former OpenAI members, including the siblings Daniela and Dario Amodei, Anthropic stands out as a public-benefit corporation closely aligned with the effective altruism movement. The company's ethos revolves around ethical AI development, emphasizing safety and responsible innovation. Anthropic's flagship project, Claude, is a chatbot akin to OpenAI's ChatGPT but with a distinct focus on safety, trained on principles from human rights documents and corporate policies. This approach, termed "Constitutional AI," aims to ensure the chatbot upholds values like freedom, equality, and brotherhood. Besides Claude, Anthropic is also known for its interpretability research in AI, particularly in transformer architectures. Year founded 2021 Founders Daniela Amodei Dario Amodei Funding By late 2022, the company had raised $700 million, with significant contributions from Alameda Research and Google Cloud. In May 2023, a further $450 million was raised in a round led by Spark Capital. The company's funding milestones continued with substantial investments from major tech players: in September 2023, Amazon announced an investment of up to $4 billion, making it a minority stakeholder and primary cloud provider. The following month, Google committed an additional $500 million, with plans to invest $1.5 billion over time. As of July 2023, Anthropic had raised a total of $1.5 billion, positioning it as a significant contender in the AI industry with a valuation bolstered by these strategic partnerships. 8. Lightricks Lightricks has emerged as a leader in developing mobile apps for video and image editing, most notably its highly popular selfie-editing app, Facetune. Based in Israel, the company has expanded to employ approximately 600 people and boasts over 680 million app downloads as of 2023. Lightricks has distinguished itself by integrating generative AI capabilities into its products, making it a frontrunner in the mobile editing space. Lightricks' suite of products is diverse and innovative. Facetune, its flagship app, has consistently ranked among Apple's top downloaded and paid apps. Other notable apps include Photoleap for general image editing, Videoleap for video editing, and Popular Pays for influencer marketing and content creation. The company also offers a range of other tools such as Lightleap, Motionleap, Beatleap, Artleap, Seen, and Boosted, each catering to different aspects of digital content creation. The company's business model revolves around the freemium approach, offering subscriptions and free versions of their apps. This strategy, adopted early in the app industry's shift towards subscriptions, has played a crucial role in Lightricks' financial success and market penetration. Year founded 2013 Founders Zeev Farbman Nir Pochter Yaron Inger Amit Goldstein Itai Tsiddon Funding Lightricks' journey in securing funding has been marked by several successful rounds. The company received its first funding of $10 million in 2015, led by Viola Ventures. In November 2018, it raised $60 million, followed by a significant $135 million in Series C funding in July 2019, which implied a valuation of $1 billion. By September 2021, Lightricks achieved a valuation of $1.8 billion with an additional $100 million in primary and $30 million in secondary Series D funding. The total funding raised by the company amounts to $205 million, supporting its growth and innovation in the competitive field of mobile app development. 9. A121 Labs AI21 Labs, based in Tel Aviv, is a company at the forefront of Natural Language Processing (NLP) technology. Founded in November 2017, AI21 Labs focuses on developing AI systems capable of understanding and generating natural language, making strides in how machines interact with human language. The company's flagship product, Wordtune, is an AI-based writing assistant that offers context-aware suggestions for paraphrasing and rewrites. Launched in October 2020, Wordtune quickly gained recognition, even being named one of Google's favorite extensions in 2021. Following this success, AI21 Labs launched AI21 Studio and the Jurassic-1 NLP system, enhancing their portfolio with advanced language processing capabilities. In 2023, AI21 Labs introduced Wordtune Spices, a generative AI tool designed to enrich textual content with a variety of expressive and stylistic options. This innovation further positions the company as a leader in AI-driven language enhancement tools. Year founded 2017 Founders Yoav Shoham Ori Goshen Amnon Shashua Funding AI21 Labs' journey in fundraising reflects its growth and the market's confidence in its NLP technology. The company's initial seed funding round in January 2019 raised $9.5 million. This was followed by a series of successful funding rounds: $20 million from Walden Catalyst and a $25 million series A round led by Pitango in November 2021. In July 2022, AI21 Labs secured $64 million in a series B funding round, with contributions from Ahren and other notable investors. The company's most recent financial milestone is the closing of a $155 million Series C financing round in August 2023, which included investments from prominent tech giants like Google and Nvidia, as well as previous participants. This significant investment underscores the industry's belief in AI21 Labs' potential to revolutionize the field of natural language processing. 10. Tabnine Tabnine has focused on developing a platform that enhances the software development lifecycle with generative AI. Its flagship product, Tabnine Chat, serves as an AI code assistant, offering functionalities similar to ChatGPT but specifically tailored for coding. This tool allows developers to write code more efficiently and access information about their codebases more easily. Tabnine sets itself apart from competitors like GitHub Copilot and Amazon CodeWhisperer by offering more control and personalization, with options for on-premises deployment or via a virtual private cloud. Another advantage Tabnine claims is reduced legal risk, as it uses AI models trained on code with permissive licenses or on customers' in-house codebases. The success of Tabnine is evident in its user base — over a million users and 10,000 customers — and its planned growth. The funds from this Series B round will be invested in expanding Tabnine's generative coding capabilities and building out its sales and global support teams. The company expects to grow its team to 150 employees by the end of the year, a significant increase from its current size of around 60. This expansion indicates Tabnine's commitment to advancing its technology and strengthening its market position in the AI coding sector. Year founded 2013 Founders Dror Weiss Eran Yahav Funding Tabnine has recently secured a significant financial milestone. In a recent Series B funding round, Tabnine raised $25 million, led by Telstra Ventures with contributions from Atlassian Ventures, Elaia, Headline, Hetz Ventures, Khosla Ventures, and TPY Capital. This investment round brings Tabnine's total funding to $55 million. 11. Rephase.ai Rephrase.ai is at the forefront of video creation technology, offering a unique AI-powered visual dubbing tool. This innovative platform is designed to transform any text into a video of a person realistically speaking that text. Utilizing advanced generative AI tools, Rephrase.ai is adept at learning and mimicking facial features corresponding to spoken audio. It can then generate photorealistic faces that sync perfectly with any new text or audio input. The versatility of Rephrase.ai's technology makes it an invaluable asset across various sectors. It enables clients to create engaging training videos, personalize sales videos, bring characters to life in AR/VR environments, and give a human-like appearance to digital assistants. This technology opens up new possibilities in video production, allowing for more personalized, dynamic, and cost-effective content creation. Year founded 2019 Founders Ashray Malhotra Shivam Mangla Nisheeth Lahoti Funding As of the latest funding round on September 15, 2022, Rephrase.ai successfully raised $10.6 million in a Series A round. To date, Rephrase.ai has accumulated a total of $13.9 million over the course of four funding rounds from investors including Red Ventures, Silver Lake, AV8 Ventures, Lightspeed India, and Techstars. This funding trajectory highlights the company's consistent growth and the increasing interest from venture capitalists and investors in their cutting-edge video creation technology. 12. Midjourney Midjourney, a San Francisco–based independent research lab, has developed a notable generative artificial intelligence program and service that specializes in generating images from natural language descriptions. Comparable to OpenAI's DALL-E and Stability AI's Stable Diffusion, Midjourney entered open beta in July 2022 and has quickly gained traction for its innovative capabilities. Led by David Holz, co-founder of Leap Motion, Midjourney enables users to create artwork through Discord bot commands. The platform is particularly popular among artists for rapid prototyping and concept visualization, offering a new dimension to creative expression. It's also found applications in the advertising industry and architecture, where it assists in creating custom ads, special effects, and mood boards. Midjourney continually improves its technology, releasing updated algorithm versions that enhance image quality and artistic stylization. The platform's unique approach allows for a more 'opinionated' artistic expression, making it a valuable tool for professionals seeking to rapidly prototype and visualize concepts. Year founded 2022 Founders David Holz Funding As of August 2022, Midjourney was reported to be profitable, a significant achievement for a startup in the generative AI space. The company's funding details have not been explicitly mentioned, but its profitability indicates a strong financial foundation with no financial backing so far. 13. Gridspace Gridspace is reshaping how businesses understand and manage customer communications. The company specializes in AI-driven solutions that analyze voice conversations in real-time. Gridspace's technology is adept at processing and interpreting large volumes of speech data, turning them into actionable insights. This capability is invaluable for customer service and support, where understanding customer needs and responding effectively is crucial. The platform excels in areas such as speech recognition, natural language processing, and conversation analytics. By using Gridspace, businesses can improve customer experience, enhance compliance monitoring, and gain deeper insights into customer interactions. This makes it a potent tool for companies looking to leverage AI to improve communication strategies and customer engagement. Year founded 2012 Founders Anthony Scodary Evan Macmillan Nico Benitez Funding Gridspace has raised $20.2M over three rounds. Looking to raise money for your startup? Try Visible today The substantial investments and rapid growth seen across these startups are a testament to the potential and promise of AI in transforming various industries. As these companies continue to evolve and push the boundaries of what's possible, they underscore the transformative power of AI in driving progress and innovation. No matter the series, size, or timing of your round, Visible is here to help. With Visible, you can manage every stage of your fundraising pipeline: Find investors at the top of your funnel with our free investor database, Visible Connect Track your conversations and move them through your funnel with our Fundraising CRM Share your pitch deck and monthly updates with potential investors Organize and share your most vital fundraising documents with data rooms Resources: How To Find Private Investors For Startups The Ultimate Guide to Startup Funding Stages 10 VC Firms Investing in Web3 Companies Manage your fundraise from start to finish with Visible. Give it a free try for 14 days here.

Being a startup founder is difficult. For many founders, it is their first time having full responsibility to fund their business, hire a team, build a product, and scale all aspects of their business. As Seth Godin puts it, “There are things you’re going to do just once. Get your tonsils out. Pick a caterer for your wedding. Raise money from a venture capitalist. Apply to college…When you have to walk into one of these events, it pays to hire a local guide. Someone who knows as much as the other folks do, but who works for you instead.” Learn more about how founders can tackle their challenges and asymmetric experiences by finding a startup mentor below: What is a startup mentor? A startup mentor is someone who can offer a startup founder (or employee) mentorship, advice, and support by sharing their own experiences and knowledge. For early-stage founders, a mentor can be particularly useful when it comes to understanding the different roles and responsibilities that come with the role of founder. Startup mentor vs. advisor Startup advisors are typically a more formal agreement than a mentor and are used to fill strategic gaps for a business. As put by the team at Mentor Cruise, “Startup advisors are chosen and utilized on a varying range of topics. The most common startup advisors are professors, founders, and serial founders themselves, with deep expertise in a company’s niche.” What Does a Startup Mentor Do? As we put in our blog, Startup Leaders Should Have a Mentor, “A great mentor can have an exponential impact on both your personal development and the growth of your business. They can serve as a guide through tough times, a voice of warning about potential pitfalls, or a source of challenging feedback and honesty. The best mentors are a combination of collaborator, coach, and friend.” What exactly does that look like in practice? Check out a few examples of what a great startup mentor should do below: Provides expert guidance and insight A great startup mentor will be able to offer guidance and insight. This typically comes from their own experiences and past roles in the industry. Different mentors will likely have different levels of expertise but you can expect help with leadership, hiring, company building, fundraising, etc. Related Resource: 10 Resources to Develop Your Leadership Skills Helps set goals and objectives Mentors are great for helping set goals and objectives. They are someone who can help hold you accountable and make sure you stay focused on the goals and objectives at hand. Offers networking opportunities The startup world is a tight-knit community. A mentor can offer introductions to their network — potential investors, other founders, executives, mentors, etc. Related Resource: Seed Funding for Startups 101: A Complete Guide Enables skill development If your startup mentor has expertise in a certain area, chances are they will be able to help hone your skills. For example, if a mentor is a strong leader they will be able to offer the skills and tools you need to level up your leadership skills. Benefits of a Startup Mentor The idea of a startup mentor typically sounds good on paper. Building a relationship with a mentor requires time from you — an expensive investment for a startup founder. To determine if a startup mentor makes sense for you and is worth the investment, check out a few of the benefits below: Network expansion As we previously mentioned, the startup world is a tight-knit community. A great mentor can offer opportunities to network with other founders, investors, executives, and startup leaders. This can pay dividends when it comes to raising capital in the future, hiring top talent, and closing new customers. Risk mitigation A great startup mentor likely has experience building and scaling a business. As most startup founders know, scaling a business is not always up and to the right — there are inevitable down periods and difficulties that arise. A mentor can come in handy when it comes to navigating these troughs and making sure you stay on the right path. Enhanced-problem solving Related to the point above, a mentor can help when it comes to problem-solving. A great mentor will spend more time listening than talking so will have a deep understanding of your issues and help you tackle them with sound advice. Accountability and motivation Being a startup founder can be lonely at times. For most founders, you are taking on multiple roles that you have limited experience doing. A startup mentor can help hold you accountable and motivate you as you face challenges. It will give you a peer to bounce ideas off of and keep you heading in the right direction. How to Find a Mentor for Your Startup Finding the right mentor for you and your business is crucial. Different mentors might come from different backgrounds with different experiences. You’ll want to make sure you have a mentor that matches your values and can offer a lift to you and your overall business. Check out some basic steps for how you can find a mentor below: 1. Identify your needs First things first, you need to identify your needs. Depending on your gaps as a founder will determine what you might want in a founder. We also suggest thinking through people, and attributes, you admire in a person. This will dictate the type of person (or exact person) that you want as a mentor. 2. Seek a mentor who aligns with your needs Once you lay out your needs, it is important to work on identifying the specific person. We suggest creating a list of 3-5 ideal mentors. You can scroll through your own LinkedIn or Twitter connections and slowly build out a list of individuals you admire who would make a good fit as a mentor. 3. Leverage your network If you are not directly connected with your ideal mentor, it typically makes sense to leverage your network to find an introduction. Before asking for an introduction it is important to do your research on the individual and make the case why you would be a good fit as a mentee. As we put in our post on finding a startup mentor, “Ideally, you want to answer the following questions: What is their attitude toward mentorship? What are they currently working on? What makes you think they’ll be a good fit?” 4. Utilize online platforms If your immediate network does not offer any good mentor candidates, you can turn to other social networking tools and websites to find a mentor. You can check out tools like GrowthMentor to be matched with a mentor that fits your needs. 5. Reach out thoughtfully Once you’ve identified your top candidates it is important to reach out thoughtfully to see if they’d be interested. We recommend starting with your #1 choice and moving down your list depending on the outcome. The key is being straightforward and respectful of the other’s time. Check out an example that we previously put together below: Hello Tom— I hope you’re having a great day! It was great running into you at the conference last week. I’m writing because I am currently looking for a mentor who might help me develop into a better leader as I work on scaling Kloud Co. I really admire what you were able to do with BiggerKloud Co, and I’d love to learn some lessons from you if you’re willing. I know mentorship can seem like a big commitment, so maybe we could start by having lunch later this month to see if there might be a good fit? My treat! If you don’t have the time or bandwidth right now, please don’t feel obligated. And if there’s someone else you think I should be speaking with, please let me know that, as well. Thanks, Tom! Let me know what you think. Barb Connect with Investors with Visible Connecting with the right investors is crucial to funding success. In order to better help with your fundraise, we’ve got you covered. Related Resource: A Step-By-Step Guide for Building Your Investor Pipeline Find the right investors for your business with our investor database, Visible Connect. Add them directly to your fundraising pipelines in Visible, share your pitch deck, and send investor Updates along the way. Give Visible a free try for 14 days here.

Building a startup is challenging. Founders are faced with hiring a talented team, building a strong product, financing their business, and more — oftentimes with limited experience in many areas. For many founders, it helps to learn from their peers, investors, and operators that have done it before. A great starting point for many founders is turning to a podcast with experts in different aspects of startup building and venture capital. Check out our list of different venture capital podcasts below: 1. Founders Forward The Founders Forward Podcast is our podcast at Visible. At Visible, our mission is to give founders a better chance of success. In order to help founders do so, we try to pull data, information, stories, tactics, etc. from other founders and investors. With the Founders Forward Podcast, we regularly interview different startup founders and venture capital investors. We try to find guests that are experts in different fields — from anything to building a pitch deck to understanding SEO for first-time founders. Episodes are typically between 30 and 60 minutes. Related Resource: Our 7 Favorite Quotes from the Founders Forward Podcast Why We Like It Our goal with the Founders Forward Podcast is to strap founders with resources and knowledge to help them tackle problems at their own businesses. We might be partial but a few reasons we like the Founders Forward Podcast: Our guests are experts in a dedicated space or field We interview founders or VCs who are just “one step ahead” of where you might be We cover everything from raising venture capital to running a PLG playbook to sleep science Related Resource: 5 Takeaways From Our CEO On The Stride 2 Freedom Podcast 2. The Twenty-Minute VC As put by the team at The Twenty Minute VC, “The Twenty Minute VC (20VC) interviews the world's greatest venture capitalists with prior guests including Sequoia's Doug Leone and Benchmark's Bill Gurley. Once per week, 20VC Host, Harry Stebbings is also joined by one of the great founders of our time with prior founder episodes from Spotify's Daniel Ek, Linkedin's Reid Hoffman, and Snowflake's Frank Slootman.” Why We Like It The Twenty Minute VC is one of the most tenured podcasts in the VC space. This has led to a large following. A few reasons we like it: Guests — Big-name guests that play an integral part in the VC space Digestible Format — Most episodes are between 30 and 60 minutes. While not 20 minutes like the names suggest, they are still approachable in length and format. Topical — As the podcast is published regularly, many episodes and guests cover current events and relevant topics in the space. 3. Venture Unlocked As put by their team, “The Venture Capital community is no longer the monolithic asset category that it once was. Over the last decade, new forms of capital providers have emerged to drive the innovation economy. Venture Unlocked is the newsletter and podcast playbook designed to educate and assist emerging managers and aspiring investors with the information and tools necessary to drive smart, diverse, and informed capital to entrepreneurs.” Why We Like It Venture Unlocked goes beyond a podcast with a newsletter that is regularly sent. A few reasons why we like the Venture Unlocked community: Data & Trends — The Venture Unlocked podcasts and newsletter is full of venture data and trends that can be applied by founders, VCs, and LPs All Aspects of VCs — The Venture Unlocked community not only focuses on VCs <> Founders but LPs as well Regular Cadence — New episodes and newsletters are consistently published so you know things are up-to-date and relevant. 4. Masters of Scale As put by their team, “Since its launch in 2017, Masters of Scale with Reid Hoffman has grown into a vital listen for business leaders, thanks to its groundbreaking format. In each episode, LinkedIn co-founder and Greylock partner Reid Hoffman demonstrates how companies grow from zero to a gazillion, testing his theories with legendary guests.” Why We Like It Check out a few of the reasons why we like the Masters of Scale podcast below: Successful Host — Reid Hoffman is the founder of LinkedIn and offers countless tips from his own experience. High Product Value — The Masters of Scale Podcast offers great production value Storytelling — Reid uses great storytelling strategies and stories from real-world examples to make a point. 5. The Neon Podcast (fka 100x Entrepreneur) As put by the host, “Hi, I am your host Siddhartha! I have been an entrepreneur from 2012-2017 building two products AddoDoc and Babygogo. After selling my company to SHEROES, I and my partner Nansi decided to start up again. But we felt unequipped in our skillset in 2018 to build a large company. We had known 0-1 journey from our startups but lacked the experience of building 1-10 journeys. Hence was born the Neon Show (Earlier 100x Entrepreneur) to learn from founders and investors, the mindset to scale yourself and your company. This quest still keeps us excited even after 5 years and doing 200+ episodes.” Why We Like It Check out a few reasons why people like The Neon Podcast below: Hosts — Siddhartha has experience as a founder and has gone through the journey of starting, scaling, and selling a startup. Guest — The Neon Podcast offers a wide range of different guests offering different perspectives and insights. 6. LA Venture As put by their team, “We talk to Southern California VCs to get to know them, their funds, and their advice for entrepreneurs. Hosted by Minnie Ingersoll from TenOneTen, an LA-based seed fund investing in b2b software.” Why We Like It Check out a few of the reasons why people listen to LA Venture below: Focus — The LA Venture podcast is hyper focused on the VCs and startups in Southern California. Different Stages — The LA Venture podcast hosts VCs that specialize in all startup stages, from accelerators to late stage investors. Hosts — Minnis works at a LA-based seed fund so they know they ins and outs of what to asks their guests. 7. Distilling Venture Capital As put by the team at Distilling Venture Capital, “Host Bill Griesinger brings an informed, unbiased and unique historical perspective to the venture capital and high-tech world. Drawing on over 20 years in venture finance, working with tech companies and venture capitalists, he offers an unfiltered and transparent view of the venture capital & high-tech universe.” Why We Like It Check out a few of the reasons why we like the Distilling Venture Capital Podcast below: Guests — Bill brings on a number of different guest, from angel investors to venture capitalists to startup CTOs and executives. Topics — The Distilling Venture Capital podcast covers everything from cap table management to hiring. 8. Equity As put by their team, “The intersection of technology, startups, and venture capital touches everything now. That’s why Equity unpacks the numbers and nuance behind the headlines for entrepreneurs and enthusiasts alike. Every Monday, Wednesday and Friday, TechCrunch reporters Alex Wilhelm and Mary Ann Azevedo keep you up-to-date on the world of business, technology, and venture capital.” Why We Like It Check out a few reasons why we like the Equity podcast below: Consistent — The Equity podcast has 3 new episodes every week, rain or shine. Data points — As Equity is a TechCrunch podcast they are able to use relevant industry data points. Current events — With their consistent schedule, Equity is able to share current events in the startup world on a regular basis. 9. The Road Untraveled The Road Untraveled is a podcast hosted by Brian Hollins, Founder and Managing Partner at Collide Capital. The podcast is shared sporadically and features prevalent guests in the VC and startup world. Why We Like It Check out a few reasons why we like The Road Untraveled below: Host — Brian is an active VC and offers a unique perspective and take as they are active in the space. Guests — The Road Untraveled offers a wide range of guests and offer insights. Digestible — Most episodes of The Road Untraveled are 30 minutes or less, leaving for an easy and quick listen. 10. The Full Ratchet As put by The Full Ratchet host, “My name is Nick Moran and I launched the first Venture Capital podcast, The Full Ratchet, in May of 2014. I started angel investing in 2013 and found the startup fundraising/investing process to be confusing and opaque. The industry was a black-box with little transparency. Yet, I observed that venture drives significant value across both public and private markets. And the most inspiring, thought-provoking people that I had interacted with were startup entrepreneurs. After a year of coffee chats with VCs and Angels, it became clear that I could learn the most from conversations with the experts. And why not record the conversations to help others in a similar situation?” Why We Like It The Full Ratchet has been around since 2014 and has formed a loyal following. Check out a few of the reasons we like The Full Ratchet below: Engaging Community — Nick allows community members to ask questions and helps them answer questions. Great Guests — Nick hosts a wide variety of guests that offer great insights into the VC world. Relevance — The podcast is regularly published and features topical and relevant subjects. 11. How I Built This As put by the team at How I Built This, “Guy Raz interviews the world’s best-known entrepreneurs to learn how they built their iconic brands. In each episode, founders reveal deep, intimate moments of doubt and failure, and share insights on their eventual success. How I Built This is a master-class on innovation, creativity, leadership and how to navigate challenges of all kinds. New episodes on Mondays and Thursdays for free.” Why We Like It How I Built This is one of the biggest podcasts in the business world. The podcast is well-liked by startup founders and others for a few key reasons: Guests — Guy Raz interviews the biggest names in the business and startup world. Lessons — The guests are great at sharing a few key takeaways and lessons they learned from building their business. Engaging Host — Guy Raz has become one of the most popular podcast hosts due to his engaging and laid back approach to interviewing. Learn More Through Podcasts and Connect with Visible Today Learning from peers, investors, and operators is a great way to strap yourself with basic knowledge to tackle your different duties as a founder. At Visible, we use our own data, founder and investor interviews, and best practices from leaders to help founders improve their odds of success. Stay up to date with our resources by subscribing to our weekly newsletter here. Related resource: The Future is Green: 15 Climate Tech Startups to Watch This Year

About Moxxie Moxxie was founded in 2019 by former Twitter executive Katie Stanton. Prior to starting Moxxie Katie worked at Google, in the Obama administration as a Special Advisor to the Office of Innovation, and co-founded the angel group #Angels. In 2021, Katie brought on Alex Roetter, whom she had worked with before at both Twitter and Google, as an equal partner in Moxxie’s second fund of $85M. Alex joined Moxxie with a wealth of operational and engineering experience from previously serving as the Senior VP of engineering at Twitter for 6 years as well as working as a software engineer at Google and various other early-stage startups. Today, Moxxie has invested in over 60+ seed-stage companies in the consumer, enterprise, fintech, health tech, and climate sectors. The team at Moxxie is differentiated by their operational experience and focus on underrepresented founders. According to an article published in Forbes, out of the 27 investments from Moxxie’s first fund, 36% were founded by women, 40% by people of color, 8% by Black founders and 43% by immigrant founders. Learn more about Moxxie. This Case Study was put together in collaboration with Alex Roetter, Managing Director and General Partner at Moxxie. What Moxxie was doing prior to using Visible In the early days at Moxxie, the team used a combination of check-in calls at varying frequencies, ad-hoc meetings, and texts to gather updates from their companies. Later on, they created a Google Group email alias where founders sent their updates so the communications were all stored in one inbox. The Moxxie team kept a summary of each company in a combined Google Document that was updated irregularly. The portfolio monitoring challenges Moxxie was facing The main issue with Moxxie’s ad-hoc method was that “...it was just all very manual. It was a mish-mash of documents and hard to maintain. We were inconsistent in how up-to-date we were on different companies,” shared Alex, Moxxie’s Managing Director. The manual effort required to stay on top of portfolio companies meant portfolio monitoring was “...falling to the wayside and we were not doing as good of a job [monitoring our companies] as we needed to be.” “...it was just all very manual. It was a mish-mash of documents and hard to maintain. We were inconsistent in how up-to-date we were on different companies." It’s common for investors to feel overwhelmed as they attempt to manually keep up to date on a growing number of portfolio companies despite recognizing the benefits of doing so. Alex emphasized that the main reason Moxxie wanted to improve their portfolio monitoring was to ensure they were spending their time most effectively at their firm. It was hard to identify which companies needed their support and where Moxxie's time would be most valuably spent “...without having a regular heartbeat from [their] portfolio companies.” The reasons Moxxie chose Visible Moxxie’s founder Katie Stanton was told to check out Visible’s KPI tracking capabilities at the end of 2022 while she was attending the Equity Summit, an invitation-only gathering that brings together thought-leading LPs and GPs that drive industry change. Alex from Moxxie reached out to Visible soon after the initial referral to schedule a demo. The demo confirmed that the Visible platform had exactly what Alex was looking for in a portfolio KPI tracking tool. Moxxie's portfolio monitoring criteria included: An automated way to send structured data requests to portfolio companies A solution that wasn’t taxing on their founders Allowed founders to share their data within seconds Ability to see all their portfolio data in one clear place Ability to easily build Tear Sheets for each company Moxxie's onboarding experience with Visible Moxxie’s onboarding took approximately 9 days to complete. When asked to share feedback on Visible’s onboarding process Alex shared “Everything was great. Whenever we had bulk data in a CSV that needed to be uploaded we shared it with Visible and it was uploaded within 24 hours.” Check out additional Visible reviews on G2. How Moxxie is leveraging Visible to streamline portfolio monitoring and reporting processes today Today Moxxie doesn’t have to remember to check in with their companies or make guesses about their companies’ recent progress updates. Instead, Visible has enabled Moxxie to send automatic, recurring, structured data requests to their companies that can be completed without their founders ever having to log in or create an account. The Moxxie team is immediately notified when companies complete data Requests. From there, they are able to easily identify which companies need more support. This streamlined, founder-friendly process ensures the Moxxie team can continue to spend time on high-value fund operations, such as deal flow, while also efficiently monitoring and supporting current portfolio companies. Taking a closer look at Moxxie’s use of the Visible platform, the team primarily uses four main features on Visible: Requests, Tear Sheets, Reports, and Updates. Requests: Streamlining Moxxie’s portfolio KPI data collection process Moxxie uses Visible’s Request feature to collect 5 metrics from companies on a regular basis. The firm collects data from early-stage companies on a monthly basis and on a quarterly basis for more mature companies in their portfolio. The five metrics Moxxie collects include: Revenue Runway Cash Spend Cash Balance Headcount Moxxie also includes a qualitative text block in their Request that provides companies with an opportunity to add additional context to their metrics, share any additional updates, or ask Moxxie for support on specific items. Alex shared that likes that the Visible platform sends him a notification each time a company submits a Request. He uses this as an opportunity to quickly identify any changes to the company’s performance. Alex shared “...anytime there’s something unexpected it’s a reminder to check in with the company.” Reports: Building a custom investment data report before an annual meeting Another key feature that Moxxie is utilizing is Visible’s report feature which allows Moxxie to pull together select metrics and investment data into a single table view. Moxxie has a fund summary for both Fund I and Fund II that includes: initial ownership %, total invested, total invested from a specific fund, and the initial valuation for each company. Moxxie initially created this report to prepare for an annual meeting with LPs. They wanted to see the numbers across all their portfolio companies, be able to download the figures, and then compute averages. Tear Sheets: Creating a clear overview of individual company performance Moxxie utilizes Visible’s dashboard templates to create custom Tear Sheets for each of their companies. Moxxie’s Tear Sheets incorporate elements of their original investment memo coupled with dynamic metrics and qualitative updates that change over time. Integrating company properties into Tear Sheets The static information in Moxxie's Tear Sheets is pulled directly from companies' profiles in Visible. The information that Moxxie includes in their Tear Sheets are: Company website url Latest valuation Co-investors Founders Company summary Why we invested Status Deal source Initial ownership Initial valuation Investment date Total invested Sector HQ location Year founded Integrated dynamic charts into Tear Sheets Moxxie also incorporates data visualizations into their Tear Sheets which are automatically updated as companies submit new information to Visible. The dynamic information Moxxie includes in Tear sheets is: Monthly KPI’s in a bar chart Runway vs Headcount in a bar chart Monthly spend vs cash balance in a bar chart Revenue forecast vs actual in a bar chart Update/progress since investment in a text widget Key metrics in a text widget Company-specific metrics in a text widget View Tear Sheet examples from Visible. Updates: Communicating portfolio performance with LPs on a quarterly basis Moxxie also leverages Visible’s Updates feature to send outbound communication to their LPs and the wider Moxxie community on a quarterly basis. The firm uses Visible’s Update feature instead of its previous Google Group as a way to consolidate its tech stack. Alex shares that he finds the open rates and viewing analytics helpful so he can understand how LPs are engaging with their regular communications. Conclusion Moxxie chose to move forward with Visible’s founder-friendly portfolio monitoring solution after hearing about Visible’s KPI tracking capabilities through a credible referral. By adopting Visible, Moxxie’s ad-hoc, manual portfolio monitoring processes have been transformed into a streamlined cadence for collecting structured updates from their companies. The firm previously stored outdated company summaries in Google Documents and now the Moxxie team leverages neatly organized Tear Sheets that auto-update when companies share new information. Over 400+ VC firms are using Visible to streamline their portfolio monitoring and reporting process.

Visible recently released Segment Metrics, a premium portfolio insights tool for VCs. The solution empowers investors to answer key questions about their portfolio performance in seconds instead of hours. How investors can unlock portfolio insights faster with Segment Metrics With Segment Metrics investors can find insights related to the sum, average, minimum, and maximum for any custom segment of their portfolio metric data and investment values. Example Segment Insights Examples of insights that can be uncovered with Segment Metrics include: The amount invested in female founders vs non-female founders The breakdown of investments based on sector, geography, and stage A comparison of revenue across seed-stage investments Investors can keep track of these insights by embedding the data visualizations on flexible, shareable dashboards in Visible as shown in the example below. Learn more about setting up Segment metrics in our Knowledge Base. Learn More About Visible Visible has a suite of tools to help with portfolio data analysis including Robust, flexible dashboards that can be used for Internal Portfolio Review meetings Portfolio metric dashboards to help with cross-portfolio insights Learn more about how 400+ Venture Capital investors use Visible to streamline their portfolio monitoring and reporting.

On October 8, 2023, California Governor Gavin Newsom signed into law Senate Bill 54. This law mandates that venture capital firms report the diversity of the founding teams in their portfolio to California’s Department of Civil Rights (DCR) annually. Why is Senate Bill 54 important? This law is the first piece of U.S. legislation aimed at increasing diversity within the venture capital industry which historically has allocated only 5% of capital to startups led by women, Black founders, or Latinx founders in any given year (source). When does Senate Bill 54 go into effect? The first report is due March 1, 2025. This means firms will be required to report accurate diversity data on investments they made during the 2024 calendar year by the start of March. Firms who do not comply may face a penalty as decided by the courts. Combine your firm’s diversity and portfolio KPI reporting processes with Visible. Which VC firms does Senate Bill 54 apply to? Senate Bill 54 applies to any VC that: Is headquartered in California. Has a significant presence or operational office in California. Makes venture capital investments in businesses that are located, or have significant operations, in California. Solicits or receives investments from a person who is a resident of California. Related Resource: California Adopts New Law Requiring VC Companies to Collect Diversity Data From Portfolio Company Founders What diversity information will be required? VC firms will be required to ask portfolio company founding teams to report their race, ethnicity, disabilty status, and sexual orientation. (Read the full requirements outlined in Senate Bill 54) Firms are required to make founders aware that this information is voluntary and founding teams will not be penalized for not reporting this formation. The information must also be collected in an anonymous fashion so that responses cannot be traced back to a founding team member. This information will be aggregated and reported to California’s Civil Rights Department (CDR) on an annual basis. Related Resource: 5 Actionable Steps to Improve Diversity at Your VC Fund Getting a head start on portfolio diversity reporting It’s important to make sure your firm has the internal capabilities to collect the required information from your portfolio companies before Senate Bill 54 goes into effect. Visible’s Request feature streamlines the way investors collect custom KPI’s and diversity information from their portfolio companies.

Did you know that 60% of investors don't hear from their portfolio companies on a regular basis? This means that the startups sending regular communications to their investors stand out the most. In fact, startups that provide regular investor updates are 3x more likely to receive follow-on funding. Making the time to write a compelling investor update regularly can be challenging for startup founders. This is where Visible AI Updates comes in. What is Visible AI Updates Visible AI Updates automatically turns Visible Request responses that portfolio companies submit to Visible into a narrative Update that startups can use to share with other investors and stakeholders. This equips founders to send regular, professional communications to all their greatest supporters (and sources of follow-on capital), with ease. Learn more about Visible AI updates and how you can leverage it with your Visible account below. How it Works Visible AI Updates is available to founders who are completing Visible data Requests from their investors. Using the metrics and qualitative answers from a data Request, Visible AI Updates adds context and builds charts to turn the information into a Visible Update that can be shared with other investors and stakeholders. Visible AI Update Example Using the qualitative answers and data included in your Request, we’ll help you turn the response into an Update using the following logic: “{Company Name} Investor Update” — For example, “Acme Co Investor Update” In order to create the content of the update we built a prompt for OpenAI that contains questions and answers from the request. We will create charts and tables for any metrics using the following logic: If a metrics question contains >3 metrics we will create a single table with all these metrics within the update Otherwise, we create bar charts for each metric in the question. Note: if a metric only has a single data point we will create a number chart instead. As always, we recommend reviewing your Update and making sure all of the content is correct and fits your voice. You can check out the full example of the Update here. Visible AI Updates Takeaways Providing investor updates regularly increases your likelihood of success and your ability to fundraise Visible AI transforms your Requests responses into a professional narrative update that you can share with all your stakeholders The Future of Visible AI This is our first introduction of AI into the Visible platform. In the months ahead we plan on exploring AI models to help with fundraising email copy, identifying potential investors for your business, and more. We are always looking for feedback. Feel free to share your AI-related ideas to support at visible dot vc.

Sending investor updates is a surefire way to tap into your current (or potential) investors' knowledge, capital, and experience. Investor updates keep your company top of mind and improve your odds of getting help with fundraising, hiring, strategy, and other issues that arise as a founder. However, sitting down and writing an update can be challenging for many founders. By leveraging AI, you can get over the cold start problem and get a head start on your next update with just a few data points. Integrating ChatGPT can further enhance the reporting process by adding depth, analysis, and narrative context to the raw metrics. Here’s how founders can do it. Related Resource: AI Meets Your Investor Updates Data Preparation Begin by exporting the key metrics and data points you want to share from Visible. This could include charts, graphs, or tables related to sales, customer growth, churn rate, financials, etc. Ensure your data is well-organized and accurate so you can share the results with your generative AI model of choice. Have specific numbers on hand for quick reference, such as revenue growth, churn rates, user acquisition costs, etc. Prompt Tips Review & Personalize Take the insights and analysis from ChatGPT and integrate them into your investor update. Adjust the language or depth of analysis to match the preferences and knowledge levels of your investors. Incorporate Visuals Visible already offers compelling visual data representation. Ensure that the written context provided by ChatGPT complements these visuals. For instance, a chart showing revenue growth coupled with a ChatGPT-derived narrative can provide a comprehensive view of financial health. Fact-Check & Verify Always double-check AI-generated content for accuracy. Ensure that the insights and interpretations align with your understanding and are factually consistent with the data from Visible. Feedback Loop After sending out the investor update, gather feedback. This will help you adjust the depth, tone, and content for future communications. By integrating ChatGPT's narrative capabilities with Visible's data representation, founders can create rich, insightful, and highly contextual investor updates that not only inform but also engage stakeholders in meaningful ways. Related resource: How AI Tools are Reshaping Venture Capital: Tools to Know Benefits of Using ChatGPT for Investor Updates Utilizing ChatGPT or other advanced AI language models can significantly enhance the process of crafting investor updates in several ways: Data Interpretation Insightful Analysis: AI can quickly process and analyze large datasets, highlighting important trends, anomalies, and patterns that might be missed with manual analysis. Contextual Comparison: By comparing your metrics with known industry benchmarks or historical data, AI can provide contextual insights into the company's performance. Narrative Creation Cohesive Storytelling: ChatGPT can help craft a narrative around raw data, turning numbers into a compelling story that communicates the company's journey, challenges, and triumphs. Consistent Tone: AI ensures that the tone of the update remains consistent throughout, whether it's formal, friendly, or somewhere in between. Time Efficiency Quick Turnaround: Drafting updates can be time-consuming. ChatGPT can rapidly generate well-structured drafts based on provided data, which founders can then review and adjust as necessary. Multi-version Generation: AI can generate multiple versions of an update, tailored to different investor personalities or preferences. Content Suggestions Comprehensive Reporting: AI can suggest relevant content to include, ensuring that critical aspects are not overlooked. This might include operational updates, financial highlights, or market trends. Personalized Updates: ChatGPT can generate updates tailored to specific investor groups or individual stakeholders based on their interests or investment focuses. Error Reduction Grammar & Syntax: ChatGPT ensures that the language used is grammatically correct and professionally composed. Fact-Checking: While AI isn't a replacement for manual fact-checking, it can help identify inconsistencies or potential errors in data presentation. Feedback Analysis Interpret Responses: If founders receive feedback or questions from investors, ChatGPT can help interpret and suggest appropriate responses or clarifications. Iterative Improvement: By analyzing feedback over time, the AI can refine the style and content of updates to better meet investor expectations. Scalability Handling Volume: For founders managing multiple ventures or reporting to a large number of stakeholders, ChatGPT can scale the update creation process without sacrificing quality. Template Generation Standardized Reporting: ChatGPT can help create templates for regular updates, ensuring consistent reporting structures while still allowing for customization based on the period's specifics. While ChatGPT and similar AI models offer numerous advantages in crafting investor updates, it's crucial for founders to remain actively involved in the process. The authenticity of the founder's voice, combined with the analytical power of AI, can create powerful and impactful communications. Prompts for Crafting an Investor Update with ChatGPT There are a few ways to approach ChatGPT as a source to help with your investor updates. Individual Section Prompts On one hand, you can enter each individual update section into ChatGPT and use a prompt for each section. For example, let’s say you have the following highlights from the last month: Hired 2 new sales reps — Brett & Amanda Grew 50% quarter over quarter to hit $1M in ARR Launched Big Product X You can enter the above into a prompt like this example "Briefly recap our company's highlights..." and carry on with this approach for each individual section of your update. Check out the most common content sections in Visible Updates below: One Prompt On the other hand, you can take any individual data points, qualitative or quantitative, from the previous period and enter them into ChatGPT with a prompt like the following: "Turn the following into an investor update with additional context around the month-over-month KPI data and an intro of 40 words or less [Copied in Update Contents]" Before ChatGPT Using the prompt above, we took the follow update points and turned it into an Update Highlights Hired 2 new sales reps — Brett & Amanda Grew 50% quarter over quarter to hit $1M in ARR Launched Big Product X Lowlights Blake, our lead developer, has quit KPIs Product Launches Big Product X has been a success. We have signed up 1,000 users in the first week and $10,000 in revenue Asks We are looking for users for Big Product X. Ideally they are a marketing professional with a team of 5 or more Looking for a lead developer that is based in Chicago with 8+ years experience Fundraising Efforts We are kicking off our seed round. Need intros to SaaS, Seed stage investors in midwest. Thank Yous Thanks to Kelley from Venture Fund X for making introductions to Big Company Y, our biggest customer yet. After ChatGPT In October, our journey marked significant achievements amid a few challenges. Let's delve into the details: Highlights Team Expansion: Welcomed Brett & Amanda to our sales team, enhancing our capabilities. Impressive Growth: Achieved a 50% QoQ growth, hitting $1 million in Annual Recurring Revenue. Product Success: The launch of Big Product X was a triumph, securing 1,000 users and $10,000 in revenue within a week. Lowlights Talent Loss: Unfortunately, our lead developer, Blake, departed. KPIs - A Closer Look September 2023: Revenue: $100,000 Cash Balance: $1,000,000 Gross Profit: -$10,000 Headcount: 12 October 2023: Revenue: $150,000 Cash Balance: $1,100,000 Gross Profit: $100,000 Headcount: 14 Asks User Acquisition: Seeking users for Big Product X, particularly marketing professionals with a team of 5 or more. Talent Search: In pursuit of a lead developer based in Chicago with 8+ years of experience. Fundraising Efforts We are launching our seed round and would greatly appreciate introductions to SaaS and seed-stage investors in the Midwest. Thank Yous Our heartfelt thanks to Kelley from Venture Fund X for the introductions that led to Big Company Y becoming our largest customer to date. Your continued support is invaluable, and we look forward to sharing more accomplishments in the months ahead. Sincerely, [Your Name] [Your Title] [Your Contact Information] Learn More About Visible Updates With Visible you can find investors, send monthly Updates, share your pitch deck, and manage relationships with our CRM. Give Visible a free try for 14 days here.

For those aspiring to venture into the dynamic world of SaaS, we’ve created this guide with a step-by-step roadmap bridging the gap between vision and execution. From the initial stages of ideation, emphasizing the significance of addressing genuine challenges, to the detailed processes of devising your business plan and selecting an appropriate structure, each step is crucial. We’ll also cover the importance of a user-first approach, effective pricing methodologies, and strategic brand positioning, along with KPI’s and important metrics to track. What Makes a SaaS Company Successful Every enterprise, regardless of its niche, thrives on certain foundational pillars. When it comes to SaaS, these pillars not only determine its initial breakthrough but also its long-term viability. So, what makes a SaaS venture stand out? Prioritizes Customer Success For SaaS companies, customer success isn’t merely about meeting expectations—it’s about exceeding them. Given the subscription-based model of SaaS businesses, retaining customers is paramount. By ensuring that users derive continuous value from the software, successful SaaS companies bolster loyalty, reduce churn rates, and increase lifetime customer value. They invest in excellent onboarding processes, ongoing customer support, and regular feedback loops to adapt and improve. The SaaS Company Understands Their Market A deep understanding of the market is the bedrock of any successful enterprise. For SaaS companies, this translates into recognizing not only who their ideal customers are but also their pain points, desires, and how the product fits into the larger industry ecosystem. By consistently aligning product development with market demand, these businesses ensure that they remain relevant and competitive. Grows at a Steady Pace While rapid growth might seem attractive, it can sometimes lead to unsustainable practices or missed opportunities to solidify the product-market fit. The most successful SaaS companies focus on steady, scalable growth. This approach ensures that as the company expands, it remains adaptable, maintains high service quality, and continues to meet its users’ evolving needs. Is Starting a SaaS Company Without Technical Skills Possible? Venturing into the realm of SaaS might seem intimidating, especially if you’re not armed with coding skills or a tech background. However, the truth is that while technical know-how is undeniably advantageous, it’s not an absolute requirement. Many successful SaaS founders started with a vision, a clear understanding of their market, and the drive to solve a pressing problem. Partnering with technical experts, outsourcing development, or leveraging no-code platforms are just a few routes one can take. Remember, at the heart of every great SaaS product is a solution to a genuine problem; if you can identify and address that, the technicalities can always be managed. 12 Steps for Building a Succesful SaaS Company While understanding the core principles behind a successful SaaS venture is vital, actionable steps are what transform that understanding into a thriving business. Here is a 12-step roadmap to establish your very own SaaS company. 1) Build a Product That is a Solution to a Common Problem The most successful SaaS products are not just software; they are solutions to pervasive problems that users face. Starting with a problem-first approach ensures that there’s a genuine demand for your product. Instead of convincing users to adapt to your software, you’re providing a tool they’ve been actively seeking. This positions your product as essential rather than optional. Real-Life SaaS Example For instance, imagine if workplaces had to juggle multiple platforms for every communication need. It would be chaotic and inefficient. This is precisely the problem Slack aimed to solve. Before its introduction, many teams relied on a patchwork of emails, texts, and various apps for communication. Slack provided a centralized platform where teams could seamlessly chat, share files, and integrate other tools, making team communication coherent and streamlined. Their problem-first approach is a significant reason for their widespread adoption and success. 2) Decide on a Name for Your Company The name of your SaaS company is not just a label; it’s the first impression, the identifier, and often, the first interaction a potential user has with your brand. A well-chosen name can set the tone for what customers can expect, reflect the essence of your software, and play a role in your brand’s memorability. Conversely, a hastily picked or misaligned name can create confusion or even deter potential users. Given its significance, naming your company is a decision that warrants careful consideration. Tips for Choosing a Company Name: Simplicity is Key: Choose a name that’s easy to spell, pronounce, and remember. Complex names can make it difficult for potential users to search or pronounce when talking about your product. Relevance: Ensure the name resonates with the solution your product provides or the problem it addresses. It doesn’t have to be overly descriptive, but some level of relevance helps. Check Domain Availability: In the digital age, your online presence is paramount. Before settling on a name, make sure the domain is available. A .com or .io is often seen as the most professional, but with the possibility of other domain extensions, you can also get creative. Visible has chosen .vc and AI companies often use .ai. Avoid Copying Competitors: Your company name should stand out and not be easily confused with existing SaaS products. A distinct name can help avoid legal issues and distinguish your brand in the market.- Scalability: Think long-term. Choose a name that won’t pigeonhole your company if you decide to expand or pivot your product offerings in the future. Solicit Feedback: Once you have a shortlist of potential names, seek opinions from colleagues, potential customers, or mentors. Their perspectives can provide insights you might have overlooked. Remember, while a name is significant, it’s the value and utility of your software that will ultimately define its success. The name is the hook, but the product is the substance. 3) Create a Business Plan or Write a Lean Plan Every successful venture starts with a blueprint—a comprehensive strategy that outlines the company’s objectives, methods to achieve those objectives, potential pitfalls, and ways to mitigate them. This blueprint is known as a business plan. However, in the fast-paced world of SaaS, sometimes a traditional business plan can be overly detailed. In such cases, a Lean Plan, which is a distilled version of a business plan, might be more appropriate. Both provide clarity, focus, and a roadmap, but they differ in depth and detail. How to Write a Business Plan: A business plan is a detailed document that provides an in-depth analysis and strategy for your SaaS venture. Here’s what it typically includes: Executive Summary: A brief overview of your company, including the mission statement, product description, and basic information about your company’s leadership team, employees, and location. Market Analysis: Detailed research on the industry, market size, and your competitors. This should outline who your target customers are, what they need, and how your product addresses those needs. Organization & Management: A breakdown of your company’s organizational structure, details about the ownership, profiles of your management team, and the qualifications of your board of directors. Product Line: Detailed descriptions of your product or service, including information on the product’s lifecycle and intellectual property rights. Marketing & Sales: Your strategy to attract and retain customers—this could be through online marketing, partnerships, or traditional advertising. Financial Projections: Forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets for the next five years. Appendix: Any additional information, graphics, or charts that supplement your business plan. How to Write a Lean Plan: A Lean Plan is a concise, dynamic document (typically one page) that highlights the essential components of your business without going into minute details. It’s particularly useful for startups looking to iterate rapidly. Here’s what it covers: Value Proposition: A clear statement describing the problem you’re solving, the solution, and the target customers. Key Partnerships and Resources: Who will you be working with, and what are the essential tools and resources for your business? Channels: How will you deliver your product to your customers? Customer Segments and Relationships: Who are your primary customers, and how will you interact with them? Revenue Streams: How will you make money? This can include subscription models, licensing, or affiliate partnerships. Cost Structure: A breakdown of the major expenses and where resources will be allocated. The choice between a business plan and a lean plan will depend on your specific needs, the nature of your SaaS product, and the stage of your startup. Both are invaluable tools, but the lean plan’s flexibility makes it more suitable for businesses that anticipate frequent changes and rapid iterations. Related resource: The SaaS Business Model: How and Why it Works 4) Choose Your Business Structure Selecting the appropriate business structure is pivotal. This choice influences your day-to-day operations, how much you pay in taxes, your ability to raise funds, the paperwork you need to file, and your personal liability. Each business structure comes with its own advantages and disadvantages, and the ideal choice will depend on your company’s unique needs, your business goals, and your personal preferences. Should You Form an LLC? An LLC (Limited Liability Company) is a hybrid business entity that blends elements of partnerships and corporations. Here’s what you should know: Liability: One of the primary benefits of an LLC is that it offers limited liability protection to its members. This means personal assets, like your home or car, typically aren’t at risk if the LLC faces debts or lawsuits. Flexibility: LLCs offer flexibility in management and don’t require a board of directors or annual meetings. Taxes: Profits and losses pass through the business to the members, who report this information on their personal tax returns. This avoids the “double taxation” faced by corporations. Decision: If you’re looking for liability protection, taxation flexibility, and less rigid formalities, an LLC might be right for you. It’s especially favored by smaller SaaS startups. Related resource: Fobes: Best LLC Services Of 2023 Should You Form a Sole Proprietorship? A Sole Proprietorship is the most straightforward business structure, best suited for solo founders. Control: As the sole owner, you have complete control over the business decisions. Taxes: Income from the business is treated as personal income, and you’ll be responsible for all the taxes. There’s no distinction between the owner and the business. Liability: The major downside is unlimited personal liability. If the company incurs debts or is sued, your personal assets can be at risk. Decision: If you’re starting a small SaaS business on your own and are comfortable with the risks, a sole proprietorship might be a good fit. However, due to the liability concerns, many solo founders eventually transition to an LLC or corporation as the business grows. Related resource: Sole Proprietorship: What It Is, Pros & Cons, Examples, Differences From an LLC Should You Form a Corporation? A Corporation is a more complex business structure that treats the business as a distinct entity separate from its owners. Liability: Shareholders (the owners) have limited liability. This means their personal assets are protected from company debts or legal actions. Taxes: Corporations face “double taxation.” The corporation itself pays taxes on profits, and shareholders also pay taxes on the dividends they receive. Raising Capital: Corporations can raise capital more easily by issuing stocks. This is often necessary for large-scale SaaS ventures that require significant investments. Formalities: There are more rigid requirements, like having a board of directors, annual general meetings, and more extensive record-keeping. Decision: If you plan to scale your SaaS company significantly or anticipate raising a lot of capital through investors, a corporation might be the best choice. It’s a common structure for larger startups aiming for significant growth or an eventual IPO. The choice of business structure will significantly impact your SaaS company’s operations and growth potential. It’s essential to consult with legal and financial professionals to determine the best fit for your specific situation. 5) Test Your SaaS Idea: Will this Product Disrupt the Market? Before diving headfirst into development and scaling, it’s imperative to validate your SaaS idea. The last thing you want is to invest time, resources, and money into a product only to realize there isn’t a sizable market demand for it. Engaging potential customers in conversations and conducting a competitive analysis will help you ascertain the potential of your idea and identify any gaps in the market or areas for improvement. Chatting with Customers: This is your direct channel to understanding the needs, pains, and preferences of your target audience. By engaging with potential customers, you can get feedback on: Features they deem essential. The price they’re willing to pay. The challenges they face with current solutions. These conversations can guide product development, pricing strategies, and marketing approaches. Competitive Analysis: This helps you gauge the current market landscape. Who are the major players? What do they offer? Where do they fall short? How can your product fill the gaps or provide a better solution? Understanding your competition can give you a strategic edge and help refine your unique value proposition. How to Conduct a Competitive Analysis Study: List Down Competitors: Start by identifying your direct competitors (those offering a similar solution) and indirect competitors (those solving the same problem but through a different method). Analyze Product Features: Break down the features of each competitor. Identify where they excel and where they lack. Customer Reviews: Dive into customer reviews on platforms like Capterra or G2 Crowd. These can provide insights into what users love and what frustrates them about existing solutions. Pricing Structures: Understand the pricing models of competitors. Are they subscription-based? One-time purchase? Freemium? This can help you position your product competitively. Brand Perception: How do competitors market themselves? What’s their messaging? Understanding their brand perception can help you differentiate and position your product. SWOT Analysis: Conduct a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for each competitor to have a holistic view of the competitive landscape. Pro Tip: Use tools like SEMrush or Ahrefs to analyze competitors’ online strategies. These tools can reveal keywords they rank for, their content strategy, backlink profiles, and more. Leveraging this information can give you a competitive edge, especially in your digital marketing efforts. By taking the time to validate your idea and understand the competitive landscape, you set the stage for a product that not only meets market needs but has the potential to disrupt and innovate within its space. 6) Create a Pricing Model for Your Service The pricing model for your SaaS product isn’t just about determining a number; it’s a strategic decision that can influence your brand’s positioning, perceived value, and revenue streams. Too low, and you might be undervaluing your service or not covering costs, leading to financial strain. Too high, and you might deter potential customers. A well-considered pricing strategy ensures that you’re offering value to your customers while also achieving profitability. How to Determine Price for Your Service: Cost-Based Pricing: At the most fundamental level, you need to cover your costs. Calculate the total cost of delivering your service, including development, hosting, support, marketing, and any other overhead. Ensure that the price you set covers these costs and leaves room for a healthy margin. Value-Based Pricing: Understand the value your service provides to your customers. If your software can save a company $50,000 a year in operational costs, they might be more than willing to pay $10,000 a year for it. Competitor Analysis: As discussed earlier, knowing what your competitors charge can provide a ballpark figure. If your software offers more features or better support, you might be able to charge a premium. Conversely, if you’re entering a crowded market and want to penetrate quickly, undercutting might be a viable strategy. Tiered Pricing: Offer multiple packages with different feature sets. This can cater to a broader range of customers, from small businesses to large enterprises. For instance, a basic package might offer core features, while a premium package might include advanced analytics or priority support. Freemium Model: Provide a basic version of your service for free and charge for advanced features or more extensive usage. This can be a way to get users in the door and upsell them later. Pilot Testing: Before finalizing your price, consider doing a soft launch or pilot test. Offer your service to a select group at a discounted rate in exchange for feedback. This can provide real-world insights into what customers are willing to pay. Feedback and Adjustments: Pricing isn’t static. Periodically gather feedback, monitor how your pricing affects sales, and adjust accordingly. Markets, competitors, and costs change, and your pricing strategy should be flexible enough to evolve. Your pricing model is more than just a figure—it’s a reflection of the value you provide, the market you operate in, and the strategy you adopt. Approach it thoughtfully, and be prepared to iterate as you gather more data and insights. 7) Gather Customer Feedback & Focus on User Experience The road to a successful SaaS company is not paved solely by a great product idea. It’s continuously refined by listening to your users and iterating based on their feedback. In the realm of software, a small usability hiccup can be the difference between a delighted customer and a frustrated one who churns. Emphasizing customer feedback and a stellar user experience (UX) is paramount in ensuring that your SaaS product isn’t just functional, but also enjoyable and intuitive. Why User Experience is Important: First Impressions Matter: A user’s initial experience with your software can set the tone for their entire relationship with your product—and by extension, your brand. A well-designed, intuitive user interface can make users feel empowered, while a clunky, confusing one can lead to frustration. Reduction in Support Costs: A software that’s easy to use and navigate can significantly reduce the volume of support queries and tickets. This not only reduces operational costs but also leads to happier customers. Increased Retention Rates: Retaining customers is often more cost-effective than acquiring new ones. A great UX can lead to increased user satisfaction, resulting in higher retention rates. Enhanced Credibility and Trust: A polished, professional user interface can enhance your product’s credibility. Users are more likely to trust and continue using a product that appears well-designed and user-centric. Boost in Referrals: Delighted users are more likely to recommend your software to peers. Word-of-mouth referrals, often spurred by an exceptional user experience, can be a potent channel for organic growth. Feedback Loop: By actively seeking and implementing user feedback, you demonstrate that you value and listen to your customers. This not only helps improve your product but also fosters a deeper connection between users and your brand. Market Differentiation: In a crowded SaaS market, a superior user experience can set you apart from competitors. While features and pricing play a role, the ease and pleasure of using a software can be a significant differentiator. User experience is the backbone of user satisfaction. By focusing on UX and actively seeking customer feedback, you position your SaaS product to not just meet user needs but to exceed their expectations. This proactive approach can lead to higher loyalty, increased referrals, and a strong market position. 8) Establish Your Brand & Make it Stand Out In the vast sea of SaaS products, establishing a strong brand identity is crucial for recognition, recall, and emotional connection with your target audience. Your brand is more than just a logo or a catchy tagline; it’s the cumulative experience that customers have with your company, your product, and even your content. A well-crafted brand evokes trust, differentiates you from competitors, and gives potential users a clear sense of what you stand for and what they can expect. Ways to Differentiate Your Brand from Your Competitors: Unique Value Proposition (UVP): Clearly define what sets your SaaS product apart. Is it unmatched customer support? Groundbreaking features? Exceptional affordability? Your UVP should be front and center in your branding and marketing efforts. Visual Identity: Consistent use of colors, fonts, and design elements can make your brand instantly recognizable. This consistency should extend across your website, product interface, marketing materials, and social media platforms. Brand Voice and Personality: Whether it’s professional, playful, or somewhere in between, the tone and style of your content can give your brand a distinct voice. This includes everything from website copy and blog posts to email campaigns and social media updates. Content Leadership: Sharing valuable content that addresses user pain points or industry trends can position your brand as a thought leader. This not only attracts potential users but also establishes trust and credibility. Community Engagement: Engaging with your user community through forums, social media, or user groups can help foster loyalty and give users a sense of belonging. This engagement can also provide valuable insights and feedback. Customer Success Stories: Showcase testimonials, case studies, and success stories. Real-world examples of how your product has benefitted users can resonate deeply with potential customers. Ethical Practices and Values: In an age where consumers are more conscientious about the brands they support, showcasing your company’s commitment to ethical practices, sustainability, or community involvement can make you stand out. Exceptional Customer Service: Often, the post-purchase experience is what users remember most. Offering stellar customer service can turn users into brand advocates. Continuous Innovation: Regularly updating your software with new features, improvements, or addressing pain points can show users that you’re committed to offering the best product possible. Interactive Branding Elements: Tools like quizzes, interactive infographics, or branded games can make your brand memorable and provide value at the same time. While the SaaS market is crowded, there’s always room for brands that resonate, provide value, and stand out. Differentiating your brand is not about being different for the sake of being different; it’s about genuinely understanding your target audience, what they value, and delivering that in a way that’s uniquely you. 9) Start Your Fundraising Journey Launching and scaling a SaaS company often requires capital – for product development, hiring talent, marketing, infrastructure, and other operational expenses. While some entrepreneurs manage to bootstrap their startups, many look for external funding to fuel their growth. The fundraising route you choose should align with your company’s goals, the stage of your business, and your personal preferences. Here’s a breakdown of popular fundraising options: Should You Pitch an Angel Investor? Angel Investors are affluent individuals who provide capital to startups in exchange for ownership equity or convertible debt. They often invest their own money, unlike venture capitalists who manage pooled funds from many investors, and limited partners (LPs). Pros: Flexibility: Angel investors, being individuals, might offer more flexible terms compared to institutional investors. Mentorship: Many angel investors are former entrepreneurs themselves and can provide valuable advice and connections. Speed: The process can be faster than traditional venture capital fundraising. Cons: Limited Funds: Angel investments are typically smaller than venture capital rounds. Due Diligence: As with all investors, angels will scrutinize your business model, which might extend the fundraising timeline. Should You Pitch Venture Capitalists? Venture Capitalists (VCs) are professional groups that manage pooled funds from many investors and LPs to invest in startups and small businesses. They typically come in when you have a proven business model and are looking to scale. Pros: Larger Investments: VCs can invest significant amounts, often millions, allowing for rapid scaling. Expertise and Network: Established VCs bring industry connections, mentorship, and expertise. Credibility: Securing VC funding can enhance your startup’s credibility in the market. Cons: Equity Sacrifice: VCs often ask for a considerable stake in your company. Loss of Control: With a significant stake, VCs might influence company decisions or direction. Pressure: VCs expect a return on their investment, often pressuring companies for rapid growth. Is Bootstrapping Right for Your Company? Bootstrapping refers to starting and growing a business without external investment or financing. Entrepreneurs rely on personal savings, revenues, or other organic sources to fund their venture. Pros: Full Control: Entrepreneurs retain complete control over their business decisions and direction. Ownership: No dilution of equity since you’re not bringing in external investors. Flexibility: You can pivot or change direction without external pressures. Cons: Limited Resources: Growth might be slower due to resource constraints. Financial Risk: Personal assets might be at risk if the business doesn’t succeed. Missed Opportunities: Lack of funds might mean missed market opportunities or being outpaced by funded competitors. The fundraising path you choose is a strategic decision. It’s essential to weigh the pros and cons of each option, considering both the immediate needs and long-term vision for your SaaS company. Remember, the goal is not just to raise funds but to build a sustainable and successful business. 10) Develop or Start Building Your Service While a solid idea and funding are foundational, they’re just the beginning. The heart of your SaaS venture is the service itself. At this step, you bring your vision to life, transforming concepts and wireframes into functional, user-friendly software. This stage requires meticulous attention to detail, continuous collaboration between teams, and an unwavering commitment to user needs. Best Practices for Building Your Service: Start with MVP (Minimum Viable Product): Begin with a simplified version of your service that incorporates the core features. This allows you to test the market, gather feedback, and iterate before investing more time and resources. Prioritize User-Centered Design: Ensure your service is designed with the end-user in mind. Prioritize intuitive navigation, clear call-to-actions, and an aesthetically pleasing interface. Continuous Testing: Regularly test your software for bugs, performance issues, and usability hiccups. This includes unit testing, integration testing, and user acceptance testing. Adopt Agile Development: Using agile methodologies allows for iterative development, regular feedback loops, and the flexibility to pivot when needed. Invest in Security: Ensure that your software is secure and compliant with relevant regulations. Regularly update and patch your systems, and consider third-party security audits. Cloud Integration: Consider building your service to be cloud-compatible, ensuring scalability, and reducing the need for significant infrastructure investments. Feedback Loop: Keep channels open for user feedback even during development. This ensures that any design or functional misalignments are caught early. Documentation: Maintain thorough documentation for your service, both for internal use (for developers and support teams) and external use (for users). This aids in training, troubleshooting, and user onboarding. Stay Updated with Tech Trends: The tech landscape is ever-evolving. Be open to adopting new tools, technologies, or methodologies that can improve your service’s functionality or user experience. Collaborative Approach: Foster a collaborative environment where designers, developers, marketers, and other stakeholders frequently communicate and align on objectives. Building your SaaS service is an exciting, dynamic process. It’s where vision meets reality. By following best practices and maintaining a user-centric focus, you can ensure that your service not only meets but exceeds market expectations. As you roll out your service, remember that continuous improvement, based on real-world feedback and technological advancements, will be key to long-term success. 11) Create a Go-To-Market Strategy The culmination of your ideation, development, and preparation efforts rests heavily on the effectiveness of your go-to-market (GTM) strategy. This is the blueprint that will guide how you introduce your SaaS service to the market, acquire customers, and scale your business. Without a well-thought-out GTM strategy, even the most innovative product might struggle to gain traction or achieve its potential. What is a Go-To-Market Strategy? A go-to-market strategy is a comprehensive action plan that outlines how a business will sell its products or services to customers. It defines the target audience, details the value proposition, and lays out the sales and marketing tactics the company will employ to achieve its goals. In the SaaS realm, a GTM strategy is especially vital given the competitive nature of the market and the unique challenges and opportunities presented by software subscription models. How to Create a Go-To-Market Strategy: Define Your Target Audience: Understand who your ideal customers are. Create detailed buyer personas based on demographics, job roles, pain points, and purchasing behavior. Clearly Articulate Your Value Proposition: Clearly define what sets your SaaS product apart from competitors. What problem does it solve? Why should customers choose your product? Choose Your Distribution Channels: Decide where and how you’ll sell your product. This could be through a direct sales team, digital channels, partnerships, or a combination of multiple channels. Pricing Strategy: Based on market research, competitors, and perceived value, decide on a pricing model. Will you offer tiered pricing, freemium models, or one-time licensing? Promotion and Marketing: Outline your marketing campaigns. This includes content marketing, PPC advertising, social media marketing, email campaigns, and more. Sales Strategy: If you’re using a direct sales approach, how will you structure your sales team? What will be their pitch? Will you use inbound or outbound sales strategies, or both? Customer Onboarding: Consider how you’ll introduce new users to your product. This could involve tutorials, webinars, documentation, or in-app guides. Feedback Mechanism: Ensure there’s a system for collecting feedback from early users. This will help in iterating and improving your product. Scale Strategy: Plan for growth. How will you handle increased demand? What’s the strategy for entering new markets or segments? Regular Reviews: Continuously review and refine your GTM strategy based on performance metrics, feedback, and market changes. Creating a compelling go-to-market strategy is a mix of art and science. It demands a deep understanding of your market, a clear vision for your product, and the agility to adapt as you learn from real-world execution. Remember, the landscape is dynamic, and while a GTM provides direction, it should never be set in stone. Flexibility and responsiveness to change are paramount to long-term success. 12) Determine KPIs to Measure Growth & Success While your SaaS product might be top-notch and your go-to-market strategy well-defined, without the right metrics to track progress, you’re navigating the expansive seas of business without a compass. Key Performance Indicators (KPIs) act as this compass, allowing businesses to measure, analyze, and assess the success of their operations and strategies. KPIs enable businesses to make informed decisions, rectify shortcomings, and capitalize on strengths. Related resource: Our Ultimate Guide to SaaS Metrics How To Calculate and Interpret Your SaaS Magic Number KPIs That Measure Success: Monthly Recurring Revenue (MRR): This is the total revenue your SaaS business can expect to receive every month. It’s a pivotal metric for any subscription-based service. Annual Recurring Revenue (ARR): A projection of your MRR over a year, providing insight into your yearly revenue from subscriptions. Customer Acquisition Cost (CAC): The average amount spent to acquire a new customer, encompassing marketing, sales expenses, and any other related costs. Lifetime Value (LTV): An estimate of the total revenue a business can expect from a single customer account throughout their subscription. Churn Rate: The percentage of subscribers who stop their subscriptions within a certain time frame. A lower churn rate is indicative of customer satisfaction and product viability. Net Promoter Score (NPS): A measure of how likely your customers are to recommend your product to others. A high NPS typically signifies high customer satisfaction. Active Users: This can be daily active users (DAU) or monthly active users (MAU). It helps gauge the engagement and stickiness of your product. Customer Retention Rate: The percentage of customers you retain over a specific period, excluding new customers. Sales Conversion Rate: The percentage of leads or potential customers who end up making a purchase or subscribing to your service. Average Revenue Per User (ARPU): The average revenue generated from each active user. It provides insights into how much value each user brings to the business. Feature Usage: A metric to identify which features of your SaaS product are most and least used. It’s invaluable for future development and iterations. Support Tickets & Resolution Time: The number of support tickets raised by users and the average time taken to resolve them, indicative of product stability and customer service efficiency. Establishing, tracking, and analyzing these KPIs provide a granular view of your SaaS company’s health, growth, and customer satisfaction. They act as early warning systems for potential problems and as validation of successful strategies. Ultimately, while there are many KPIs to consider, it’s crucial to focus on those most aligned with your business goals and objectives, ensuring that you’re always moving in the right direction. Start Your SaaS Fundraising Journey with Visible From ideation to development, and from market entry to growth measurement, building a successful SaaS company is a journey of many pivotal steps. Every phase holds its unique challenges and rewards. And while our guide has aimed to arm you with the foundational knowledge to navigate this voyage, one of the most crucial aspects is securing the necessary funding. Fundraising can be complex, but with the right partner, it can become considerably more manageable. That’s where Visible steps in. As a platform designed to streamline and optimize the fundraising process, Visible offers tools, insights, and connections that can be invaluable for budding SaaS entrepreneurs. Ready to kickstart your fundraising journey? Discover how Visible can be the partner you need in turning your SaaS vision into a reality. Try Visible for free for 14 days.