Fundraising

Rewind to 2009, when a small company called UberCab is pitching the idea of a “next generation black cab service” to seed investors. Operating in just 2 markets (NYC & SF), offering an SMS system to hail a ride, and estimating a $4B market size, UberCab envisioned themselves as the black car leader for professionals in American cities. Fast forward to 2019, Uber operates in over 60 countries, has expanded into food delivery, added coverage outside urban area, become a rental car alternative, and their total addressable market is rapidly approaching $300B (with some estimates surpassing $1T). Investors go back and forth about the importance of TAM, as it is often inaccurate and is constantly changing. David Skok sums it up like this: “TAM’s role in a pitch deck is to convince investors that the company is chasing an opportunity big enough to achieve venture-scale returns with the right execution.” So what lessons can we learn from Uber, whose total addressable market has multipled by almost 50x over the last 10 years? Top-Down vs. Bottom-Up There are 2 distinct ways we generally see companies use to model their total addressable market: top-down and bottom-up. David Skok, Founder of Matrix Partners, defines them simply: Top-Down – calculated using industry research and reports. Bottom-Up – calculated using data from early selling efforts. David, an investor himself, tends to favor a bottom-up approach as opposed to a top-down one when evaluating potential investments. The reason being that a top-down approach relies on self-reported data from private companies, which can often be misleading, inaccurate or interpreted incorrectly. A bottom-up approach, however, uses firsthand data and knowledge of your own company and reduces the risk of the data being wrong or taken out of context. With this being said, for a pre-revenue product or project a top-down approach is often the most feasible option. A top-down approach is comparatively easy since the only parameters it really requires is the total market value for your area and the market share you expect to receive whereas a bottom-up approach requires firsthand data. As you may have already guessed, Uber estimated their market size at $4B by using a top-down approach. By using existing market data, Uber dramatically undersized what the “cab and car services” market looked like, and what it would look like in the future. Using a bottom-up approach, Uber could have used their data set from their first market, San Francisco, which would have shown that the overall market was expanding, as current users were taking more rides in Ubers than they ever had in cabs. Related Resource: Total Addressable Market vs Serviceable Addressable Market Related resource: Bottom-Up Market Sizing: What It Is and How to Do It Related resource: Service Obtainable Market: What It Is and Why It Matters for Your Startup Don’t Assume the Future Will Look Like the Past As mentioned, one of the issues with a top-down approach is the assumption that the market will look the same in the future as it does today. Using historical market data does not include the expansion you would eventually see from new price points, convenience, and increased usability. Uber’s initial model for their total addressable market did not account for the changes a disruptive product (AKA theirs) would have to the entire market. Sizing the market for a disruptor based on an incumbent's market is like sizing the car industry off how many horses there were in 1910. — Aaron Levie (@levie) June 8, 2014 Bill Gurley, General Partner at Benchmark and defender of Uber’s valuation, has deeply studied Uber’s market and its ongoing expansion. When discussing Uber’s total addressable market and valuation Bill said, “Uber’s ease of use and simplicity have led many of its users to greatly increase the number of times they use an alternative car service. Some customers now use it as a second car alternative. As such, the company is meaningfully expanding the market for black car services, which is in turn a huge boon to the suppliers that share in the economic expansion.” A “Wedge” Into the Bigger Market With a sole focus on black car and professional services, Uber’s initial market size was just a small segment of their business today. UberCab was current-day Uber’s “wedge” into a much larger opportunity. Determining a total addressable market for your current offering and segment is a must, but don’t be afraid to paint a picture of the adjacent markets and where you envision your company headed in the future. As Paul Graham, Founder of Y Combinator, puts it, “Your target market has to be big, and it also has to be capturable by you. But the market doesn’t have to be big yet, nor do you necessarily have to be in it yet. Indeed, it’s often better to start in a small market that will either turn into a big one or from which you can move into a big one.” At the end of the day, investors view TAM as a picture of how big your business can be. Correctly modeling the market is vital to proving that your business should be venture-backed. Check out our TAM Template If you need a little help painting a picture of the market your solution could address, try using our TAM template! It has everything you need to start modeling the market your business can capture. Related resource: What Is TAM and How Can You Expand It To Grow Your Business?

When an investor tells you they’d like to fund your company, it may feel like you’ve reached the finish line. The hard work and time you’ve put in to fundraising is finally paying off, and soon enough you’ll have the resources you need to grow your business. Not so fast. As any good salesperson will tell you, there’s a big difference between “I’d like to close” and actually closing. From getting partner buy-in to completing due diligence, there’s a lot to think about when closing a new investor. If you know this, and are properly prepared, you can reduce the time it takes to get your check, plus save yourself a lot of headache. Here are a few things you can do to make the process smooth. Be prepared OK, so this is cheating a bit. This part actually happens before an investor tells you they want to fund your company. This is the prep work you do before going in to formal pitch meetings to make sure you can respond quickly when a potential investor wants more information. Christoph Janz provides a great overview of how to do this kind of preparation in “6 things to pre-empt 90% of due diligence.” Most of the guidance here is around preparing the metrics that investors will want to see. Having all of this data at the ready can speed up the closing process dramatically. Janz encourages startup leaders to create a dashboard for investors that is clean, comprehensible, and uses the right terms. If you need assistance with that, I happen to know of a product that can help. Understand the process With preparation out of the way, we come back to the moment of investor interest. Once the investor says they want to fund you, it’s time to ask some questions. If you’ve done sales in the past, you should know what this looks like, because the questions are very similar to those you’d ask at the end of a good sales call: “Who else needs to be involved?” – As David Teten points out, you may only meet with one partner at a fund, but that doesn’t mean they’re the only one you have to persuade. Understanding the internal approval process will help you set your own expectations, and help you XXX “What will you need from me?” – This is where your preparation comes in handy. If you’ve done it correctly, you’ll have most of what the investor asks for ready to go. You can even send an FAQ doc and metrics dashboard right after the meeting, which will demonstrate your transparency and preparedness. Then you can gather any additional data while the investor has some internal conversations. “What’s the timeline?” – Again, you’re establishing expectations here. Not only does asking for a timeline allow you to plan accordingly, but it also injects a little accountability on the investor’s part. If they give you a time frame to complete the process, you can (politely) hold them to it. “What could go wrong?” – It’s a scary question, but it’s one you should ask. If you know what could stand in the way of securing funding, you’ll be able to work to prevent it. Do your part If you’ve done your prep work and asked the right questions, the closing process should be relatively straightforward. Bumps in the road do happen, though, and you should be ready to adjust accordingly. The key is good communication. That means responding quickly to new questions that come up, being as transparent as you can reasonably be, and being professionally persistent with follow-up. Establishing a timeline early in the process gives you something to reference back to later. Any updates or changes on your side should be communicated proactively as well. Above all, remember that this closing process is the beginning of a relationship—a relationship that is very important to the future of your business. By starting the relationship off with good communication and the right expectations, not only will you shorten the time it takes to get your funding, but you’ll also be setting yourself up for a successful and productive future with you new investor.

What is Venture Capital? Venture capital is oftentimes a glorified funding option in Silicon Valley and the startup world. In short, it is a funding option that allows VC funds to buy equity in a startup. In turn, a startup is giving up a percentage of its ownership with the hopes of growing its valuation and creating a successful exit for everyone on the cap table. As put by the team at Investopedia, “Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.” To better understand the topic, find out more about the types of venture capital funding, when it’s used, potential benefits and pitfalls, the origins, and what it’s like to work for a venture-backed business. Related resource: How to Get Into Venture Capital: A Beginner’s Guide Who is Involved in Venture Capital? To better understand venture capital, you need to understand the people and players involved. For a quick rundown check out the definitions below: VC Fund — As put by the team at Investopedia, “Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.” General Partner — As put by the team at AngelList, “The general partner of a venture fund raises and allocates investor capital and supports the founders of the companies they invest in.” Limited Partners — As put by the team at VC Lab, “Limited Partners (LPs) are investors in your fund that provide capital. The most common types of LPs are high net worth individuals, pension funds, family offices, sovereign funds and insurance companies – just to name a few.” Let’s start with the entrepreneur or startup founder. If a founder is looking for capital for their business they might look to venture capital. As we mentioned above, venture capital is an equity funding option for startups. VC firms and funds invest in many companies (and the best ones are able to raise multiple funds). At the end of the day they are looking to create outsized returns for their investors. So who are their investors? Limited partners. LPs have limited control over the management of the VC fund. However, it is important to understand the LP <> GP/VC fund relationship to understand a VC fund’s motives. Limited partners are generally large investment firms that are investing across many asset groups — many of them public markets. As investing in VC funds is typically a small % of their overall portfolio, it is important for VC funds to generate returns in line or greater than the public assets in their portfolio. Because of this, VC funds will turn to founders and startups with the potential to create massive returns. Related Resource: Understanding Power Law Curves to Better Your Chances of Raising Venture Capital How Venture Capital Firms Work To best understand how a VC fund works you need to understand where they get their capital from and how they make money themselves. As we wrote in our Ultimate Guide to Fundraising, “In simplest terms, VCs go through a consistent life cycle that goes something like this: raise capital from LPs, generate returns through risky venture investments, generate returns in 10-12 years, and do it again.” At the start of a VCs lifecycle, they raise capital from limited partners (LPs). LPs are generally institutional investors (pension funds, endowment funds, family offices, etc.) that use venture capital funds to diversify their investments. From here, a VC deploys the capital they’ve raised from LPs into startups and other investments with the goal of generating returns for their LPs. Venture capital funds have traditionally been a very risky investment (with a huge upside) so LPs will generally only put a small percentage of their capital into venture funds. As Scott Kupor, Managing Partner at Andreessen Horowitz, mentioned in his book, Secrets of Sand Hill Road, “If you invested in the median returning VC firm, you would have tied up your money for a long time and have generated worse results than the same investment in Nasdaq or S&P 500.” 10-12 years after raising a fund, VCs are expected to generate returns for their LPs. If a fund manages to generate meaningful returns for their LPs they will raise another round and repeat the cycle. In fact, VC funds follow a power law curve — a small % of funds, generate a large % of returns. Internally, VC funds also follow a power-law curve — meaning a small % of their startup investments create a large % of their returns for LPs. This means that VC funds are in search of startups that have the opportunity to generate massive returns and “return the fund” to their LPs. As we wrote in our post on power-law curves, “This means that a small % of VC funds take home a large % of venture returns. VCs are constantly working to make their way into the “winning” part of the curve so they can continue to attract capital from limited partners. How does a VC fund become a “winner?” The best VC funds portfolio returns also follow a power-law curve. A small % of a VC fund’s investments will yield the majority of its returns. What does all of this mean for a founder?” Only a small percentage of funds create large returns, which means a majority fail. If a VC fund fails it means that its investments are also failing — or failing to generate the huge returns they need. Related resource: Understanding the Advantages and Disadvantages of Venture Capital for Startups Private Equity vs. Venture Capital Venture capital is technically a form of private equity. However, venture capital focuses on all equity and smaller investments that reward high-risk, high-reward scenarios. On the flip side, private equity firms are generally geared towards later stage companies that have a proven track record. Related Resource: Private Equity vs Venture Capital: Critical Differences Angel Investors vs. Venture Capitalists An angel investor is generally a wealthy individual who is looking to invest spare cash in an alternative investment. Unlike a VC, angel investors are not professionals nor do they have limited partners investing in them. Angel investors are typically more hands-off and can be a great source for introductions to other investors, customers, and others. Related Resource: How to Find Investors Types of Venture Capital Typical explanations of the types of venture capital divide it into three main groups, based on the business stage that needs funding. This list provides a brief explanation of these venture capital types and the various business stages that they may apply to: Related Reading: A Quick Overview on VC Fund Structure Early-stage This might include seed financing, Series A funding, etc. which is usually just a small amount of capital that will help the founders qualify for other loans. True startup financing provides enough capital to finish a service’s or product’s development. In contrast, startups might also get first-stage financing after they have finished development and need more funds to begin operating as full-scale business. For example, Crunchbase and newsletters are full of new VC deals being completed every day. You can check out Uber’s timeline of early-stage funding rounds here. Expansion This kind of venture capital helps smaller companies expand significantly. For instance, a thriving restaurant may decide it’s time to open more locations in nearby communities. Sometimes, it also comes in the form of a bridge loan for businesses that want to offer an IPO. For example, if you take a look at Uber’s timeline of investments you’ll notice they start raising massive rounds via private equity around 2015 as they gear up for an IPO. Acquisition Sometimes called buyout financing, this type of funding may help acquire other businesses or sometimes, just parts of them. For instance, some groups may use acquisition financing to buy into a particular product or concept, rather than using it for buying the entire company. Pros and Cons of Venture Funding for Startups and Small Businesses Pros of Venture Funding Venture funding comes with a number of advantages. One of the beauties of venture capital is the fact that a founder has to invest no capital of their own so they can grow at a rapid rate. No Personal Capital One of the biggest advantages of raising venture capital is that you do not have to use any of your personal capital. You can grow your company and valuation while deploying others’ capital. However, this does come with high expectations and responsibility. Investor Support As VC funds continue to innovate, the support they provide startups has continued to evolve. VC funds will help founders with anything from determining go-to-market motions to mental health to hiring & fundraising. Extensive Network The startup & VC world is a tightknit community. Many VC funds and their partners have extensive networks of other funds, founders, potential hires, and customers. Enhanced Growth VC funds allow companies to deploy millions of dollars in capital and grow at a quicker rate than they would with alternative venture funding options. Cons of Venture Funding Of course, on the flip side there are some disadvantages. While venture capital offers the opportunity to grow rapidly, it also has some downsides when it comes to ownership. Increased Dilution Raising venture capital means you are selling equity in your company. Because of this, founders will own a smaller percentage of their company. Convoluted Decision-Making Because of their diminished ownership, founders can potentially lose their ability to make decisions solely based on their needs and have to take into consideration the needs of their investors and partners. Long-Winded Time Commitment Fundraising can be an incredibly time-consuming and difficult process for many startup founders. It can take away a founder’s time from focusing on building or selling a product. If you’ve determined that venture capital may not be the best option for you there are always alternatives. Over the last few years, there has been an explosion of funding options that are founder-friendly. Check out some population options here. The Process of Getting Funded by a Venture Capital Firm At Visible we like to compare a venture capital fundraise to a B2B sales funnel. You are adding potential investors to the top of your funnel, taking meetings and nurturing them in the middle, and closing them, and onboarding them to your cap table at the bottom. Below are 6 high-level steps. If you’re interested in a more in-depth look check out our Ultimate Guide to Fundraising. Step 1: Determine if VC is Right for Your Business The first step to getting funded by a venture capital firm is to understand if venture capital is right for your business. This means that you believe you can grow at a rapid clip and generate massive returns for a VC fund to return to their LPs. Before setting out to build a list of investors, we suggest picturing what your ideal investor looks like and building out a list from there. Over the course of a fundraise, we recommend building a list of 50+ investors. It is important to keep this in mind when building a list and founding routes for introductions. Learn more about why 50-100 investors in our post here. Step 2: Prepare Your Deck, Docs, and Metrics If you believe you have what it takes to raise venture capital you need to start putting the pieces in place to get started. Going into a fundraise, you should have docs (pitch deck, financials, cap table, etc.) and your core metrics ready to go. Learn more about preparing your pitch deck and other documents here. Step 3: Find Investors Once you have your documents in place it is time to start finding investors for your business. It is important to make sure that you find investors that are right for your business. The average VC + founder relationship is 8-10 years so it is important to make sure you are starting a relationship with the right funds and person. Learn more about the ideal investor persona here. Step 4: Pitch Investors and Take Meetings Once you start reaching out to investors (cold outreach or warm introductions) you’ll start sitting meetings and have the opportunities to pitch investors. Check out our guide for meeting with and pitching investors here. If you find an investor who is ready to fund your business, awesome! You’ll move on to the following steps. For a more in-depth look at the next steps, check out our blog post here. Step 5: Due Diligence After a pitch, if an investor decides they want to move forward with an investment they will begin due diligence. You can expect an investor to audit your financials, survey your employees and customers, and deeper study the market. Great VCs will offer a checklist to help set expectations during the due diligence process. Over the course of due diligence, you will likely need to share a data room. Learn more about how you can build a data room with Visible below: Related Resource: What Should be in a Startup’s Data Room? Step 6: The Term Sheet If you make it past due diligence, you will be presented with a term sheet. If the terms look good, you are set! Learn more about navigating your term sheet here. Origins of Venture Capital In one way or another, forms of venture capital have probably financed innovations since people latched onto the idea of bartering. For instance, a plucky inventor may have come up with a better idea for a grindstone but lacked the resources to create it on his own. Another villager may have liked the idea, so he exchanged stone and labor for part ownership in the new and better-milled grain producer. Still, for much of the history of venture capital, investors favored loans over equity. In the past, investors lacked ways to gain good information about all the details of a business. Also, until fairly recently, the concept of limited liability did not exist as it does now. Investors feared that they may offer money to a company in exchange for part ownership. In exchange, they might get unpleasantly surprised by massive debts that the original founders had already piled up. As part-owners, they would also face partial responsibility for these loans. The concept of limited liability helped relieve some of these concerns and encourage more equity funding. It took until after WWII for the United States to develop a true private equity system. An investment of $70,000 in DEC in 1957 gained credit as one of the early success stories after that initial funding grew to $35 million by the IPO in 1968. The Great Recession changed the nature of venture capitalists to some degree. Most lately, venture capital groups have focused more upon offering other value, besides just funding, to the small businesses or startups they want to help fund. As mentioned above, part of the deal may include business expertise, facilities, and other helpful assets beyond money. Thus, many venture capitalists look for startups or small businesses that they understand how to fix or help, beyond those that just need investments. Working for a Venture-Backed Company How is working for a venture-backed company different from working within an established corporation? As we noted in our guide to Startup Culture, working for a startup can offer employees many of the same benefits that investing in one provides venture capital providers. Of course, employees may not initially enjoy the large salaries and perks that a large and established corporation can provide. A few perks of working at a venture-backed company over a large corporation: Ownership — the ability to own projects and individual metrics that move the company forward. Collaboration — have the opportunity to work cross-functionally with other teams and individuals Growth — quickly advance and grow your skills as the company grows. Because the company is small, employees may need to wear multiple hats, and some employees enjoy the challenge and chance to explore various facets of their company. In lieu of the highest salaries or best retirement plan, some startups also offer flexible schedules and other soft benefits that might also appeal to some very good employees. Working for a venture-backed company offers some challenges over taking a job with an established firm; however, the right startup or small business can also promise great rewards. Find out if VC is right for your company with Visible Understanding how venture capital works is an important step to determining if venture capital is right for your business. If you believe venture capital is right for your business, let us help. Find investors using Visible Connect, our free investor database, to kick off your fundraise.

Raising a Seed round is an incredible accomplishment. For many startups, it’s also the start of a long journey. As more companies get funded at the Seed stage, the competition for Series A capital is growing. In fact, if you are lucky enough to raise a Seed round, your chance of raising a second round is roughly 48%. Outside of the essentials, like finding product-market fit, scaling revenue, and building a repeatable customer acquisition process, there are plenty of other important things to consider as you get ready to raise a Series A. We’ve laid out 3 of them below. Tracking Metrics & Financial Planning David Cummings, investor and company founder, has found that most Seed stage founders don’t track enough metrics on a weekly basis. Having a grasp of key financials and metrics will become vital when courting potential investors past the Seed stage. David suggest starting with the 9 metrics below: Cash on hand Weekly burn rate Monthly recurring revenue New customers Lost customers Marketing qualified leads Sales demos Active sales opportunities Customer net promoter score (NPS) To make things easier, we’ve turned those 9 metrics into a Google Sheet template you can access here. Building the Team Building a strong team is arguably just as important as your initial product and customer acquisition process, as it’s often a key factor investors look at when deciding to invest. As Mark Suster, Founder of Upfront Ventures, puts it, “about 70% of my investment decision of an early-stage company is the team. My rationale is simple: everything goes wrong and only great teams can respond to competitors, markets, funding environments, staff departures, PR disasters and the like.” Having a small team that covers every major function of a business allows Seed stage companies to iterate quickly while staying capital efficient. As the team continues to grow, the fingerprints of these original team members will be all over the company culture. Not only does a strong team increase your likelihood of raising capital, the early days of hiring are a blueprint for your company culture and structure as you grow. Engaging Outside Stakeholders Seed stage founders are pulled in every conceivable direction. On top of building a product, building a team, and creating a repeatable sales process, founders at the Seed stage must also manage their outside stakeholders—both initial investors and the ones they hope to bring on board. As Ari Newman, Partner at Techstars, says, “Financing is not a dot, it is a line and it is part of your job as a founder and a business leader to keep the capital coming in.” Engaging potential investors can often draw you away from your day-to-day tasks, so it is important to have a clear process in place, just as you would with a marketing or sales lead. Courting potential investors can’t be a founder’s full time job, so adding process and structure will help protect your time. For founders who are ready to fundraise, we built a Fundraise Tracking Tool, which helps ensure you can track your prospective investors as simply as possible. Once you have them organized, sending a quick email update every month or so will pay dividends as you get deeper in the fundraising process. The move from Seed to Series A isn’t an easy one. It requires founders, and the teams behind them, to level up quickly. Paying attention to the above items will help ensure you and your team are set up for fundraising success. Ready to start nurturing potential investors as you ramp up for a Series A fundraise? Start a Visible trial to send quick and beautiful investor updates here.

Leveraging your existing network and investors is a great way to kick off a new fundraise. Below is a quick template to share with your current investors announcing your fundraise and asking for introduction to other prospective investors.

“How should I prepare for an investor pitch?” This is a question we hear a lot, both from first-time entrepreneurs and from founders who have raised before. There is no shortage of advice available on how to prep for a pitch meeting. Here’s the problem: if you’re asking that question at the pitch stage, you’re already too late. Most of the time, your first meeting with an investor isn’t a pitch. Instead, it’s a coffee, or a cocktail, or an introduction at an event. Often, it’s not a meeting at all—it’s an email conversation. You know the saying, “you only get chance to make a first impression?” This is especially true for investors. While there’s an awful lot of emphasis put on preparing for a pitch, an investor is going to form opinions about you based on your first interaction, well before the pitch takes place. Here are 5 questions you should answer before that first interaction to help make sure your first impression is a good one. What do they invest in? This is an easy one. You need to make sure the business you’re pitching is in line with the type of business the investor likes to invest in. If an investor only funds B2B SaaS products, don’t try to pitch her on your mobile game company. Investors often like to get involved in industries and markets they understand, which is why most investor portfolio companies share a common thread. Make sure you understand what that thread is for every investor you talk to. How do they invest? This question comes with several straightforward sub-questions. What is their typical check size? Do they like to lead rounds, or simply participate? How hands-on do they like to be? Knowing an investor’s MO for the practical details of an investment will help you plan your raise and ensure you’re not wasting each other’s time. You can start to figure this out by doing a little digging on Crunchbase, reading some press releases, and asking around. What is their background? Even if you’re talking to a large VC, you need to understand the individual(s) you’ll be working with. What about their background or experience suggests they could add value to your business? Have they worked with a particular audience or vertical that lines up with someone your business helps? Did you go to the same college? Investors want to know that you’re not looking to get funded by anyone with a checkbook. Being able to make personal connections, or speak to why you want them involved, will help you catch their interest and start building a relationship. What do they care about? Answering this question will do two things. First, it’ll help you determine whether or not a particular investor will be a good fit for your company. We believe you should do due diligence on every investor you bring on board, and this is a good early step toward that goal. Second, it will help you know what to emphasize about your company that will catch their interest. Different investors focus on different things. While some may care about the founding team or the long-term vision, others are more concerned with revenue growth or the total addressable market. Browsing an investor’s public channels, especially things like Twitter, Medium, Quora, and interviews, is a great place to start. What do you want? This is probably the most important question to answer before meeting an investor: what is it you want from them? Even if an investor is interested in your company, they need something to respond to. It’s best to not only have a clear ask in mind, but to also understand what alternative options they might offer (and know which of those options would be acceptable to you). If you can answer each of these questions before you meet with an investor, you’ll not only make a good first impression, but you’ll put yourself in a much better position to get the outcome you want. Research thousands of investors with Visible Connect:

You can look at adding an investor to your company in one of two ways; simply a source of capital, or a partner to help you grow your business. As Sangram Vajre, Founder of Terminus, puts it, “Finding a VC firm is almost like finding a co-founder. Any due diligence that you would do to add a co-founder you should do when adding a VC partner.” If you opt to find a VC that you can count on to add value outside of capital, it is your job as a founder to ensure you’re adding the proper partner. Due diligence is a part of the funding process that all founders are expected to complete. You can flip this process on its head by asking the same of your potential investors. Related resource: Startup Due Diligence: What Every Founder Needs to Prepare For While it does not need to be a formal process, you can follow the investor due diligence checklist below to confirm you can rely on your new investors as a business partner: Tell them what you’re up to. Be transparent. The key to a strong relationship with any business partner starts with open and honest communication. To get things started on the right foot, you’ll want to be transparent as possible with potential investors that you are performing due diligence. As an added bonus, if they’re helpful and open to the idea, that is probably a good sign of future communication, transparency, and help you’ll receive. A quick Google search. As most research goes, a quick Google search is a great place to start. Check out their LinkedIn, Twitter, Crunchbase, and other social profiles. Ideally, most of this research would be done before you’ve emailed a potential investor, but here are a couple of simple things to keep in mind: Location – Where are you located? Do you need local investors? Or maybe you are looking for connections and networks in strategic geographies. Industry Focus – What type of company are you? Where should your future investors/partners be focused? e.g. If you’re a B2B SaaS company don’t waste your time with marketplace-focused investors. Mark Suster suggest that it is best to prioritize investors with companies in your space. Stage Focus – What size check/round are you raising? e.g. If you’re raising a $1M seed round avoid a firm What is their financial status? One of the less obvious steps when evaluating a potential investor is finding where their funds are coming from. While most funds are made up from larger institutions like pension funds, endowments, family offices, corporations, etc. it is never a bad idea to look into the venture fund’s limited partners. Don’t be surprised to find VCs that keep their LPs names under wraps but if they are open and willing to share this information that can be a good indicator of an open relationship. Talk to other founders in their portfolio. Arguably the most important step in performing due diligence on your investors is talking with other founders in their portfolio. Ask the other founders what it has been like to work the investor, where they’ve brought the most value, how they’ve handled disagreements, etc. Investors will likely give you a list of contacts to reach out to but don’t be afraid to reach out to other founders outside of their references. If you have any investors already in your network ask them about the reputation of your new investor or any experiences they’ve had in the past. Related Resource: Startup Fundraising Checklist Do their values & culture match? As a founder, you own the values of your business. It is your duty to keep your ethics and moral framework in tact as you continue to add partners. As Brock Benefiel, author of Flyover Startups, put it, “Pitching investors is a trust exercise all of its own. You’re almost always sharing proprietary information in an investment deck and almost never securing a NDA to prevent potential VC vultures from flying away with your secrets. If you’re willing to easily hand over precious data points and secret product information, you’ve earned the right to demand investors take your code of ethics seriously.” At the end of the day, your investors goal is to generate returns. By using a quick due diligence checklist it can be an easy way to ensure both parties will get the most value from your new relationship. Are you ready to get your fundraising process started? Sign up for a free Visible trial to start emailing and nurturing potential investors.

Throughout the fundraising process countless documents and data points are being shared. Different investors will have different preferences. Below, we share our favorite posts for sharing documents, decks, and data while fundraising Our Favorite Posts for Sharing Documents, Decks, and Data What Should You Send a VC Before Your Meeting? — Mark Suster Mark Suster, Managing Director at Upfront Ventures, offers his take on what founders should send before, during, and after a meeting with investors. 6 Things Founders Should Expect During Venture Due Diligence — Alex Iskold Alex Iskold, Managing Partner at 2048 Ventures, shares 6 things that investors will expect during the due diligence process and how you should properly share them over. 16 Startups Metrics — Andreessen Horowitz The team at Andresseen Horowitz explain what 16 metrics they find to be most valuable from their portfolio and what they mean for investors. The Startup Metrics Potential Investors Want to See On the Founders Forward Blog we share the general metrics potential investors will look into during a fundraise. Well they may vary when it comes to industry investors will often want to see growth, a growing market, and strong unit economics. How to Make a Compelling Pitch Deck — Jean de la Rochebrochard Jean de la Rochebrochard, Partner at Kima Ventures, studies successful pitch decks and lays out the keys to creating and sharing a compelling pitch deck.

The Traditional “Fundraising Funnel” In the past, we’ve discussed how one can easily draw parallels between fundraising and a traditional sales & marketing funnel. Just as a sales & marketing funnel can take different forms, so can your fundraising funnel. Generally, we’ve laid out the “fundraising funnel” in 3 simple steps: Attracting and adding investors (leads) to your top of the funnel on a regular basis. Nurturing and moving those investors through the funnel with the goal of adding them as investors (customers) or engaging them for a future round. Building strong relations with your investors to convert them to promoters, evangelists, or future funders (customer success). Since “Account Based Marketing” has taken over marketing blogs, events, and discussions we’ve laid out how to apply ABM to your fundraising efforts. What is Account Based Marketing Account Based Marketing, according to Marketo, is “An alternative B2B strategy that concentrates sales and marketing resources on a clearly defined set of target accounts within a market and employs personalized campaigns designed to resonate with each account.” In the sales & marketing world, implementing ABM tends to be a costly endeavor, but there are also countless benefits: clear ROI, focus on key accounts, personal and optimized, sales alignment. Terminus, a leader in ABM software and originators of #FlipMyFunnel, use ABM to flip a traditional funnel on its head like so: Terminus defines the 4 stages of the flipped funnel below: Identify – Start with the best-fit. Generally guided by an ICP; Ideal Customer Profile. Expand – Focus on people in the same roles. Find contacts within the companies that you’ll engage during the sales & marketing process. Engage – Right content, right channel. Use the most engaging and targeted form of content to target your contacts and accounts. Advocate – Turn customers into fans. Your marketing team should do everything in its power to ensure customer success by retaining accounts and keeping them happy. How to Apply it for #AccountBasedFundraising We were fortunate enough to pick Sangram Vajre’s, Chief Evangelist at Terminus, mind about using a flipped funnel approach to fundraising. When asked how a founder might apply ABM to fundraising, Sangram said, “The flip my funnel approach can be applied so many more ways than an account-based marketing approach. From a fundraising perspective, lets say your a B2B company in the marketing space. Start by looking at the top 10 companies that have raised money in the last 12 months and who they have raised from and start building your list from here. By starting with a priority list of targeted VCs you won’t have to explain the market and field unqualified inbound interest. As long as you know who your target audience it will really help you solidify where to spend your time.” As a founder himself, Sangram used the flipped funnel approach when fundraising. At Terminus, Sangram and the team had a list of over 100 investors and were flooded with inbound interest from angels and other firms. By limiting the list to ~10 investors they were able to do in-depth research and make sure their visions aligned when they set out to fundraise. Finding the right VC firm can be an integral part of your company’s success and can be started by defining your values and narrowing your list of investors by their visions, experience, and portfolio. In the words of Sangram, “Finding a VC firm is almost like finding a co-founder. Any due diligence that you would do to add a co-founder you should when adding a VC partner.” Identify Start your fundraising process by identifying key “accounts” (read: investors) that are strategic fits for you business. Keep in mind things like location, industry focus, stage focus, other investments, and deal velocity. We suggest developing an “Ideal Investor Profile” to define what investors you’ll want to target during the fundraising process. Expand Find the exact partner or decisionmaker you’ll want to communicate with during your fundraise. Larger firms often have different partners that handle different stages, industries, etc. If there is an advocate and thought leader for your industry within a firm, make sure to add them to your list as well. Unlike the sales & marketing “expand” stage, you’ll likely be able to expand externally from the investment firm as well. Firms decide to pass for a number of reasons, but they also offer a large network. They may be able to make intros to other investors in a similar position, and those investors may be ready to pull the trigger on an investment. Engage Dripping content to your targeted potential investors during the fundraise process is critical. Even if you’re not trying to actively close capital, you should constantly be nurturing and engaging potential investors. We have found it best to send out a short update on the state of the business and industry on a monthly basis. Share a promising metric or two showing strong growth in the business and highlight any significant wins/improvements. Advocate Once you’ve landed an investor, it is vital to form a strong relationship and turn them into your company’s biggest champion. Just as you use customer success to keep your customers happy, you should be intentional about building relationships with your investors and keep them happy, too. Your investors should be your company’s biggest advocate, but that will only be true if you’re top-of-mind for them. Make sure that relationship is strong, and good things will follow. By turning your current investors into advocates you’ll be able to call on them to help fill the top of your funnel with qualified investors from their network. Or better yet, they’re the first people you can go to when you need more capital in your business. There is no definitively correct way to run a fundraising process, so flipping the traditional funnel on its head and using an “account based” approach can be an interesting strategy. If you’re ready to start engaging potential investors and turning them into advocates, sign up for a free trial of Visible here.

In the words of AngelList Founder Naval Ravikant, “It’s never been easier to start a company. It’s never been harder to build one”. The competition for capital and talent is greater than ever. On top of building a great business, obtaining capital to grow your business is tough enough. From countless cold emails, meetings, and rejections fundraising is a long, often daunting, task. While most founders don’t have the fortune to 100% focus on fundraising, creating a simple and efficient process can be the difference between a successful or failed raise. We’ve laid out 3 tips below to help simplify the fundraising process so you can stay focused on your day-to-day: Do Your Homework Before Reaching Out Before you send an email to a perspective investor make sure you’ve done your research. There is no reason to spend time on an email or sitting in a meeting with an investor and find out after the fact that they’re not a good fit. Mark Suster, Managing Partner at Upfront Ventures, suggest building a list of 40 qualified investors before firing off your first email. Use tools like Crunchbase and AngelList to easily put together a list of qualified investors based on their location, industry focus, stage focus, portfolio companies, and deal velocity. Track Your Interactions During the fundraising process theres a good chance you’ll talk to 100+ different investors. Its easy for conversations and notes to get lost in the shuffle. Just as you would jot down notes and the information for a sales process in your CRM the same should be said while fundraising. We suggest creating a simple Google Sheet tracking the investors you’ve spoken with, information shared, and relevant notes/recordings/etc. If necessary, share the sheet with your co-founders to gage the team’s sentiment towards different investors and meetings. This will come in handy when its time to fundraise down the road and need to pull on previous conversations. Go to Existing Funders First If you have already have investors you will want to start here. If you’ve kept your investors in the loop, a request for a meeting should be an easy string to pull. As Jason Calacanis puts it, “There is another really awesome reason to keep investors updated: they didn’t give you all of their money — they have more! They want to give you more! If you keep your investors engaged with honest updates they will reward you by participating in future rounds”. If for whatever reason your investors are not going to fund a future round they will be able to make intros to other, already qualified, investors as well.

From working with hundreds of founders we often hear, “what metrics and data should I be sharing with potential investors?” With droves of content laying out what you should and should not share before an investor meeting it can often complicate the process. To some investors, a “data room” and certain metrics are vital but the opposite can be said for others. Despite the difference from investor to investor there are a few traits most will keep their eye on during the fundraising process: Market Data Don’t reinvent the wheel. When you’re pursuing a specific industry or market, there are generally benchmark numbers and stats standardized across the industry. Share these projections, benchmarks, and stats with prospective investors and paint a picture of the potential market and how you will use their capital to penetrate the market. If you’re targeting the right investors they’ll likely have experience in the field and should already have a deep understanding and belief in the market. Growth To get your foot in the door, you’ll need to show some kind of current growth and traction or the potential for growth. This more often than not comes in the plan of a business/financial model and historical data (which often ties into the market info above). At the end of the day, an investors job is to generate returns on their investment. Show them a strong financial model that creates growth for the business and returns for them and their LPs. Some investors and founders make the case that you should be careful in how granular you get with the model you’re sharing as it can often lead to unnecessary questions/confusion. As Tommaso Di Bartolo wrote for Startup Grind, “Using excessive metrics can lead to unnecessary discussions that don’t matter at an early stage”. Related Resource: What Should be in an Investor Data Room? Unit Economics & Margins Margins on your product is a large part of the path to profit and returns for your investors. Margins are easily benchmarked by industry. Investors generally have a % they are looking for in the back of their mind. For example, a SaaS business should have no less than 60 or 70% gross margins. As Tim Anglade of Scale Venture Partners puts it, “If you’re really not able to capture a margin on your current pricing now, it’s unlikely to change in the future, right? And you’ve got to stay within a certain benchmark to have a good business”. Customers Your customers are your business. Clearly showing potential investors that you can attract, convert, retain, and engage your customers is vital. Being able to show proof of repeat and loyal customers will help ease the mind of investors. This can come in the form of customer satisfaction surveys, net promoter score, and retention rates. Related Resource: A Guide to Building Successful OKRs for Startups

Last week, we wrote about the parallels between a traditional sales & marketing process to a fundraising process. This week we’ll take a look at going from prospecting potential investors to attracting potential investors and moving them through your “investor funnel”. In its simplest form, a traditional sales & marketing process can be broken into 3 steps: Attracting and adding qualified leads to your top of the funnel on a regular basis. Nurturing and moving the leads from through the funnel with the goal of closing them as a customer. Servicing customers and creating a great experience until they become evangelist or promoters. You can easily translate the 3 steps into a similar system for fundraising: Filling the Funnel Unfortunately, qualified investors don’t automatically appear at the top of your funnel on a daily basis. On top of building a great business that investors will want to invest in you’ve got to make sure you’re doing everything in your power to pull investors into your funnel. Networking and email campaigns are key when it comes to filling the top of your investor funnel. Don’t be afraid to email or meet with an investor even if you’re not actively fundraising. Share your big-wins, losses, key metrics, etc. with your list of prospective investors to build trust and a long-term relationship. Jason Lemkin of SaaStr suggest making a “new VC quota” a part of your day-to-day job; “Meet that junior VC, that out-of-towner… Take that meeting with the guy that’s ‘a big fan’ if that’s your best investor meeting idea for the week, even if you know he doesn’t really understand what you do. It’s a quota. Take the best prospect you have, and either work that deal … or spend the hour prospecting to get another deal, another VC “. Nurturing & Moving Through the Funnel While you may not be actively trying to close new investors and add capital you should constantly be working the top of your funnel. Business plans change, investor interest wanes, and a slew of “maybes” and “no’s” will land in your inbox at crunch time. Meeting with investors only when you need capital likely won’t do the job. Staying fresh on the mind of potential investors 365 days a year using traditional marketing tactics (email drips, common networks, social media, PR, etc.) will pay dividends when its time to pull the string on a new round of capital. Set up a “drip campaign” to share updates with your potential investors on a monthly basis. We have found it best to send out a short update on the state of the business and industry. Share a promising metric or two showing strong growth in the business and any significant wins/improvements. Current Investors All new fundraising roads will lead to your existing investors and relationships. Customer success is key to maintaining a strong relationship with customers once they reach the bottom the funnel. The same can be said for your investor funnel. As Jason Lemkin puts it, “If your existing investors, even if they are angels, small VCs, whatever … don’t give you a 100.0000% positive reference … you may be dead in the next round. If I call up your existing angel investor, and she pauses when I ask what she thinks of you and the company … as a prospective investor for the next round, I’m probably out. Done”. So how do you make sure your investors are cheering for you? Just how you would service a customer to turn them into a promoter or evangelist: Invest in Investor Updates – Build a cadence and keep updates succinct as well as comparable. Consistent communication builds trust and keeps you on top of mind for your investors. Transparency & Candor – While driving an internal culture of candor results in better decisions, execution and output, the same can be said when communicating with your external stakeholders. At the end of the day, your investors have been in the same situation and are there to help you through “the struggle” or better yet, help you get to the next stage in your business. Respect their Time – Your goal should be to give your investors the ability to make the largest impact on your business with the least amount of exertion. When you are seeking advice or introductions, be specific. Find new investors and manage your fundraising with Visible Connect:

A post by Brock Benefiel. Brock is a Digital Marketing Consultant, Tech Writer, and Author of the upcoming book Flyover Startups. Everyone finds time to talk up culture. You can find literally tens of millions of articles preaching the importance of establishing the right startup culture and enforcing it. If you’d like, you can spend endlessly amounts of time reading up on it and hear over and over again why it matters. But you’ll never have enough time to talk to your investors about culture. Instead, you’ll be forced in board meetings and company reviews to get straight to the point if you want to convey what’s important about your all-important company culture. So speak the language of your investors: use metrics, cite examples and show change. Your passion for your startup’s culture will be visible on your face and 80% of culture is expected to come from the founder. But your strategy for culture and any changes along the way should be put on paper and pushed in front of your investors regularly. Then, no one will be able to question its importance. So, how do you concisely and effectively communicate to your board that you’ve adequately defined your culture and have made it a successful one for your business? Use these strategies: Employee NPS scores If it’s works for customers, if we advocate it for investors, then don’t second guess the power of NPS when it comes to addressing the need for a quick and easy gauge on employee satisfaction. NPS is a hard metric and one that you can track, share with investors and work to improve. You company reviews are loaded with growth stats and NPS fits in nicely among the bunch. At HubSpot, they dig into the raw data from overall NPS and segment scores by department, tenure of employee, office location and gender in order to spot specific problem areas. Then, they can reach out to groups of employees most likely to be unsatisfied and find reasons for their disapproval. Hand the overall and segmented NPS numbers to investors and you’re already have shown your testing your employees on their satisfaction. “The employee Net Promoter Score is by no means a comprehensive way to measure employee engagement,” Jamie Nichol writes in CultureIQ. “Instead, it serves as a useful metric to track at a regular frequency over time.” NPS will never tell you the full story. But it’s a hell of a way to start the conversation. Problems solved “Even if the founders have invested a lot of time instilling culture into their core team, as the company scales and silos naturally form, negative culture can take root and easily get out of control,” Eric Blondeel and Moufeed Kaddoura contend in YCombinator . Your investors aren’t going to expect a flawless office environment. But they will expect a founder to be the one to quickly recognize the inevitable culture problems that arise and fix them just as fast. Your reviews and board meetings are great opportunities to cite specific examples of something that went awry and quickly explain the solution. Attacking it and fixing it shows you have your finger on the pulse of the company’s culture and can handle things as you scale. That’s a qualitative case of both founder and startup growth and investors will always care about that. The culture elevator pitch You are bound to grow a culture that is nuanced, complicated and worthy of long, flowery descriptions. But you need an elevator pitch for culture – have a few succinct examples of what makes your startup great. “You want people to say your startup is different from everyone else. But in what way?” First Round Review notes. “Figure it out early.” These takeaway examples serve as talking points for your investors. They are conversation starters when mentioning your business to potential investors, customers and employees. It’s also proof on your end that you care about culture and possess the ability to make it distinct. In his reflection five years after he sold the company, Eric Tobias can name specific aspects of his former company’s culture that made the business what it was and why it can be easily commerated no much how much time has passed. Culture is best when it’s sticky and easy to explain to anyone. Talk one-on-one meetings Have a meeting and talk about other meetings. How sexy?! How meta?! Okay, it sounds a bit ridiculous. But any good business treasures one-on-one meetings. They make one-on-ones a priority and have the leadership team spend these sessions asking detailed questions to find out what employees like and what’s frustrating them. These frontline efforts are key to getting a sense for your startup’s culture and how to improve it. If you need a helpful set of feedback questions, YCombinator has one here. Let your investors know you have a process in place that allows your managers to monitor the company’s culture and another measure to spot problem areas before they get out of control. Retention rate Finally, a simple but essential one. If you’re sharing your retention rate, your investors will appreciate the transparency because this can be an uncomfortable one. If your retention rate is low, you’ve got a culture problem on your hands. Either you’re not providing a valuable experience for the employees that are heading out the door or you haven’t defined culture well-enough for hiring managers to know how to spot it in potential employee interviews. A drop in employee NPS can be the canary in the coal mine but if retention rate plummets that’s when the emergency alarm goes off. Show your investors you’re monitoring it closely and prepared to act if you’re experiencing unnecessary churn.

What is debt financing? Startups are in a constant competition for 2 resources; capital and talent. When it comes to raising capital for your startup there are quite a few options. Outside of bootstrapping, debt and equity financing are 2 of the most popular options. According to Investopedia, “Debt financing occurs when a firm raises money for working capital or capital expenditures by selling debt instruments to individuals and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid.” On the other hand, there is equity financing. How does debt financing work? A lender is generally evaluating if and when a business can be repaid. A team of lenders will generally evaluate a few things, this generally starts with past performance and future projections. A few keys to understand when approaching a lender or bank for debt financing: Complete financial statements and documents. Poor or incomplete financial statements can put doubt in the mind of a debt-provider. Most debt-providers will look as far back as 2-3 years. For example, Lighter Capital will occasionally make investments with ~6 months of solid financials. Understand your business. Have a deep understanding of where your customers, how you’re acquiring them, and why they are churning. Revenue Growth. You don’t have to be a profitable company to receive funding from Lighter Capital but should have a clear plan and pathway to profitability. Downside Scenarios. As mentioned above, debt-providers are focused on repayment as opposed to extreme upside. Make sure you lay out downside scenarios to show you can navigate down periods. High Gross Margins. Going hand in hand with “downside scenarios” show debt-providers you have high gross margins and can limit the downside as much as possible. Story matches the numbers. If you’re telling a great narrative and the data/financials are not matching up with the story chances are that will cause doubt in the mind of the providers. Plan for New Capital. Show you have a plan in place for how you will allocate your new capital. Allen of Lighter Capital has seen a clear connection between a company coming to them with a solid plan and their future growth. Pros of debt financing Every financing option will come with its own set of pros and cons. Check out a few of the key pros of debt financing below: Maintain ownership — debt financing does not require founders to give up equity or ownership in their business Efficient growth — taking on debt can allow companies to buy the resources and hire the talent they need to fuel growth Tax benefits — As the team at Lightspeed put it, “A strong advantage of debt financing is the tax deductions. Classified as a business expense, the principal and interest payment on that debt may be deducted from your business income taxes.” Cons of debt financing On the flip side, there are cons to debt financing. Check out a few examples below: Repayment — of course, you’ll need to repay the debt. This requires a predictable business model. Collateral — debt also requires collateral. This can be limited to early-stage companies. Types of debt financing There are different types of debt financing that startups can leverage. Check out a few types of debt financing below: Bank Lending — The most traditional form of debt financing requires taking a loan from a traditional bank or institution. Recurring Revenue — There are specific lenders dedicated to recurring revenue business models (SaaS). Family or Friend Lending — Startup founders can also take on debt or loans from family members or friends. What is equity financing? According to Investopedia, “Equity financing is the process of raising capital through the sale of shares. Companies raise money because they might have a short-term need to pay bills or they might have a long-term goal and require funds to invest in their growth. By selling shares, they sell ownership in their company in return for cash, like stock financing.” When thinking of equity financing in terms of startups we generally think of venture capital and angel investors. When a startup goes out to raise a funding round, they are selling shares (AKA equity in the company) for a set amount of capital. How does equity financing work When raising equity financing or venture capital it often follows a process. This involves the founder focusing on the fundraise. Finding the Right Investors To start a fundraise, you first need to understand what investors you should be talking to. A venture fundraise is time intensive so it is important to make sure you’re spending your time with the right people. Check out our investor database to find the right investors for your business here. Related Resource: An Essential Guide on Capital Raising Software Pitching Your Company Once you land a meeting with a potential investor you will need to pitch your business and make it a point for them to invest. As we wrote in our Fundraising Guide, “If you’ve done your research and asked the right questions, you’ll be armed with the information you need to effectively pitch your company. At the end of the day, pitching is storytelling and it is your job to figure out how each potential investor fits into the narrative. If done correctly, you’ll be able to control the conversation and better your chances of setting future meetings.” Due Diligence If you are fortunate enough to gain interest from a venture capitalist they will perform due diligence to confirm what you’ve been pitching is true. This means they will be calling on customers, other investors, and combing through historical data to confirm they’d like to make the investment. Pros of equity financing Like debt financing, equity financing comes with its own set of pros and cons. Check out a few of the pros of equity financing below: No Loan Repayment — With equity financing, the burden of repayment does not fall on the shoulders of a founder. In turn for giving up ownership, they are giving up the burden of repaying debt. Resources — Many equity financers, like venture capitalists, come with resources to help startups grow and scale their operations. Cons of equity financing On the flip side, there are also cons that come with equity financing. Check out a couple of examples of the cons of raising equity financing below: Loss of ownership — Giving up equity means that founders are giving up ownership and potentially decision-making powers. Expectations — When adding on new shareholders, chances are they will have requirements and expectations that may not align with your own. Types of equity financing Equity financing, and the individuals/firms that support it, come in different shapes and sizes. Check out a few examples of equity financing below: Venture Capital — dedicated firms built to invest in high-growth startups Angel Investors — high net worth individuals that use startup investing as a way to diversify their investment portfolio Private Equity — Professional investment firms dedicated to helping operate and scale large startups. Related Resources: How to Find Investors How to Effectively Find + Secure Angel Investors for Your Startup Private Equity vs Venture Capital: Critical Differences Debt vs equity financing for startups When evaluating debt and equity financing there are a few key major differences that a startup and founder have to evaluate. The Cost The major difference when evaluating debt and equity financing is the cost to your business. On one hand, you can take debt financing and will need to pay back the interest rate and principle at a later date. This generally assumes that your business is bringing in some type of predictable revenue. There is a clear cost associated with paying this back. On the flip side, is the cost of equity financing. While there is not a set amount of capital you will need to pay back you will eventually need to pay the cost of the shares at a later date. This can be expensive if the business turns out to be worth a large amount. The Business Model When understanding debt vs. equity financing you need to understand the impact your business model will have on each as well. When raising debt financing, the lender will want your business to have predictable revenue and clear projections so they know that they will be repaid. On the other hand, equity financing allows small businesses to pursue a new market where they may have little to no data. This is because someone buying equity, especially a venture capitalists, are investing in the future value of the company and the ability for the team to execute on the vision. When to seek out debt vs equity financing As we’ve discussed earlier in this post you need to understand the costs associated with both equity and debt financing. Securing Debt Financing For those who aren’t growing at 300% but rather 150% or 200% a good option would be to look into debt financing. While there are countless types of debt financing, Lighter Capital focuses on “revenue-based financing”. There are several factors that Lighter Capital looks into when evaluating a potential investment but as Allen Johnson of Lighter Capital puts it, “At the end of the day they’re assessing the risk to get repaid”. Securing Equity Financing To kick off the webinar, Mike discussed experiences from Visible’s own fundraising efforts and what we’ve seen from our partners and countless companies using Visible for investor relations. The biggest takeaway from raising equity financing? It is very much a process and can be very time consuming. Raising equity financing is essentially a full time job for the CEO or founding team. It is not something that can be done lightly and viewed as a “side project”. You need to build relationships and a pipeline of investors, show momentum, generate inbound interests, etc. Equity financing allows pre-revenue companies with a strong vision and adjustable market an opportunity to secure capital and pursue their vision. Investors are expecting a return and are often in pursuit of an “extreme upside”. As you can see below, Christoph Janz of Point Nine Capital breaks down what it takes to raise a Series A in SaaS below: Basic Info and Docs You’ll Need While Raising Venture Capital: As part of the process of raising venture capital, VCs will need to understand your past business performance. Venture capitalists are generally investing in a highly experienced team, intriguing and emerging market, and/or a world class product. Related Reading: Building A Startup Financial Model That Works With that being said, they will generally need a few of the info and docs below to evaluate their investment decision: Legal Docs, Cap Table, Financials, etc. A venture capitalist will want to see who owns the business and how it is structured. They will want to see the cap table to understand this. They will also want to get a look into historical financials to understand how the business is burning cash and handling their finances. In the wake of recent VC failures, it is especially important to have cash burn and financing under control. Trends over time VCs are largely investing in the founder and the team if there is little to no revenue or historical data. It is important that the founder and team takes the relationship and transparency seriously. A regular cadence and rapport leading up to the investment. Investors won’t make an investment in a single point of time. Customer Acquisition Model VCs will also want to understand your customer acquisition model and the sustainability of it moving forward. If it costs more to acquire a customer than they are paying, it is likely not a feasible business. To learn more about customer acquisition models, check out this post. Total Addressable Market and Sensitivity analysis If a business has little to no historical data, a VC may want to better understand the market they are investing. If a market has the opportunity to be large and the investment has the opportunity to penetrate a large percentage of the market, it may be an interesting investment. You can learn more about modeling this and sharing TAM with investors here. Both debt financing and equity financing are solid options depending on your stage, metrics, and financials. Each has its pros and cons for each company. It is ultimately up to the founder to have a deep understanding of their business to make sure they are making the right decision for their business. The Visible newsletter brings you weekly, curated fundraising news, articles, and events Every Thursday we deliver curated insights to help founders raise capital, update investors, and track their key metrics in our newsletter, the Visible Weekly. Subscribe to the Visible Weekly and stay in the loop with fundraising data and insights here.

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. Fundraising is difficult. On top of building a fundable business, founders need to find the right investors, build relationships, successfully pitch their companies, and more to close a round. In order to better help founders find the right investors, we’ve built a totally free, community-sourced investor database, Visible Connect. SaaS startups and SaaS companies are commonly funded by different VC funds and angel investors. The list below is an active list of 60+ SaaS investors that are investing in seed rounds (some invest in later stages as well). The list uses our data from Visible Connect – we focus on key information like check size, investment location, fund size, and more. The link to “View their profile” will display firm information like their thesis, check sizes, focus, recent fund size, etc. In order to better help you track your raise, you can also add investors directly from Visible Connect to your dedicated fundraising pipeline in Visible (Learn more about tracking a raise in Visible here). Recommended Reading: The Understandable Guide to Startup Funding Stages North America SaaS Seed VC Firms Lightspeed Venture Partners About: Lightspeed Venture Partners is a venture capital firm that is engaged in the consumer, enterprise, technology, and cleantech markets. Location: Menlo Park, CA Check size: $1-$100M Recent investments: Flink, Netskope, AnyVision To learn more, view their Visible Connect Profile >>> Struck Capital About: Founder-First Capital for Innovative Entrepreneurs who want to Change the World. Location: Lose Angeles, CA Check size: $500k – $5M Recent Investments: Sendoso, BlackCart, Brainbase, Mojo Vision To learn more, view their Visible Connect Profile >>> Runway Venture Partners About: New York City-based early-stage venture capital firm focused on investing in post-product-market fit software-enabled businesses. Location: New York, NY Check size: $500k – $1M To learn more, view their Visible Connect Profile >>> Cowboy Ventures About: Cowboy Ventures is a seed-stage focused fund investing in digital startups. Location: Palo Alto, CA Check size: $500k – $750k Recent Investments: Drata, Hone, Contra To learn more, view their Visible Connect Profile >>> Redpoint Ventures About: Redpoint Ventures partners with visionary founders to create new markets or redefine existing ones at the seed, early and growth stages. Location: Menlo Park, CA Check size: $4M – $5M Recent Investments: Hex Technologies, Orca Security, R2C To learn more, view their Visible Connect Profile >>> Moment Ventures About: Early-stage venture capital firm investing entrepreneurs reimagining how we work. Location: Palo Alto, CA Recent Investments: Rune Labs, Flowspace, Rafay To learn more, view their Visible Connect Profile >>> Elizabeth Street Ventures About: We are an early-stage investment firm focused on the digital consumer and next-generation brands that improve daily life. Location: New York, NY To learn more, view their Visible Connect Profile >>> SV Angel About: SV Angel is a San Francisco-based angel firm that helps startups with business development, financing, M&A, and other strategic advice. Location: San Francisco, CA Check size: $250k – $3M Recent Investments: Valora, Outschool, Census To learn more, view their Visible Connect Profile >>> Matrix Partners About: Matrix Partners is a venture capital firm focused on seed- and early-stage investments. Location: San Francisco, CA Check size: $5M – $20M Recent Investments: LightForce Orthodontics, Sequin, Kolide To learn more, view their Visible Connect Profile >>> Contour Venture Partners About: invests in companies focused on information technology, and the application of innovative software solutions into the financial services, enterprise SaaS and vertical B2B SaaS sectors. Location: New York, NY Check size: $500k – $1.5M Recent Investments: Cutover, HowGood, Movable Ink To learn more, view their Visible Connect Profile >>> Harlem Capital Partners About: Harlem Capital is an early-stage venture firm that invests in post-revenue tech-enabled startups, focused on minority and women founders. Location: New York, NY Check size: $500k – $1M Recent Investments: Repeat, PreShow Interactive, Stuf To learn more, view their Visible Connect Profile >>> TechNexus About: We build ecosystems by finding, funding, and accelerating technology ventures in collaboration with entrepreneurs and enterprises. Location: Chicago, IL Check size: $50k – $5M Recent Investments: Catch Co., Rollick, Krisp To learn more, view their Visible Connect Profile >>> Moai Capital About: Seed Capital for Impassioned Entrepreneurs. Location: San Mateo, CA Check size: $25k – $100k To learn more, view their Visible Connect Profile >>> Quake Capital About: Investing in big ideas, killer startups, and extraordinary people. Location: New York, NY Check size: $150k – $250k To learn more, view their Visible Connect Profile >>> Battery Ventures About: Battery Ventures finances technology sector companies with venture capital, private equity, and debt financing investments. Location: Boston, MA Check size: $10M – $75M Recent Investments: Postman, Amplitude, ServiceTitan To learn more, view their Visible Connect Profile >>> Fuel Capital About: Fuel Capital is a California-based early-stage venture fund focused on consumer, SaaS, and cloud infrastructure companies. Location: Burlingame, CA Check size: $500k – $1M Recent Investments: Specto, ConductorOne, Goodcover To learn more, view their Visible Connect Profile >>> Illuminate Ventures About: Illuminate Ventures invests in early-stage high-tech companies delivering enterprise cloud and mobile solutions. Location: Oakland, CA Check size: $250k – $1.5M Recent Investments: Bedrock Analytics, Copper, Pex To learn more, view their Visible Connect Profile >>> Luma Launch About: Luma Launch is a multi-million dollar early-stage fund with a Launch Program aimed at surfacing the most notable startups and entrepreneurs. Location: Santa Monica, CA Recent Investments: Trust & Will, Boulevard To learn more, view their Visible Connect Profile >>> Susa Ventures About: Susa Ventures is an early-stage venture capital firm, investing in a growing family of dreamers and builders. Location: San Francisco, CA Check size: $1M – $1.5M Recent Investments: Nelo, Ascend, Centaur Labs To learn more, view their Visible Connect Profile >>> NextWorld Capital About: NextWorld Capital focuses on the enterprise technology sectors that are transforming existing markets and defining new ones. Location: San Fracisco, CA Check size: $1M – $10M Recent Investments: Honeycomb, Aircall, Stampli To learn more, view their Visible Connect Profile >>> Primary Venture Partners About: Primary Venture Partners (previously High Peaks) is a seed-stage VC firm based in NY, focused on eCommerce and enterprise SaaS. Location: New York, NY Check size: $1M – $7.5M Recent Investments: Stellar Health, FlyMachine, Orum To learn more, view their Visible Connect Profile >>> Blumberg Capital About: Blumberg Capital is an early-stage venture capital firm that invests in a range of technology companies. Location: San Fracisco, CA Check size: $1M – $10M Recent Investments: Hunters, Zone7, Trulioo To learn more, view their Visible Connect Profile >>> Boldstart Ventures About: Boldstart Ventures is a first check investor for technical enterprise founders. Location: New York, NY Check size: $250k – $2.5M Recent Investments: Synk, Replicated, Cape Privacy To learn more, view their Visible Connect Profile >>> Founder Collective About: Founder Collective is a Massachusetts-based seed-stage venture capital fund that helps entrepreneurs build their businesses. Location: Cambridge, MA Check size: $400k – $1.5M Recent Investments: Verve Motion, ULesson, Smalls To learn more, view their Visible Connect Profile >>> Costanoa Ventures About: Costanoa Ventures backs tenacious and thoughtful founders who change how business gets done. Location: Palo Alto, CA Check size: $1M – $15M Recent Investments: Lively, Cresicor, Aserto To learn more, view their Visible Connect Profile >>> Engage Ventures About: Engage Ventures is venture fund and platform established by 11 of the most influential corporations in the world. Location: Atlanta, GA Check size: $650k – $25M Recent Investments: Chain,io, Verusen, Voxie To learn more, view their Visible Connect Profile >>> I2BF Global Ventures About: I2BF invests in startups at the convergence of hardware&software technologies erasing the boundaries between the physical and digital world. Location: New York, NY Recent Investments: Shopmonkey, Portside, Inbox Health To learn more, view their Visible Connect Profile >>> Uncork Capital About: Uncork Capital is a seed-stage venture firm that commits early, helps with the hard stuff, and sticks around. Location: Palo Alto, CA Check size: $750k – $2M Recent Investments: Crossbeam, Groove, MakersPlace To learn more, view their Visible Connect Profile >>> Founders Fund About: Founders Fund is a San Francisco-based venture capital firm investing in companies building revolutionary technologies. Location: San Francisco, CA Check size: $500k – $150M Recent Investments: Cover, SUPLERLASTIC, Chronosphere To learn more, view their Visible Connect Profile >>> Freestyle VC About: Freestyle Capital is a seed-stage investor and mentor for Internet software startups. We’re the ones you come to when you want more than just a check. Location: Mill Valley, CA Check size: $1M – $7.5M Recent Investments: HiveWatch, Creator+, Ease To learn more, view their Visible Connect Profile >>> Chloe Capital About: Chloe Capital is a seed stage VC firm investing in women-led innovation companies across North America. Location: Ithaca, NY Check size: $100k – $250k To learn more, view their Visible Connect Profile >>> Moonshots Capital About: Seed stage venture capital firm that invests in extraordinary leadership. Location: Austin, TX Check size: $500k – $1.5M Recent Investments: Gretel AI, Wildfire Systems, Cart.com To learn more, view their Visible Connect Profile >>> Romulus Capital About: Romulus Capital is an American seed- and early-stage venture capital fund that invests in technology companies. Location: Boston, MA Check size: $500k – $5M Recent Investments: Ceres Imaging To learn more, view their Visible Connect Profile >>> Upfront Ventures About: We invest primary in the US but have a 20-year history of funding companies in Europe. Our managing partners (Yves Sisteron & Mark Suster) are both dual citizens of France & UK respectively. Location: Santa Monica, CA Check size: $1M – $20M Recent Investments: Bevy, Ynsect, Rally To learn more, view their Visible Connect Profile >>> SignalFire About: We use humans and technology for the hardest parts of building a company at every stage — recruiting, expert advice, and a corporate network. Location: San Francisco, CA Check size: $500k – $4M Recent Investments: PlanetScale, Stampli, Ro To learn more, view their Visible Connect Profile >>> CRV About: CRV has been a leading investor in early-stage technology companies for almost half a century, backing nearly 400 startups in its history. Location: Palo Alto, CA Check size: $1M – $25M Recent Investments: Cord, Postman, Tribe To learn more, view their Visible Connect Profile >>> Acceleprise About: Acceleprise invests in early-stage B2B SaaS and enterprise technology companies and unifies the global technology community through mentors. Location: San Francisco, CA Check size: $50k – $1M To learn more, view their Visible Connect Profile >>> Floodgate Ventures About: Floodgate backs the top .1% Founders before the rest of the world believes in their movements. Location: Palo Alto, CA Check size: $1M – $10M Recent Investments: Almanac, Around, IRL To learn more, view their Visible Connect Profile >>> Obvious Ventures About: Obvious Ventures brings experience, capital, and focus to startups combining profit and purpose for a better world. Location: San Francisco, CA Check size: $250k – $6M Recent Investments: Dexterity, One, SINAI Technologies To learn more, view their Visible Connect Profile >>> Switch Ventures About: A community of talented founders who switched from the common path. Location: San Francisco, CA Check size: $50k – $5M Recent Investments: Mode Analytics, Luxury Presence To learn more, view their Visible Connect Profile >>> Wing About: Wing is a purpose-built venture capital firm founded by two industry veterans with a different perspective on what it takes to create enduring companies. Location: Menlo Park, CA Recent Investments: Lumigo, Drop Capital, Around To learn more, view their Visible Connect Profile >>> Arthur Ventures About: Arthur Ventures invests in early-stage B2B software companies located outside Silicon Valley. Location: Minneapolis, MN Check size: $1M – $10M Recent Investments: Athennian, Stream, Cybrary To learn more, view their Visible Connect Profile >>> Homebrew About: Homebrew provides seed-stage fund and operational expertise for entrepreneurs building the bottom-up economy. Location: San Francisco, CA Check size: $750k – $2M Recent Investments: Canopy Servicing, Z1, Orum To learn more, view their Visible Connect Profile >>> Connetic Ventures About: Connetic is reinventing the VC industry by turning tables on intuition and biases to a more data-driven approach. Location: Covington, KY Check size: $100k – $800k Recent Investments: TCare To learn more, view their Visible Connect Profile >>> High Alpha About: High Alpha creates and funds companies through a new model for entrepreneurship that unites company building and venture capital. Location: Indianapolis, IN Check size: $1M – $3M Recent Investments: SINAI Technologies, Encamp, Rheaply To learn more, view their Visible Connect Profile >>> M25 About: Early-stage VC investing in startups headquartered in the Midwest across a wide variety of industries. Location: Chicago, IL Check size: $250k – $500k Recent Investments: Blumira, Breeze, Cashdrop To learn more, view their Visible Connect Profile >>> Europe SaaS Seed VC Firms Startup Wise Guys About: Startup Wise Guys is the leading B2B startup accelerator in Europe. Location: Tallinn, Harjumaaa, Estonia Check size: $20k – $270k Recent Investments: Vochi To learn more, view their Visible Connect Profile >>> NDRC About: NDRC is a business that transforms entrepreneurial teams and ideas into startups with early investment and research help. Location: Dublin, Ireland Check size: $135k – $500k To learn more, view their Visible Connect Profile >>> Newfund Capital About: Newfund is an entrepreneurial VC firm focused on early-stage investments in France and the United States. Location: Paris, France Check size: $300k – $1.5M Recent Investments: FairMoney To learn more, view their Visible Connect Profile >>> Peak Capital About: Peak Capital is an Amsterdam-based venture capital firm. Location: Amsterdam, Netherlands Recent Investments: Route To learn more, view their Visible Connect Profile >>> Notion Capital About: Notion is a London-based venture fund focused on the SaaS-based and cloud computing markets. Location: London, UK Check size: $1M – $7.5M Recent Investments: Admix, Fiberplane, Dixa To learn more, view their Visible Connect Profile >>> Act Venture Capital About: Act is a VC firm focused on the most promising technology companies. Location: Dublin, Ireland Recent Investments: Umba, Provizio, Buymie To learn more, view their Visible Connect Profile >>> Portugal Ventures About: Portugal Ventures is a venture capital firm that invests in seed rounds of Portuguese startups in tech, life sciences, and tourism. Location: Porto, Portugal Check size: $57k – $1.7M Recent Investments: Jscrambler, DefinedCrowd To learn more, view their Visible Connect Profile >>> Main Incubator About: Main Incubator is an accelerator that in fintech startups and provides seed and Series A investments. Location: Frankfurt, Germany To learn more, view their Visible Connect Profile >>> Frontline About: Frontline Seed is a fund for early-stage businesses with global ambitions. Location: London, UK Recent Investments: Koyo, Localyze, Qualio To learn more, view their Visible Connect Profile >>> Asia & Australia SaaS Seed VC Firms Jungle Ventures About: Jungle Ventures is a Singapore-based Venture Capital Firm that invests in and helps build tech category leaders from Asia. Location: Singapore Check size: $1M – $50M Recent Investments: Evermos, KiotViet, Dat Bike To learn more, view their Visible Connect Profile >>> Right Click Capital About: Right Click Capital is a venture capital firm backing ambitious tech startups in Australia, New Zealand, and South East Asia. Location: Sydney, Australia Check size: $100k – $20M Recent Investments: Beam, Qwilr, Myriota To learn more, view their Visible Connect Profile >>> Qualgro VC About: Qualgro Venture Capital invests in B2B technology startups in Southeast Asia, Australia and New Zealand, at Series A and Series B. Location: Singapore Check size: $1M – $20M Recent Investments: ErudiFi To learn more, view their Visible Connect Profile >>> Speciale Invest About: Speciale Invest is an early-stage investor focusing on Tech-driven/Deep-tech ventures. Location: Bengaluru, India Check size: $100k – $1M To learn more, view their Visible Connect Profile >>> Strive VC About: We will help each ambition come true through aggressive hands-on accumulation that embraces the entrepreneurial desires. Location: Tokyo, Japan Recent Investments: Raena, Hasura, BeaTrust To learn more, view their Visible Connect Profile >>> South America SaaS Seed VC Firms NXTP Ventures About: NXTP Ventures backs early-stage technology companies led by extraordinary entrepreneurs throughout Latin America. Location: Buenos Aires, Argentina Recent Investments: VU To learn more, view their Visible Connect Profile >>> Monashees About: A Brazilian venture capital firm active globally that invests in entrepreneurs committed to creating innovative solutions for a new world. Location: Sao Paulo, Brazil Recent Investments: Flieber, Yaydoo, Pipo Saude To learn more, view their Visible Connect Profile >>> Related Resource: 7 Prominent Venture Capital Firms in Brazil How to Find More Active Seed Stage Investors As the venture landscape continues to shift, seed and pre-seed rounds are starting to become standard. This means that there are more funding options for more startups. The investors above are all venture capital firms but funding options go beyond VC for startups: Angel Investors — Like venture capitalists, angel investors buy equity in startups. An angel investor is generally a wealthy individual who is looking to invest spare cash in an alternative investment. As we wrote in our post, How to Effectively Find + Secure Angel Investors for Your Startup, “This means that an angel investor may have alternative motives (personal interest in the problem, product, founders, etc.) whereas a venture capital firm is focusing on maximizing their returns.” Friends & Family — When raising capital from friends and family, it is incredibly important to be transparent during the process. Early stage companies are generally a very risky investment and can lead to a loss of capital. Consider who has expendable income in your immediate network when reaching out. Crowdfunding — Over the last few years, crowdfunding has become a more popular way to raise equity financing. As the team at Republic defines it, ‘Crowdfunding is a way to raise money from a large number of people. Large groups of people pool together small individual investments to provide the capital needed to get a company or project off the ground. Individuals, charities or companies can create a campaign for specific causes and anyone can contribute.” Related Reading: 6 Types of Investors Startup Founders Need to Know About You can use Visible Connect to filter and discover new investors for your SaaS business. Check out all of the seed stage investors in Visible Connect here. Perfect Your Seed Round Pitch With This Slide Deck Once you find your target investors and kickoff your raise, you will likely need a well-prepared pitch deck to share with investors. As we wrote in Our Favorite Seed Round Pitch Deck Template, “there are certain expectations for an early-stage/seed-stage startup to present in their pitch deck. Founders should tailor and adjust their pitch based on who they’re reaching out to, but great seed round pitches come down to a few core things: a succinct but exciting story, an exceptional team, product potential or traction, and a growth plan.” Learn more about building a great seed round pitch deck here. Streamline Your Seed-Stage Fundraising Process With Visible Finding investors for the top of your fundraising funnel is only half the battle. Use Visible to find investors, share your pitch deck, and track the progress of your raise. Give Visible a free try for 14 days here.