Fundraising

Being a founder is difficult. Managing the day-to-day as a founder while trying to secure capital for your business can almost feel impossible. Thankfully, there are different tools and techniques that founders can use to systemize their fundraise to focus on what truly matters, building their business. One of those tools is a startup funding proposal. In this guide, we’ll break down what a startup funding proposal is and how you can leverage it to build momentum in your fundraise. What Is a Startup Funding Proposal? A startup funding proposal is a document that helps startup founders share an overview of their business and make the case for why they should receive funding. A startup funding proposal can be boiled down to help founders layout 3 things: What — what does your startup do How — how does your startup or product help customers accomplish what they are seeking Why — why does your startup need funding and why should an investor fund your business Related Resource: How to Write a Business Plan For Your Startup Types of Startup Funding Proposals Like any business document, there are many ways to approach a startup funding proposal. Ultimately it will come down to pulling the pieces and tactics that work best for your business. Investors are seeing hundreds, if not thousands, of deals a month so it is important to have your assets buttoned up to move quickly and build conviction during a raise. Check out a couple of popular types of funding proposals below: Traditional Startup Funding Proposal The most traditional or “standard” standard funding proposal is generally a written and visual document that is created using word processing software and/or design tools. A traditional proposal is great because it allows you to share context with every aspect of your business. For example, if you include a chart of growth you’ll be able to explicitly write out why that was and what your plan is for future growth. This document is generally designed to fit your brand and will hit on the key components of your business is structured and predictable way. We hit on what to include in your proposal below. Startup Funding Proposal Pitch or Presentation The most common approach we see to a fundraise or proposal is the pitch deck. Pitch decks take the same components as any proposal and fit them into a visual pitch deck that can be easily navigated and understood by a potential investor. Pitch decks are not required by investors by are generally expected and are a great tool that can help you efficiently close your round. To learn more about building your pitch deck, check out a few of our key resources below: Tips for Creating an Investor Pitch Deck 18 Pitch Deck Examples for Any Startup Our Teaser Pitch Deck Template 1-on-1 Proposals (Elevator Pitch) A 1 on 1 proposal or an elevator pitch is the quickest version of any proposal. Every founder should have an elevator pitch in their back pocket and is a complementary tool to any of the other funding proposals mentioned here. As the team at VestBee puts it, “Elevator pitch” or “elevator speech” is a laconic but compelling introduction that can be communicated in the amount of time it takes someone to ride an elevator, usually around 30 seconds. It can serve you for fundraising purposes, personal introduction, or landing a prospective client.” Email Proposal Another common way to share a startup funding proposal via email. While the content might be similar to what is seen in a “traditional” funding proposal this allows you to hit investors where they spend their time – their inbox. The format will follow a traditional proposal with less emphasis on visual aspects and more emphasis on the written content. Check out an example from our Update Template Library below: Related Resource: How to Write the Perfect Investment Memo Investor Relationship Hub Lastly, there is an investor relationship hub or data room that can be used to share your proposal with potential investors. A hub is a great place to curate multiple documents or assets that will be needed during your fundraise. For example, you could share your funding proposal and your financials if they are requested by a potential investor. Related Resource: What Should be in an Investor Data Room? What to Include in Your Startup Funding Proposal How you share your funding proposal might differ but ultimately the components are generally closely related from one proposal to the next. However, be sure that you are building this for your business. There is no prescriptive template that will work for every business. Project Summary First things first, you’ll want to start with a summary of your project or your business. This can be a high-level overview of what your proposal encompasses and will give an investor the context they need for the rest of the proposal. A couple of ideas that are worth hitting on: What your company does and how it’s different from existing solutions to pressing problems. Existing market gaps and how your product covers them. The importance of your product in your industry and how it improves the industry. Existing resources and manpower, investment requirements, and potential limitations. Current Performance and Financial Report Of course, investors want to see how your business has been performing. The data and metrics around your business are generally how an investor builds conviction and further interest in your business. We suggest using your best judgment when it comes to the level of metrics or financials that you’d like to share. A couple examples of what you might share: Current assets and liabilities MVP presentation for companies still in the ideation stage Appendix with financial reports Related Resource: ​​Building A Startup Financial Model That Works Existing Investors and Partners Inevitably investors will want to know who else you have raised capital from and partnered with in the past. Include a brief description of the different investors you have on your cap table and be ready to field additional questions if they have any. Pro tip: The first place an investor will go to when performing due diligence is your current investors. Make sure you have a strong relationship and good communication with your current investors. Market Study and Sales Goals Investors will also care about your customer acquisition efforts and want to make sure you can repeatably find and close new customers. A couple of things that might be important to include in this section: Product pricing and information Revenue targets and goals Customer acquisition model and efforts Sales and marketing related KPIs Stories or testimonials from happy customers Current Valuation, Investment Requirements, and Expected Returns This is an opportunity to lay out your cap table and explain your current valuation, investment requirements, and what future valuations could look like. As always, we suggest using your best judgment when it comes to what level of detail you’d like to share about your cap table. Potential Pitfalls and Solutions There is an inherent risk when investing in any startup. It is important to make sure potential investors are aware of this. Layout the common pitfalls your startup might face and stop you from achieving your goals. Next, lay out the solutions to these problems and how you plan to tackle them if/when they arise. 8 Startup Funding Proposal Samples and Templates Below are 8 proposal templates to help you kick off your next fundraise. Note that some of these are technically investor updates and not designed for first-time fundraising. Keep in mind that a startup funding proposal could also be utilized for additional funding after the first round of funding. 1. An Investment Summary Template by Underscore VC Underscore VC is a seed-stage venture fund based out of Boston. As the team at Underscore writes: “As part of this, we strongly recommend you write out a pitch narrative before you start to build a pitch deck. “Writing the prose forces you to fill in the gaps that can remain if you just put bullets on a slide,” says Lily Lyman, Underscore VC Partner. “It becomes less about how you present, and more about what you present.” This exercise can help you synthesize your thoughts, smooth transitions, and craft a logical, compelling story. It also helps you include all necessary information and think through your answers to tough questions. Check out the template here. 2. The Visible “Standard” Investor Update Template Our Standard investor update template is great for communicating with existing investors. If you are regularly sending Updates to their investors they should know when you are beginning to raise capital again and can almost be treated as an investment proposal. Check out the template for our standard investor update template here. 3. Sharing a Fundraising Pitch via Video Videos are a great way to give the right context to the right investors in a concise and quick way. Video is a great supporting tool for any other information or documents you might be sending over. For example, you can include a few charts or metrics and some company information and use the video to further explain the data and growth plans. Check out the template here. 4. Financial Funding Proposal The team at Revv put together a plug-and-play financial funding proposal. As they wrote, “A funding proposal must provide details of your company’s financials to obtain the right amount of funding. Check out our funding proposal template personalized for your business.” Check out the template here. 5. Investor Proposal Template for SaaS Companies The team at Revv put together a template to help founders grab the attention of investors. As they wrote, “With so many Investing Agencies, this Investor proposal will surely leave an impact on your company in the long run.” Check out the template here. 6. Startup Funding Proposal Sample Template.net has created a downloadable funding proposal template that can be edited using any tool. As they wrote, “Get your business idea off the ground by winning investors for your business through this Startup Investment Proposal. Fascinate investors with how you are going to get your business into the spotlight and explain in vivid detail your goals or target for the business.” Check out the template here. 7. Simple Proposal Template Best Templates has created a generic proposal template that can be molded to fit most use cases. As they wrote, “Use this Simple Proposal Template for any of your proposal needs. This 14-page proposal template is easily editable and fully customizable using any chosen application or program that supports MS Word or Pages file formats.” Check out the template here. 8. Sample Investment Proposal for Morgan Stanley Another example is from the team at Morgan Stanley. The template is commonly used by their team and can be applied to most proposal use cases. Check out the template here. Connect With More Investors and Tell Your Story With Visible Being able to tie everything together and build a strategy for your fundraise will be an integral part of your fundraising success. Check out how Visible can help you every step of the way below: Visible Connect — Finding the right investors for your business can be tricky. Using Visible Connect, filter investors by different categories (like stage, check size, geography, focus, and more) to find the right investors for your business. Give it a try here. Pitch Deck Sharing — Once you’ve built out your target list of investors, you can start sharing your pitch deck with them directly from Visible. You can customize your sharing settings (like email gated, password gated, etc.) and even add your own domain. Give it a try here. Fundraising CRM — Our Fundraising CRM brings all of your data together. Set up tailored stages, custom fields, take notes, and track activity for different investors to help you build momentum in your raise. We’ll show how each individual investor is engaging with your Updates, Decks, and Dashboards. Give it a try here.

“The future of work” is a broad and evolving topic, for this article we will cover it in the context of how founders are creating and solving for our rapidly changing working world as well as where and how VCs are investing in it. At its core, the future of work revolves around how technological advancements, socio-economic shifts, cultural changes, and evolving business models are transforming the nature, location, and experience of work. For founders, this signifies a wide array of potential opportunities to innovate within, and for VCs, there lies huge investment opportunities. Predictions for the Future of Work: Where VCs see the biggest opportunities The “Future of Work” is expected to be more flexible, decentralized, sustainable, and human-centric, all underpinned by advanced technology. For founders, aligning with these predicted trends could prove beneficial in securing VC interest and investment. AI and automation will transform many jobs. AI is already widely being used to automate tasks and will grow as new use cases and technology evolve, this could lead to some job displacement. However, AI is also creating new jobs, such as AI developers and engineers. VCs are investing in companies that are developing AI-powered tools to automate tasks, improve productivity, and make work more efficient. Expert Opinion: McKinsey & Company, among others, has highlighted the accelerating adoption of automation and AI across industries, from manufacturing to services. Opportunities: Startups developing intuitive AI interfaces, low-code/no-code automation platforms, and solutions for job displacement caused by automation (like re-skilling platforms). Democratization of Entrepreneurship. This refers to the leveling of the playing field, enabling more people from diverse backgrounds to start and scale businesses thanks to recent developments in technology, such as AI. The “Future of Work” isn’t just about how we work, but also about how we create, innovate, and bring ideas to market. What once required a substantial capital investment or technical expertise is now accessible to anyone with an idea and internet access. No longer do entrepreneurs need to understand coding to build a digital presence. Expert Opinion: Lower barriers to entry in business, thanks to digital tools, will lead to a rise in micro-entrepreneurs and niche businesses. This viewpoint is supported by platforms like Shopify and their growth trajectory. VC Opportunity: Tools supporting small-scale e-commerce, localized marketing platforms, and solutions catering to niche digital businesses. Skills development and education will be essential for success. As the world of work changes rapidly, it is increasingly important for people to have the skills they need to succeed. VCs are investing in companies that provide skills development and education programs to help people learn new skills and stay ahead of the curve. Expert Opinion: With the pace of technological advancement, lifelong learning is becoming essential. Leaders like Thomas Friedman have emphasized the importance of adaptable and continuous learning. Opportunities: Micro-credentialing platforms, industry-specific upskilling courses, and experiential learning tools leveraging AR and VR. The gig economy will continue to grow. The gig economy is growing rapidly, and VCs are investing in companies that are making it easier for people to find and book freelance work. This includes companies that provide freelance marketplaces, job boards, and payment platforms. Expert Opinion: The gig economy is expected to grow but evolve to offer more security and benefits to freelancers. Experts like Diane Mulcahy have discussed the shift from the traditional 9-to-5 to more flexible work structures. Opportunities: Platforms providing benefits and insurance for freelancers, gig work management tools, and specialized marketplaces for niche skills. Investment Landscape: Capital Flowing into the Future of Work As of Q3 2023, the future of work 100 has collectively raised $30 billion in capital from VCs, with a total valuation of over $211 billion, according to Future of Work 100 Report. Top Investors Y Combinator Index Ventures General Catalyst Kleiner Perkins Accel Top Categories (starting with the largest) Recruiting HR Learning Collaboration Wellness Notable Deals Rippling $500 million Series E in Q1 2023 Total Funding Amount: $1.2 Billion Rippling is a human resource management company that offers an overall platform to help manage HR and IT operations. Guild Education $264.7 million Series G Q2 2022 Total Funding Amount: $643.2 Million Guild is a learning platform that offers classes, programs, and degrees for working adults. These fundraises suggest that VCs are still very bullish on the future of work sector, even in the face of a challenging economic environment. Future of Work Categories The “future of work” is dynamic, and the areas of focus will evolve as new technologies emerge and societal needs change. VC investments will continuously shift to adapt to these changes, seeking out innovative solutions that address the most pressing challenges and opportunities in the world of work. As of now, these are the categories we found to be of most interest to VCs and Founders alike, as they solve for and support the way we work today and in the future. Remote and Distributed Work With the proliferation of digital tools and the effects of the pandemic, remote and hybrid work models have become more prevalent. Virtual collaboration tools (e.g., video conferencing, project management software). Virtual office environments and platforms. Remote team-building and culture-enhancing solutions. Digital security tools tailored for remote work setups. Human Resources and Talent Management AI-driven recruitment platforms that ensure a better fit between candidates and companies. Employee engagement and performance tracking tools. Solutions for remote onboarding, training, and continuous learning. Automation and AI The rise of automation and AI has the potential to transform many job roles and industries. Robotic Process Automation (RPA) for automating repetitive tasks. AI-driven solutions for data analysis, customer service, and other business functions. Job re-skilling and up-skilling platforms, recognizing the need for workers to adapt. Gig Economy and Flexible Employment As more people pursue freelance, contract, and part-time work, there’s a growing demand for platforms that facilitate this kind of employment. This includes: Freelancer marketplaces. Tools for gig workers, such as invoicing, insurance, and benefits platforms. Platforms for micro-tasks or crowd-sourced work. Employee Well-being and Productivity The emphasis on work-life balance and employee well-being is growing. Mental health and well-being platforms tailored for professionals. Productivity-enhancing tools, including time management and focus-enhancing software. Physical wellness platforms, including virtual fitness and ergonomics solutions. Lifelong Learning and Continuous Education The rapid pace of change means workers need to continually update their skills. Online learning platforms, both general and industry-specific. Corporate training and development tools. Credentialing and certification platforms. Decentralized Work Platforms With the rise of blockchain and decentralized technologies, there are new models for work and value creation, such as: Decentralized autonomous organizations (DAOs) where members collaborate without a traditional hierarchical structure. Platforms that allow for tokenized incentives or compensation. Diverse and Inclusive Work Environments Recognizing the value of diverse workforces, there’s a push for tools and platforms that promote diversity and inclusion, such as: Recruitment software that mitigates biases. Platforms that connect businesses with diverse talent pools. Tools that foster inclusive communication and understanding within teams. Culture and Engagement in Distributed Teams Platforms for virtual team-building activities. Tools that help maintain and communicate company culture in a remote setting. VCs Investing in the Future of Work Khosla Ventures Location: Menlo Park, California, United States About: At KV, we fundamentally like large problems that are amenable to technology solutions. We seek out unfair advantages: proprietary and protected technological advances, business model innovations, unique approaches to markets, different partnerships, and teams who are passionate about a vision. Investment Stages: Seed, Series A Recent Investments: Volta Labs WorkWhile Emi To learn more about Khosla Ventures, check out their Visible Connect Profile. Menlo Ventures Location: Menlo Park, California, United States About: We are investors and company builders—we know what it takes to turn a budding idea into a scalable business. We work with early-stage founders to find product-market fit, develop go-to-market strategies, scale their organizations, and support them as they grow. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Recent Investments: TruEra OpenSpace Siteline To learn more about Menlo Ventures, check out their Visible Connect Profile. Social Capital Location: Palo Alto, California, United States About: Social Capital’s mission is to build the future. We do this by identifying emerging technology trends, partnering with entrepreneurs that are trying to solve some of the world’s hardest problems and help them build substantial commercial and economic outcomes. Our returns have placed us among the top technology investors in the world and act as a signal that we have generally been on the right track. Investment Stages: Seed, Series A, Series B, Growth Recent Investments: Palmetto WorkStep Asaak To learn more about Social Capital, check out their Visible Connect Profile. Hexa Location: Paris, France About: Hexa is home to startup studios eFounders (SaaS), Logic Founders (fintech) and 3founders (web3). It all started in 2011 with startup studio eFounders, which pioneered a new way of entrepreneurship, became a reference in the B2B SaaS world, and launched over 30 companies including 3 unicorns (Front, Aircall, Spendesk). Now, eFounders is part of Hexa, alongside its sister startup studios Logic Founders (fintech) and 3founders (web3). Investment Stages: Pre-seed, Seed, Series A, Series B, Series C Recent Investments: Kairn Crew Collective To learn more about Hexa, check out their Visible Connect Profile. s28 Capital Location: San Francisco, California, United States About: S28 Capital is an early-stage venture fund with $170M under management. We’re a team of founders and early startup employees. Investment Stages: Seed, Series A Recent Investments: OpsLevel Rudderstack CaptivateIQ To learn more about s28 Capital, check out their Visible Connect Profile. WorkLife Location: San Francisco, United States About: The first fund designed for builders, creators & individual contributors We’re operators with a deep network of creators, developer evangelists, product designers and engineers. We’re backed by the founders of Cameo, Spotify, Twitch, Zoom and platforms built for builders, creators, and individual contributors. Our advisors include Arianna Huffington, Michael Ovitz, Sophia Amoruso, Eric Yuan and other disruptors across all industries. Investment Stages: Pre-seed, Seed, Growth Recent Investments: Accord Tandem ChartHop To learn more about WorkLife, check out their Visible Connect Profile. Bonfire Ventures Location: Los Angeles, California, United States About: We bring experience and empathy to our founder’s journeys. Investment Stages: Seed, Series A, Series B Recent Investments: SKAEL Spekit Atrium To learn more about Bonfire Ventures, check out their Visible Connect Profile. Related Resource: 10 Angel Investors to Know in Los Angeles iNovia Capital Location: Montreal, Quebec, Canada About: Inovia Capital is a full-stack venture firm that invests in tech founders. Investment Stages: Seed, Series A, Series B, Series C, Growth Recent Investments: Talent.com Calico RouteThis To learn more about iNovia Capital, check out their Visible Connect Profile. Related Resource: 10 Venture Capital Firms in Canada Leading the Future of Innovation Bloomberg Beta Location: San Fransisco & New York City, California, United States About: Invests in powerful ideas that bring transparency to markets, achieve global scale, with strong, open cultures that embrace technology. Thesis: We believe work must be more productive, fulfilling, inclusive, and available to as many people as possible. Our waking hours must engage the best in us and provide for our needs and wants — and the world we live in too often fails to offer that. We believe technology startups play an essential role in delivering a better future. We can speed the arrival of that future by investing in the best startups that share these intentions. Investment Stages: Pre-seed, Seed, Series A, Series B, Series C Recent Investments: CloudApp StrongDM Tonic.ai To learn more about Bloomberg Beta, check out their Visible Connect Profile. SOSV Location: Princeton, New Jersey, United States About: SOSV is a venture capital firm providing multi-stage investment to develop and scale their founders’ big ideas for positive change. Investment Stages: Accelerator, Pre-Seed, Seed, Series A, Series B Recent Investments: MarketForce Novoloop TabTrader To learn more about SOSV, check out their Visible Connect Profile. Lerer Hippeau Location: New York, New York, United States About: Lerer Hippeau is a seed and early-stage venture capital fund based in New York City. Investment Stages: Seed, Series A, Series B, Series C Recent Investments: Palmetto Sardine Blockdaemon To learn more about Lerer Hippeau, check out their Visible Connect Profile. White Star Capital Location: New York, New York, United States About: White Star Capital is an international venture and early growth-stage investment platform in technology. Investment Stages: Series A, Series B Recent Investments: Swing Wrk RareCircles To learn more about White Star Capital, check out their Visible Connect Profile. General Catalyst Location: Cambridge, Massachusetts, United States About: General Catalyst is a venture capital firm that makes early-stage and growth equity investments. Investment Stages: Seed, Series A, Series B, Growth Recent Investments: Ponto Socotra Homeward To learn more about General Catalyst, check out their Visible Connect Profile. Tuesday Capital Location: Burlingame, California, United States About: Tuesday Capital (formerly known as CrunchFund) is a seed stage focused venture firm Investment Stages: Seed, Series A, Growth Recent Investments: Kueski NeuraLight Crabi To learn more about Tuesday Capital, check out their Visible Connect Profile. Forum Ventures Location: New York City, San Francisco, and Toronto, United States Thesis: B2B SaaS; Future of Work, E-commerce enablement, Supply Chain & Logistics, Marketplace, Fintech, Healthcare Investment Stages: Pre-Seed, Seed Recent Investments: Sandbox Banking Tusk Logistics Vergo Check out Forum Ventures profile on our Connect Investor Database Start Your Next Round with Visible We believe great outcomes happen when founders forge relationships with investors and potential investors. We created our Connect Investor Database to help you in the first step of this journey. Instead of wasting time trying to figure out investor fit and profile for their given stage and industry, we created filters allowing you to find VC’s and accelerators who are looking to invest in companies like you. Check out all our investors here. After learning more about them with the profile information and resources given you can reach out to them with a tailored email. To help craft that first email check out 5 Strategies for Cold Emailing Potential Investors. After finding the right Investor you can create a personalized investor database with Visible. Combine qualified investors from Visible Connect with your own investor lists to share targeted Updates, decks, and dashboards. Start your free trial here.

Many new ventures and new startups are formed by multiple individuals, collectively known as the founders. Sometimes long-time friends, sometimes former colleagues, other times like-minded individuals who came together specifically for the problem the startup solves. All of these different combinations of individuals, regardless of background, are startup founders and with that new title comes a new set of rules and responsibilities. New startup founders that are forming a business, often enter into a Founders Agreement. We’ve gone in-depth into the typical nature of a Founders Agreement, what it is, and what it can mean for your startup. Related resource: The Startup’s Guide to Investor Agreements: Building Blocks of VC Funding What is a Founders Agreement? A Founder’s Agreement is a contract. But not just any contract, a Founder’s Agreement is a specific contract that lays out the business relationships that the founders enter into and agree upon. The Founder’s Agreement contract specifically lays out the responsibilities, rights, obligations, and any liabilities of each founder. The Founder’s Agreement is in place to regulate matters that aren’t governed by any type of operating agreement or financial agreement with investors, but rather specifically ensures that each founder is clear on their specific role with and for the company. Related Resource: How To Find Private Investors For Startups What Are the Must-Have Items to Include in the Founders Agreement? Now that it’s been established that a founder’s agreement is essentially a contract dictating the founding team’s rights, responsibilities, and role within the company, let’s get a little bit more specific. Thinking through all the possible items that could be in your founder’s agreement, we recommend starting with at least the following 10 to ensure the key details of the business are specifically covered. Related resource: Investor Agreement Template for Startup Founders 1. Add Notable Names Including the Founders of the Company While it may seem straightforward, be as detailed as possible and list out every single founder of the company by name, title, and even a breakdown of ownership if applicable. Capture as much detail as possible about the founding team that the Founder’s Agreement pertains to. It is also helpful to outline any other notable names that are involved at the early formation of your company. For example, if you have any early friends and family investors, advisors in the space, founding customers, founding partners, or subject-matter experts involved in any type of POC or validation study, list them out by name and role associated with your company. If they have a financial stake, outline the percentage ownership stake they have in the business as well and note if they would technically be considered a founder under this agreement. 2. Document Your Business Structure Now that all key persons have been outlined by name and role, be sure to document the structure of your business. How your business is structured can affect the future of the company. Determine how your company will be structured – consider if it makes more sense for it to work as a partnership, LLC, C Corp, S Corp and consider all of the financial and structural implications that come with each option. Determining and documenting this from the beginning is key to building your business from a unified perspective and understanding. 3. Include a Broad Overview of Your Startup Outline the mission statement and an elevator pitch of your startup. A broad overview is helpful to ensure all founder decisions moving forward are aligned to the same vision and mission, with a clear direction of the goal your startup has to accomplish. As the company evolves and grows, pointing back to the agreed-upon overview in the founder’s agreement can help dictate that change and direction as well but will ensure decisions are made with the same foundation in mind. Related Resource: How to Write a Business Plan For Your Startup 4. Have an Expenses and Budget Report Having your finances in order is key to the success or failure of any business. In the Founder’s Agreement, outline where your finances stand. Outline in detail any funding your team has received as a seed investment. Next, outline your company’s operating expenses to ensure all output of money is explicitly documented at the founding of the company and all founders are hyper-aware of the existing spend and burn rate of the company. Finally, outline a foundational budget that each founder has explicit input into. This will ensure that no matter each founder’s unique role or responsibility, there is an agreed-upon budget, especially in relation to the expenses and burn rate of the organization. 5. Include a “Who is Responsible for What?” Section Depending on the makeup of your founding team, there may be a lot of different skill sets and ranges of expertise at the table. Having founders with many different backgrounds and skillsets can be a major advantage for your organization, however, with a versatile set of skills and a unified passion for the startup’s mission, it can be hard for founders to stick to the part of the business they own. Outlining a clear section that documents who is responsible for what in the Founder’s Agreement can ensure that every founder can contribute and master a key area of the business without trying to take on too much or double-dipping in another founder’s role or assigned lane. This will ensure the business scales effectively and every founder appropriately commits to what they will bring to the business. This section can also help define and structure the titles and growth path for each founder and the functional direction of the organization based on which roles are defined and taken on by the founding team first. 6. Management and Legal Decision-Making, Operating, and Approval Rights Piggybacking off of the responsibilities section of your founder agreement, be sure to outline the structure of management at your organization and the hierarchy of various decision-making. If you have a board or plan to have a board, make sure to outline their existing role within the organization. Having an agreed-upon set of rules determining the hierarchy of legal decisions, operation decisions, and final approval rights within the business is key as the company grows and may face big challenges ahead that require a clear, unified plan. 6. Add an Equity and Vesting Section In early startups, founders may not be taking much or any salary at all. This makes it critical to document and clarifies ownership of the business. The goal of every startup is certainly to grow a successful, thriving business. This could mean aspirations as big as an IPO or major acquisition. Establishing early on what percentage of the company each founder owns as well as the schedule that they will vest their shares, or receive full rights to the shares in the company. Having a unified equity agreement and vesting schedule baked into the Founder’s Agreement is key to outlining the years that each founder is needing to stay with the business to reach their full earning potential. This can help solidify the commitment of each founder to the business as well. Related Resource: Employee Stock Options Guide for Startups 7. Include a Salary Compensation Report Even if the salary of each founder is minimal or they forgo a salary as the business starts to save cash, It is helpful to outline a compensation report and even a compensation plan for the founders of the business. A compensation report can outline the initial compensation each founder takes. It can also outline the planned compensation increase for each founder as the profits of the business grow or more funding is granted to the business. Having agreed upon salary compensation documented at the foundation of the company can ensure all founders are aligned on what they are owed and what they are set to earn as the company scales. This will help with tracking financial growth and prevent any major mishaps or founder disagreements about salary and compensation. 8. Dissolution and Termination Clauses Even though most founders plan to stick with a company they found, that is not always the way things shake out long term. It’s important to think through and document what happens with each founder and their ownership and role with the copy under two unfortunate circumstances. Dissolution, or the dissolvement of effective closing down of the company, is something that many startups end up having to do if their company does not take off or has a positive growth trajectory. It’s critical to have documentation in the Founder’s Agreement that determines what will happen to any existing profit or patented ideas or technology in a case of dissolution so that all founders are aware and agreed upon that unfortunate outcome – this can save major legal disagreement down the line. Additionally, an agreed-upon termination clause is also a smart piece of information to include in a founder agreement. This can outline the scenarios of a possible founder exit and what will happen to their shares, intellectual intelligence, or technical knowledge in case of a voluntary or involuntary exit. While the reality for founders going into a new business may be with that company indefinitely, things do happen, and planning for possible dissolution and termination can save the team many headaches and heartache at the end of a business or time with a business. 9. Intellectual Property As part of the termination and dissolution clause, it’s a good idea to highlight all known and defined intellectual property and its ownership within the founder’s agreement. In a situation where a founder exits the business while it is still growing or at dissolution, it needs to be understood where the intellectual property, the ideas, and knowledge that is the foundation of the business, lies while the business is still operating and after. This can help prevent any founder from leaving to start a competitor while the business is operable and ensure that all ideas are documented to the correct owner in perpetuity. What is the Importance of a Founders Agreement? A Founders Agreement is extremely important for a number of reasons but foundationally, it provides a unified, agreed-upon set of rules and guidelines for the founding team to align on and build from. A few of the key reasons a Founder Agreement is so important are: Identifies each owner’s role – having clarity and unified direction on how each owner of the business (both founders and investors) will play a role in the evolution of the business from the very beginning is critical to the success of the business long term. A founders agreement makes ownership and ownership roles crystal clear. Provides structure for resolving issues among founders – Every founding team will have conflicts. Conflict is inevitable when building a business and making tough and risky decisions. Having a Founder Agreement can provide an easy rule book for conflict resolution and managing any issues within the founding team. Because every founder has agreed upon the Founder Agreement, it is a straightforward source of truth when inevitable conflict arises. Protects minority owners – Depending on the origins of the founding team and the company idea, ownership of the organization may not be completely even among founders. This makes the Founder Agreement extremely important to minority owners. It provides a clear outline of what they own, what they are entitled to, and the minimum and maximum responsibility they have to the business. This prevents majority owners from gaming the system by taking advantage of the minority owners’ agreed-upon contributions and responsibilities to the business. Signals to investors that you have a serious business – A Founder Agreement is a critical contract potential investors will look for when considering your business. Having taken the time to solidify the Founder Agreement is good luck for your business and founding team, showing you have a serious business and have thought through all possible points of conflict, future structure, and ownership balance across the founding team. This helps establish your business as a competent, and well-organized one for potential investors to consider. Related Resource: Valuing Startups: 10 Popular Methods How to Create a Founders Agreement Now that we’ve established the purpose for and critical elements of a Founder’s Agreement, let’s follow a simple process to create one. 1. Select a Template No need to start from scratch! Plenty of VCs, business schools, and other private companies provide templates for many different documents and contracts typically used when starting a business, including a Founder Agreement. Check out Visible’s template for this here. 2. Knock Out the Easy Sections First Start with the easy stuff. Your founding team should know your company’s purpose, mission, founder names, and roles and responsibilities. From there, work through the harder organizational and financial details. 3. Thoroughly Work Through the More Challenging Sections Don’t speed through the complicated aspects of the Founder Agreement. Take as much time as needed to work through financial, organizational, and termination details. Consult attorneys, fellow founders, existing investors, and industry peers as needed to ensure you are following the best possible practices and considering all the necessary elements to complete the more challenging, complex sections. You’ll be thankful you took the time to do these parts in a detailed manner when and if it is ever necessary to consult the founder agreement in a difficult scenario. 4. Consider Hiring a Lawyer if Necessary Legal battles are never fun. As mentioned above, while you’re taking your time and going over every detail of the complicated parts of the founder’s agreement, consider hiring a lawyer to consult on and help construct the elements with the most liabilities including salary and ownership pieces as well as termination clauses. Get as much legal advice as you might need, and unless you have in-house expertise on your founding team, a lawyer can be especially helpful in outlining the tax section (you certainly don’t want to mess that up at any stage of your business). 5. Seek a Second Opinion from Fellow Entrepreneurs Founder’s Agreements exist for a reason – they were born out of the mistakes and learnings of previous founders. Consult fellow entrepreneurs who have written and established founders’ agreements in the past. See what worked best for them or what they wish they had included in their founding agreements but did not. No need to reinvent the wheel here, learn from the best in your space. 6. Finalize by Signing Your Founders Agreement With a lawyer present if needed, set a specific date and time to finalize the signing of your FOunder’s Agreement with all founders present. Ensure all founders have enough time to read, review, and contribute to the said agreement so that on signing day you can celebrate finalizing this foundational piece of legal paperwork and the growth of your company. Learn More About Founders Agreements and Startup Funding If you’re looking for more information on Founders Agreements and Startup Funding, check out our other resources for founders on our blog and subscribe to our newsletter, the Visible Weekly. Related resource: The Startup's Handbook to SAFE: Simplifying Future Equity Agreements

As companies scale and grow, they may take on different commitments, challenges, and goals and explore a variety of different paths when it comes to the financial decisions made for growth at the company. There are a number of different ways a company can be set up, a variety of ways it can get off the ground with finances, and many different possible outcomes for a company’s future. How you choose to finance your company, especially early on, can determine a lot about the course your company will take. One option to explore early in a startup’s journey, primarily pre-Series A fundraising round, is convertible debt. Here at Visible, we’ve put together a user-friendly guide on Convertible Debt. What is Convertible Debt? So, what exactly is Convertible Debt? Simply put, Convertible Debt is a loan or a debt option from an investor that is paid with equity or stock in a company. The big difference between a convertible debt investment and a traditional investment is that a traditional investment is typically for an exchange of equity or stock immediately at a known valuation. A Convertible Debt is a loan or debt option that is paid with equity or stock in a company at a future date. This future date maybe when a firmer valuation is determined by the raise of a larger round or big growth in revenue. Typically convertible debts are paid with converted equity in a year or two max. Related Resource: What Are Convertible Notes and Why Are They Used? Convertible Debt vs. Convertible Bond Similar to convertible debt, a convertible bond is a fixed-income loan or debt option that can be converted into a predetermined amount of common stock or equity. There are two main differences between convertible debt and a convertible bond. First, a convertible bond’s conversion timeline is usually at the discretion of the bondholder, while convertible debt’s timeline to conversion is typically monitored and determined by the lender. Next, a convertible bond yields interest payments that can also be converted into equity or stock as well. Convertible debt is pure capital and does not have interest payments associated with it. How Does Convertible Debt Work? Many startups are not able to pull the detailed financial information a big creditor, bank, or lender would typically want to see to offer money to a business. Convertible debts are a great option for startups due to this reason. Convertible debt allows businesses to get the early capital needed based on the future success of the company. Investors who agree to convertible debt agreements want their investments to make money, so they’re more likely to do what it takes to help the company succeed. Because the more a company succeeds, the more money those investors will make. Like any traditional investment, convertible debt happens in rounds or cycles of money being loaned or cashed out and returning in the form of equity or cashing in. At the start of a round, the terms of the convertible debt are set. For example, sometimes a warrant or discount are terms of a convertible loan, or sometimes there’s a limit on the value of the debt when it is converted. In some cases, convertible debt can be structured with discount terms, typically no more than 25%. This means that when the loan ends at the end of the round the investor can purchase stock at an agreed-upon discount. Benefits of Convertible Debt There are a number of different benefits of choosing to take on convertible debt in your startup. Convertible Debt can be a powerful funding mechanism. Here are the top benefits to consider with convertible debt: 1. Convertible Debt is a Simple Financing Option With the terms set in place as part of the convertible debt agreement, it’s a very straight-forward option. X investor loans Y company $100,000 in exchange for $200,000 worth of shares within two years. The founder or startup team, they have 100k in the bank and the support of a connected investor with a vested stake to ensure that 100k converts to the best possible valuation for their future shares as possible. It’s a pretty straightforward transaction, and even if there is a discount or rate increase baked into the debt, it’s set ahead of time and there are no changes over the life of that debt. Related Resource: 409a Valuation: Everything a Founder Needs to Know 2. Convertible Debt is a Low Risk and Efficient Method Convertible Debt is low risk and there is no interest associated with said debt. It also does not require traditional background elements like credit history or existing money in the bank to work. Therefore it also won’t affect any existing credentials like credit score if the debt investment doesn’t quite pan out. By taking on convertible debt upfront, startups can save existing capital and build out a longer runway for themselves making the method of taking on outside investment via convertible debt extremely efficient. 3. Investors with Convertible Recieve Voting Power Typically, investors taking the route of putting up money in a convertible debt deal receive voting power. This is because they can set the equity amount they want and since convertible debt is more common for new, pre-Series A companies, these investors choosing to invest this way can invest an amount that will get them a large enough return percentage for a board seat. This is something that is harder to do at later funding rounds when it’s traditional capital for equity exchange. Investors see the opportunity to get voting power and influence a company as a great benefit to their investment as they can have a bigger say in where their investment goes. This can also be helpful to a founder raising capital – with the incentive of early voting power on the board up for grabs, larger seed rounds may be able to be raised on convertible debt. Related Resource: How to Write a Business Plan For Your Startup 4. Convertible Debt Provides Fixed Income for Noteholders For Noteholders, Convertible Debt is a great option because it provides direct, fixed income over a shorter amount of time for said investment – the guarantee that the investment will convert to equity within a period of time is more predictable and that equity will then grow once it converts and the company continues to grow. Drawbacks of Convertible Debt While Convertible Debt has many benefits, it does come with some drawbacks as well. Be sure to consider all the drawbacks of convertible debt such as: 1. Failure of Repayment If for some reason the convertible debt can’t be repaid with the equity or stock promised, often the lender has the right to demand repayment via other means which could lead to the loss of other items or controls in the business, causing a business to even liquidate its assets for repayment in some cases. 2. The Risk of Bankruptcy Plain and simple, failure of repayment can lead to the liquidation of a company’s assets which can lead to bankruptcy. This is a major risk if convertible debt goes wrong. 3. Stringent Indenture Provisions A strict set of rules, agreements, and details – or stringent indenture provisions – are to be expected when taking on convertible debt. This can be a major drawback depending on how long-term said provisions are. Depending on the growth of your company you may be bound to your lender in a way that has negative consequences for the founder/owners or the business as a whole but has great benefit to the investor. Consider all provisions and contingencies and review them thoroughly when taking on convertible debt. 4. Losing Control in the Company While a benefit of a lender with convertible debt is a voting board seat or voting power within the organization for certain decisions, this can lead to a major risk for the company. If the controlling stake is removed from the founders, or the vested interests of the voting members changed, the original founding team may no longer have a say in their company and the vision and early mission may evolve without their knowledge. In some cases, this could also lead to the removal of original leadership from the company that raised the convertible debt round in the first place. Why do Startups use Convertible Debt? At the end of the day, despite the drawbacks, the pros of quick, efficient, and straightforward financing in the form of convertible debt are why startups choose to use it. Any opportunity to secure large investments quickly without a detailed credit history and the benefits of bringing on seasoned investors to help a business at its earliest stages are great bets to take into the risk and reward consideration, with the reward justifying the risks of taking on this debt. Related Resource: Valuing Startups: 10 Popular Methods Convertible Debt Example One great real-life example of a company using Convertible Debt is Ledgy. The equity management software company from Zurich talks through their own company’s experience of using convertible debt to grow their business. Read more about it here. Looking for More Information on Startup Funding? Subscribe to our newsletter to stay up to date on all the latest startup funding processes, tips, tricks, and updates. Sign up here. Related Resource: How To Find Private Investors For Startups

Overview Fundraising is difficult. Founders are responsible for hiring, building, and fundraising all at the same time. There are very few people that truly know what it takes to build a company or raise capital while being a strong leader. The best way to learn is from someone who has been there before. Being a founder can oftentimes be an “asymmetric experience.” As Seth Godin, the business author puts it: “In these asymmetric situations, it’s unlikely that you’re going to outsmart the experienced folks who have seen it all before. It’s unlikely that you’ll outlast them either. When you have to walk into one of these events, it pays to hire a local guide. Someone who knows as much as the other folks do, but who works for you instead.” In order to help you find your “local guide,” we went along for a fundraising ride with a founder in our community. Jonathan Gandolf is the CEO and Founder of The Juice, The Juice collects and consolidates resources from across the internet onto a single platform where you can save, share, and enjoy content on demand. Be sure to check out The Juice and sign up to discover the best sales and marketing content for you. Spoiler: The Juice Achieves Major Milestones in Revenue and User Growth Over the course of ~4 months, we sat down with Jonathan on a regular basis and picked his brain on the state of his fundraise and what he was learning along the way. We cover everything from his first meetings to due diligence. For founders who are gearing up for a pre-seed or seed round and are feeling lost, Jonathan offers great insight as he shares his fundraising journey from day 1. Give it a listen below: Week 1 — The Basics of the Round To kick things off we give more background about the Founders Forward Fundraising series and the goals behind it. We dig into the business behind The Juice and the fundamentals of their pre-seed funding round. Jonathan is ready to go with a list of 60 potential investors and a pitch deck in hand. Hop around and learn more about what we covered in week 1 below: The Juice business model How Jonathan is building his investor outreach list What Jonathan’s plans are for reaching out to investors The pitch deck feedback loop Where to listen: Spotify Apple Podcasts Google Podcasts Where you generally listen to podcasts Related Resources: The Juice — the best sales & marketing content at your fingertips Visible Connect — our investor database The Fundraising Wisdom That Helped Our Founders Raise $18B in Follow-On Capital How Starting Line Helps Founders Address Their Mental Health with Ezra Galston Week 2 — Finding Investor Intros Jonathan joins us after his first few weeks of heads-down fundraising. We discuss how he is going about adjusting and tweaking his pitch deck as more feedback comes in and how he is leveraging his network (and customers) to find intros to potential investors. A few other key topics we hit on: Managing pitch deck recommendations and changes Designing a pitch deck with a small team Finding introductions to potential investors Leveraging customers for investor introductions Related Resources: Our Teaser Pitch Deck Template Creating Momentum in Your Fundraise with Brett Brohl Week 3 — Revenue vs. Product vs. Team In week 3 of Jonathan’s fundraise, we break down what investors are looking for at the pre-seed stage. As The Juice has a strong product, Jonathan has been featuring and demoing his product during pitches. We also dive into how The Juice ideal investor has transformed since they’ve started their raise and how they are adding new investors to the top of their fundraising funnel. A few other key topics we hit on: How to talk about revenue with investors How Jonathan leveraged their product while pitching Adding investors to the top of an investor funnel Identifying your ideal investor Related Resources: Building Your Ideal Investor Persona Week 4 — Finding a Lead Investor Jonathan has been busy with investor meetings and pitches since the last time we chatted. Jonathan breaks down the “VC speed dating” event he attended and updates on other investor conversations. Finally, we hit on financial projections at the pre-seed/seed stage and what investors are looking for in the early stages of financial projections. A few other key topics we hit on: VC speed dating Feedback on the size of round How to nurture potential investors Sharing financial projections Related Resources: How to Raise Your Series A with Michael Rangel of Novo How to Build an Investor List with Gale Wilkinson of Vitalize Week 5 — Pitching Investors We are back in the heart of The Juice fundraise. They are a few weeks in and starting to get to the middle of the “3 months of pitching.” We discuss how Jonathan is leveraging verbal commits to build urgency with new investors and discuss what is being shared in The Juice’s data room. A few other key topics we hit on: The timeline of fundraising Using verbal commits to create urgency What Jonathan is sharing in his data room Related Resources: Creating Momentum in Your Fundraise with Brett Brohl What Should be in an Investor Data Room? Week 6 — Launching on ProductHunt Coming off of their first ProductHunt launch, Jonathan joins us to share the current status of the round. We discuss what they’ve been focusing on internally as a business. Finally, we discuss the term sheets that are on their way. A few other key topics we hit on: Lessons from launching on ProductHunt How to build a campaign for ProductHunt Hunting for a lead investor Related Resources: The Juice’s ProductHunt Launch How We Topped Product Hunt (Overnight) Week 7 — The First Term Sheets The first term sheets are in hand and the end of the raise is in sight. Jonathan joins us to discuss the term sheets he has in hand and what due diligence has been like so far. Finally, we talk through what hiring plans and projections look like once the cash is in the bank. A few other key topics we hit on: Leveraging the first term sheets for urgency Modeling different fundraising outcomes Lessons from first rounds of due diligence Standing on the shoulders of giants Related Resources: 6 Components of a VC Startup Term Sheet (Template Included) Navigating SaaS Partnerships as a Startup Week 8 — Closing the Round They did it! Jonathan and the team have wrapped up their raise and they are in the process of finishing up the round. Jonathan shares what he has learned during the raise and what is next for The Juice. Related Resources: The Juice Achieves Major Milestones in Revenue and User Growth Learn more about The Juice The Juice collects and consolidates resources from across the internet onto a single platform where you can save, share, and enjoy content on demand. Join for free to explore the best sales and marketing content here.

Raising venture capital for your startup is difficult. Raising venture capital for your startup with little to no revenue can feel impossible. However, venture capital funds have started to invest earlier and earlier into startups. The emergence of pre-seed rounds has led to more interest in pre-revenue startups. Related Resources: All Encompassing Startup Fundraising Guide & Seed Funding for Startups 101: A Complete Guide Luckily, there are countless startups that have done it before. In order to better help founders navigate a fundraise with little to no revenue, we break down lessons from startups and investors that have taken part in a pre-revenue funding round below: What is Pre-Revenue Funding? Pre-revenue funding is equity or debt financing for companies that have yet to generate revenue. Pre-revenue funding can apply to companies across different sectors, markets, verticals, etc. Startups might have a product or a product in development but have yet to take it to market. Pre-revenue funding generally helps a company at this stage build its product or put a go-to-market motion to practice. Related Resource: The Understandable Guide to Startup Funding Stages What Does It Mean To Be Pre-Revenue? Pre-revenue startups can be at varying stages in their startup lifecycle. For example, if a company is working on an incredibly large scale project revenue might come much later in its lifecycle. On the other hand, there might be companies that have developed a product and are ready to take it to market but need capital to hire talent and put their product and distribution to work. For the sake of this post, we will generally be speaking of companies Related resource: 8 Startup Valuation Techniques and Factors to ConsiderWhat Does the DCF Formula Tell You? How Do Startup Founders Get Pre-Revenue Funding? The most common form of funding to receive before revenue is venture capital. Startups and venture capital funds generally follow a power law curve. This means that investors need to find a few companies that can generate massive returns for their LPs. Because of this, they are willing to invest in more companies at early stages in return for a larger equity percentage with the hope that a few of the companies will pan out to generate huge returns. Related Resource: Understanding Power Law Curves to Better Your Chances of Raising Venture Capital In order to improve your odds of raising capital at the pre-revenue stage, you need to understand the VC thought process and demonstrate why you can grow into a company that will generate returns for its investors/LPs. How Investors Evaluate Pre-Revenue Startups Every startup investor will use a different method or style to evaluate potential investments, especially pre-revenue startups. Understanding how venture capitalists think about making investments will greatly increase your odds of raising a round. Check out a few of the common methods and valuation styles below: Related Resource: A Quick Overview on VC Fund Structure 1) The Berkus Method As we wrote in our post, Valuing Startups: 10 Popular Methods, “The Berkus Method is an attempted way to assess value without the traditional revenue metrics that many methods take into account for more mature organizations. The Berkus Method quantifies value by assessing qualitative qualities instead of quantitative ones. Value is assessed in the Berkus Method with five main elements. The elements considered within the Berkus Method include value business model (base value), available prototype to assess the technology risk and viability, founding team members and their abilities or industry knowledge, strategic relationships within the space or team, existing customers or first sales that prove viability. A quantitative value can be tied to each relevant quantitative factor with the Berkus Method.” 2) Risk Factor Summation Method As we wrote in our post, Valuing Startups: 10 Popular Methods, “The Risk Factor Summation Method is used with risk as the primary method for evaluation. This approach values a startup by taking into quantitative consideration all risks associated with the business that can affect the return on investment. An initial value is calculated (possibly even using one of the other methods discussed in this post) and then the risks are assessed, deducting or adding to the initial value calculation based on said risks to the return. Some of the different kinds of risks that are taken into account are managing risk, political risk, manufacturing risk, market competition risk, investment and capital accumulation risk, technological risk, and legal environment risk.” 3) Venture Capital Method As we wrote in our post, Valuing Startups: 10 Popular Methods, “This method is one of the most common, if not the most common method used for evaluating startups that are pre-cash flow and seeking VC investment. The VC Method looks at 6 steps to determine valuation: Estimate the Investment Needed Forecast Startup Financials Determine the Timing of Exit (IPO, M&A, etc.) Calculate Multiple at Exit (based on comps) Discount to PV at the Desired Rate of Return Determine Valuation and Desired Ownership Stake It’s ultimately a quick, rough estimate informed by as much information as is available based on the market, comps, any existing quantitative and qualitative info from the company at hand, and an assumed amount of risk from the VC Firm.” 5) Scorecard Method As we wrote in our post, Valuing Startups: 10 Popular Methods, “This valuation method looks at these similar companies and sees what types of valuation they received from other investors. From there, the median will be calculated from the value of all the similar companies’ valuations and this median will determine the average value of the target company. In addition to the median value placed on the competitive landscape, scorecards are looking at the strengths and weaknesses of the market as assessed by other investors and score their investment in question weighted with the following criteria compared to the other companies in the space: Board, entrepreneur, the management team – 25% Size of opportunity – 20% Technology/Product – 18% Marketing/Sales – 15% Need for additional financing – 10% Others – 10% A company may be valued higher than the median with the scorecard method if the size of opportunity or board/management team is exceptional quality or vice versa, may be docked if the tech is strong but the leadership is assessed as in-experienced.” Looking for Fundraising? Visible Can Help! Running a process to raise capital, especially before generating revenue, is a surefire way to improve your odds of success. Find ideal investors with Visible Connect, add them to your Fundraising Pipeline, and share your pitch deck all from Visible. Give Visible a free try for 14 days here.

At Visible, we believe that a venture capital fundraise often mirrors a traditional B2B sales and marketing funnel. At the top of your funnel, you are adding new investors, nurturing them throughout the middle of the funnel with email and meetings, and hopefully cashing a check from them at the bottom of the funnel. Related Resource: All-Encompassing Startup Fundraising Guide Luckily, there are tips, resources, and tricks that will help you build momentum in your fundraising efforts so you can focus on building your business. Learn more about how you can create a fundraising strategy and build a more efficient fundraise with our guide below: Startup Fundraising: How It Works Just how a sales and marketing process might differ from business to business, so will a fundraising process. The ideas and systems behind the process might stay the same but there will be subtle changes when it comes to approach, communication, and more as a business grows. A couple of different stages that we will hit on in this post: Pre-seed Seed Series A, B, and C How should startup founders prepare for these funding rounds? Check out our breakdowns for each stage below: Pre-Seed Funding As we put in our post, The Understandable Guide to Startup Funding Stages, “A pre-seed round is a round of venture capital that is generally the first round of institutional capital that a startup raises. A pre-seed round generally allows a founding team to find product-market fit, hire early employees, and test go-to-market models.” Pre-seed funding rounds have become more common over the past few years and have turned into a powerful resource to help founders get their idea and business off the ground. The purpose is to give founders the capital they need to see their product through. Investors are largely betting on the team and idea as revenue is little to none. Pre-seed rounds greatly vary in size but generally fall in the $300K to $1M size. However, we’ve seen pre-seed rounds get close to $5M. Typically, valuations might be in the $2M to $5M range. Seed Funding As we wrote in our post, Seed Funding for Startups 101: A Complete Guide, “Seed funding is a startup’s earliest funding stage. Often, seed funding comes from angel investors, friends and family members, and the original company founders. An early-stage startup may also look for funding through bank loans, but angel investments are usually preferred. Seed funding is used to start the company itself, and consequently, it is a fairly high risk: the company has not yet proven itself within the market. There are many angel investors that specifically focus on seed funding opportunities because it allows them to purchase a part of the company’s equity when the company is at its lowest valuation.” At this point, a startup likely has some sign of product-market fit and is ready to scale its go-to-market efforts. At the seed stage, rounders are typically in the $2M to $5M range (but like pre-seed funding can often be much larger than this). Valuations typically sit around the $8M – $12M range. Series A, B, and C Funding Beyond a seed round comes Series A and beyond (Series B, C, D, etc.). At the point of a Series A round, a startup generally has demonstrated product-market fit, is making senior hires, has a strong product, and is executing new releases at a high level. Once you get beyond a Series A, the same ideas hold true but an investor is likely more focused on the numbers behind a business. They’ll want to make sure that the business can efficiently grow into a huge company. Typically a Series A round is anywhere between $5M and $20M. This is a large range but we still occasionally see companies raise much larger amounts. Revenue is like in the $1M to $5M range and all signs point to that number continuing to grow quickly. How to Create a Startup Fundraising Strategy As we said earlier in the post, approaching a fundraise with a strategy and system in place is a great way to build momentum in your fundraise. Founders are being pulled in a hundred different directions and a fundraise is a part of that. By having a system in place, you will be able to focus on the other aspects of your business. There is no right or wrong way to approach a fundraise but as long as you have a strong system and cadence in place you are already ahead of the curve. We recommend treating a strategy like a sales and marketing funnel. Find investors to fill the top of the funnel, both warm and cold “leads,” communicate and nurture them with email Updates throughout the middle of the funnel, and hopefully close them as a new investor at the bottom of the funnel. Check out a few tips to help you get started with your fundraising strategy and system below: Getting Started: Ask the Right Questions Outline some of the basic questions that a fundraising strategy should address. When getting started with your fundraising strategy it is important to understand why you’re raising, who are you raising from, and the financials of your round. Check out a few example questions below: Why is your startup raising capital? Who is your startup reaching out to for financing? How much capital will your startup raise – now and in the future? When is your startup raising capital? What is your startup’s process for raising capital? Before even building out the rest of your fundraising strategy you need to be able to properly answer the questions above. You may learn that venture capital is not the right financing option for your startup, which is totally fine! (Related Read: Checking Out Venture Capital Funding Alternatives) Related Reading: How to Write a Problem Statement [Startup Edition] Undergo a Valuation of Your Startup Of course, a major aspect of raising capital is the valuation of your company. Setting a valuation is generally a mix of art and science, especially at the early stages. As the team at Silicon Valley Bank puts it, “​​The most basic valuation method borrows from the playbook used by realtors, who assess the value of a home by looking at “comps,” or comparable homes. Mendelson recommends establishing a startup’s valuation that is “on scale” with those of other early-stage companies. The more similar the startup — be it its sector, location or potential market size — the better.” As your company grows and raises later-stage financing, setting a valuation will be based more on the data and metrics from the companies history. This is a great starting point and can be enhanced by adding in other factors like a founding team’s management experience, proven track record, market size, risk, etc. Related Resource: Valuing Startups: 10 Popular Methods Set Milestones Setting clear, specific, achievable, measurable, and time-bound goals is invaluable to creating an effective fundraising strategy. Naturally, investors are incentivized to hold off on investing as long as possible. Why? They want to collect as many data points as possible and see how activity looks with other investors. It is your job as a founder to build momentum and incentivize investors to move quickly. Having set milestones is a great way to wrap your head around a timeline and give you an idea of when you want investors to be moving along by. Brett Brohl of Bread & Butter Ventures estimates that most early-stage companies should estimate 5 months to complete a raise. He breaks it down using the 1-3-1 rule: 1 month — Preparation. Creating a deck, materials, and investor lists to kick off your raise. 3 months — Pitching. Actually out pitching and taking meetings with investors. 1 month — Closing. Finishing up due diligence and legal work to close new investors. Research Your Investors Once a term sheet is signed there is no turning back. With the average founder + VC relationship being 8-10 years it is important to make sure founders are bringing on the right investors. There are different factors and things you should look for in a potential investor. As we put in our post, Building Your Ideal Investor Persona: 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 suggests 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 with $2B AUM. If you’re raising a $30M round avoid a firm with $75M AUM. Current Portfolio – What type of companies should be a signal to you that they’re a good fit? Is there a high likelihood they’ve invested in one of your competitors? If so, best to avoid as they likely won’t double down their bet with a competitor to a portfolio co. Motivators – What do want to get out of your investors and what do they want to get out of you? Do they need to match your values and culture? Deal Velocity – Are you in need of capital as soon as possible? Or are you taking your time and looking for strategic investors? Varying investors have different philosophies for the velocity they’re making deals. Point Nine Capital and Kima ventures are both regarded as top firms in Europe. However, Point Nine makes ~10 investments a year whereas Kima makes 1-2 investments a week.” Finding the right investors for your business can be tricky. Using Visible Connect, filter investors by different categories (like stage, check size, geography, focus, and more) to find the right investors for your business. Give it a try here → Determine How Much Capital You Want to Raise Determining how much to raise can also be a daunting task. You need to base this on facts and realistic assumptions around your business. As a starting point, forecast where you’d like your business to be in 12-24 months. From here, you can backfill what resources and hires you’ll need to make to hit those goals. This can be a great starting point for determining how much to raise. From here you can tweak it with interest from investors, the current markets, and more. Related Resource: Building A Startup Financial Model That Works Build Out Your Fundraising Strategy Of course, you can take all of the individual aspects from above and still have a disjointed raise. You can tie them all together to create a fundraising strategy. The above points are a great starting point but need to make sure you have everything in place to reach out to investors. A couple of things to keep in mind: Where will you track your conversations with potential investors? Check out our Fundraising CRM to keep tabs on potential investors (Pro tip: You can add investors directly from Visible Connect, our investor database, to our Fundraising CRM). What data will you need? Do you have clean metrics and financials in place? Having a place to easily pull your key metrics and share them with potential investors will be a huge help. What assets do you need? Do you have a pitch deck ready to go and a plan to make tweaks if needed? Read more: Tips for Creating an Investor Pitch Deck How do you communicate with investors after a meeting? Nurturing potential investors with Visible Updates is a great way to keep them in the loop with the developments of your round. How do you share your pitch deck? Having a great way to share and understand how investors are engaging with your pitch deck and materials is important. Check out our pitch deck sharing tool to learn how it can help with your raise. Remember: Your Strategy Will Stay the Same, But Your Pitch Won’t The idea is that your strategy will stay the same throughout a round. The mechanics, financials, and pitch will vary but the strategy will stay the same. Being thoughtful with your strategy will pay dividends in the long run as your fundraise gets underway. Startup Fundraising Strategy Pitfalls Just like any strategy or process, there are pitfalls that can arise. Luckily, there are thousands of founders that have done it before so there are pitfalls and things you can look out for below: Not Understanding Your Fundraising Stage One of the more common (and avoidable) pitfalls of a fundraise are not being clear with your stage and aspirations. Pitching any investor that lands in your vision can be dangerous. You want to make sure that you are pitching investors that are the correct stage, not too early or late. Focusing Solely on Fundraising As we mentioned earlier, founders are being pulled in a hundred different directions. On top of hiring new employees, retaining current employees, building products, and communicating with stakeholders, founders are responsible for finding financing for the business. Being able to balance the day-to-day as a founder with the pressures of financing is a must. Related Reading: The 23 Best Books for Startup Founders at Any Stage Failing to Provide an Accurate Total Addressable Market (TAM) Analysis At the end of the day, investors want to invest in companies that can turn into massive companies. Modeling your total addressable market and demonstrating how you can turn into a large company is a great way to pique the interest of investors. Learn more to properly model your addressable market in our post, How to Model Total Addressable Market (Template Included). Related Resource: Down Round: Understanding Down Round Funding and How to Avoid It Related Resource: Navigating the Valley of Death: Essential Survival Strategies for Startups What Are Some Other Ways to Obtain Funding? After reading this post you may be thinking that venture capital is not the right financing option for your business. Over the past few years, there has been an explosion of alternative financing options. Check them out below: Related Resource: 6 Types of Investors Startup Founders Need to Know About Accelerators or Incubators Accelerators and incubators are a great way to get your business off the ground. If you find you are too early to raise a seed round, an accelerator or incubator are a great way to wrinkle out your business plan and hit the ground running to find customers and determine if VC is right for you in the future. Crowdfunding Crowdfunding has become increasingly popular as more options become available. The crowdfunding instruments have become easy to manage for founders and more widely accepted across the industry. Related Resources: How to Raise Crowdfunding with Cheryl Campos of Republic Understanding The 4 Types of Crowdfunding Loans As the team at U.S. Small Business Administration puts it, “If you want to retain complete control of your business, but don’t have enough funds to start, consider a small business loan. To increase your chances of securing a loan, you should have a business plan, expense sheet, and financial projections for the next five years. These tools will give you an idea of how much you’ll need to ask for, and will help the bank know they’re making a smart choice by giving you a loan.” Business Plan Competitions Business plan competitions are common at universities and for startups that have potentially not made any progress on developing a product or building a team. The competitions generally reward entrepreneurs with a small check or capital to get started and pursue their vision. Related Reading: How to Write a Business Plan For Your Startup Streamline Your Fundraise with Visible Being able to tie everything together and build a strategy for your fundraise will be an integral part of your fundraising success. Check out how Visible can help you every step of the way below: Visible Connect — Finding the right investors for your business can be tricky. Using Visible Connect, filter investors by different categories (like stage, check size, geography, focus, and more) to find the right investors for your business. Give it a try here. Pitch Deck Sharing — Once you’ve built out your target list of investors, you can start sharing your pitch deck with them directly from Visible. You can customize your sharing settings (like email gated, password gated, etc.) and even add your own domain. Give it a try here. Fundraising CRM — Our Fundraising CRM brings all of your data together. Set up tailored stages, custom fields, take notes, and track activity for different investors to help you build momentum in your raise. We’ll show how each individual investor is engaging with your Updates, Decks, and Dashboards. Give it a try here. Related resource: Top 18 Revolutionary EdTech Startups Redefining Education

Every startup is aiming for a high valuation for their business. In business, valuation is the process of evaluating the present value of the asset in hand, in this case the overall value that a startup is worth. For startups, there are a variety of popular methods folks use to evaluate a business and determine its overall valuation. Different valuation methods are used for different reasons. To help break it down, we’ve outlined 10 popular methods for valuing startups. Related Reading: Pre-money vs Post-money: Essential Startup Knowledge + 409a Valuation: Everything a Founder Needs to Know 1. The Berkus Method Startups are risky. Less than 10% of startups make it past the first year of existence so determining the valuation of a startup, especially a brand new one with only months of lifespan can be extremely challenging. The Berkus Method is an attempted way to assess value without the traditional revenue metrics that many methods take into account for more mature organizations. The Berkus Method quantifies value by assessing qualitative qualities instead of quantitative ones. Value is assessed in the Berkus Method with five main elements. The elements considered within the Berkus Method include value business model (base value), available prototype to assess the technology risk and viability, founding team members and their abilities or industry knowledge, strategic relationships within the space or team, existing customers or first sales that prove viability. A quantitative value can be tied to each relevant quantitative factor with the Berkus Method. Source: Angel Capital Association Pro Tip: When To Use This Method The Berkus Method should be used pre-revenue. It can be a valuable valuation method when a new startup is formed with expert founders or former successful startup leaders at the helm or when a strong, viable product is in place. In these examples, there is enough qualitative information at hand to justify a quantitative value. Related Resource: What is Pre-Revenue Funding? 2. Comparable Transactions Method This valuation method at the highest level is essentially valuing the business based on what consumers would currently pay for it. This is one of the most conventional methods of valuation. To make a comparable transaction valuation, an investor or evaluator will look at companies of a similar size, revenue range, industry, and business model and see what they were valued at or sold for. This method is looking at validation from what others were willing to pay for similar companies in an acquisition or merger and use that to make a fair, or comparable, offer on the company seeking valuation. Pro Tip: When To Use This Method The most common scenario where the Comparable Transaction Method might be used is through a big M&A (Merger and Acquisition) deal. 3. Scorecard Valuation Method When a company hasn’t produced any revenue yet, as an early-stage startup, it can be hard for investors to make a solid bet on the probability of their investments’ success. The Scorecard Valuation Method is one method that relies on the past investments of others taking similar bets and risks on pre-revenue startups. Similar to the comparable transaction method, the scorecard valuation method looks at similar startups or companies in the company at questions’ industry. This valuation method looks at these similar companies and sees what types of valuation they received by other investors. From there, the median will be calculated from the value of all the similar companies’ valuations and this median will determine the average value of the target company. In addition to the median value placed on the competitive landscape, scorecards are looking at the strengths and weaknesses of the market as assessed by other investors and scoring their investment in question weighted with the following criteria compared to the other companies in the space: Board, entrepreneur, the management team – 25% Size of opportunity – 20% Technology/Product – 18% Marketing/Sales – 15% Need for additional financing – 10% Others – 10% A company may be valued higher than the median with the scorecard method if the size of opportunity or board/management team is exceptional quality or vice versa, maybe docked if the tech is strong but the leadership is assessed as in-experienced. Pro Tip: When To Use This Method This method may be used by a startup that is in a crowded space such as marketing tech, sales tech, fintech etc.. and is pre-revenue; With a lot of similar or adjacent companies raising rounds and receiving valuations, a scorecard can be used successfully because there are is a lot of adjacent validation in the market. 4. Cost-to-Duplicate Approach Startups are a risky investment for many reasons, but one big one is that it typically takes a lot of capital to run and scale a business and many startups struggle to manage their run rate and burn rate efficiently. The Cost-to-Duplicate Approach to valuation considers all costs and expenses associated with the startup. The costs and expenses reviewed include the development of the product and the purchase of physical assets. A fair market value is then determined based upon all the expenses at hand. The negative of using this type of valuation approach is that it does not consider the future growth and potential of the company, only the current efficiency based on expense and it also doesn’t take into account intangible assets such as the talent of the leadership team, brand, patents, etc. Pro Tip: When To Use This Method The Cost-to-Duplicate Approach might be the right approach to asset valuation when the product is simple and won’t require a lot of expensive development, the team is lean and the burn rate of capital is extremely slow or even non-existent. Lean startups with one or two folks at the helm, or with a founding team that isn’t taking a salary yet could use this method to justify their first infusion of cash to start taking a salary or start making bigger financial moves. 5. Risk Factor Summation Method Every venture capital fund or any investment firm is spending time unpacking the potential risks of each and every new investment they make. The Risk Factor Summation Method is used with risk as the primary method for evaluation. This approach values a startup by taking into quantitative consideration all risks associated with the business that can affect the return on investment. An initial value is calculated (possibly even using one of the other methods discussed in this post) and then the risks are assessed, deducting or adding to the initial value calculation based on said risks to the return. Some of the different kinds of risks that are taken into account are management risk, political risk, manufacturing risk, market competition risk, investment and capital accumulation risk, technological risk, and legal environment risk. Pro Tip: When To Use This Method This method is often used by investors when looking at a new space or as a second pass on assessing the value of a potential investment. 6. Discounted Cash Flow Method This method is predicting the valuation of a company based on its assumed future cash flows. The hope is that the DCF (Discounted Cash Flow) is above the current cost of investment resulting in projected positive return and higher valuation. A discount rate is used to find the value of present future cash flows. For example, the discount rate might be the average rate of return that shareholders in the firm are expecting for the given year. That percent (maybe 5%, 10%, etc.) is then used to make a year-over-year assumption. This hypothetical informs investors that based on the current cash flow and discount rate chosen to asses, the expected cash flow can be anticipated from this investment. Pro Tip: When To Use This Method This is a great valuation method to use for a company that has relatively predictable and stable up and to the right growth up until the time of investment. Related resource: Discounted Cash Flow (DCF) Analysis: The Purpose, Formula, and How it Works 7. Venture Capital Method This method is one of the most common, if not the most common method used for evaluating startups that are pre-cash flow and seeking VC investment. The VC Method looks at 6 steps to determine valuation: Estimate the Investment Needed Forecast Startup Financials Determine the Timing of Exit (IPO, M&A, etc.) Calculate Multiple at Exit (based on comps) Discount to PV at the Desired Rate of Return Determine Valuation and Desired Ownership Stake Its ultimately a quick, rough estimate informed by as much information as is available based on the market, comps, any existing quantitative and qualitative info from the company at hand, and an assumed amount of risk from the VC Firm. Related Resource: A User-Friendly Guide on Convertible Debt Pro Tip: When To Use This Method Most startups should expect that this valuation method will be applied when seeking early rounds of funding, especially from popular venture capital funds. 8. Book Value Method The Book Value of a company is the net difference between that company’s total assets and total liabilities. The idea of this valuation method is to reflect what total value of a company’s assets that shareholders of that company would walk away with if that company was completely liquidated. Book Value is equated to the carrying value on a balance sheet. To calculate book value, look at the total common stockholder’s equity minus the preferred stock and then divide that number by the number of common shares in a company. Pro Tip: When To Use This Method This valuation is extremely helpful in determining if a company’s current stock value is under or overpriced when attempting to determine overall valuation. 9. First Chicago Method Named after the VC arm of The First Chicago Bank, this valuation method uses a combo of multiple-based valuation and discounted cash flow to make a valuation of a company. Essentially, this method allows you to take into account many different possible outcomes for the business into the valuation – to keep it simple, you can think of this method as taking into consideration the business’s best case scenario, worst-case scenario, and average scenario. Looking at all 3 scenarios, an estimate is made as to how likely each scenario is. Next, you multiply the probabilities by their respected values and add them up. This gives you a weighted average valuation from the combo of the 3 most likely scenarios – valuing the business on the average of what will probably happen. Pro Tip: When To Use This Method This valuation method is recommended for dynamic, early-stage growth companies. It’s used when companies have a future with many possible outcomes that could come about based on the next decisions made. 10. Standard Earnings Multiple Method A multiple is a fraction in which the top number (the numerator) is larger than the bottom number (the denominator). The earnings of a business are defined as income or profit. The Standard Earnings Multiple Method looks at the earnings of the business over an industry-standard multiple. Every industry and sector may have a slightly different average multiple. Pro Tip: When To Use This Method One common scenario where this method is used is to measure stock pierce earnings with price/earnings ratio, which measures stock price to earnings. P/E ratio tells what the market (stock buyers) are willing to pay for the company’s earnings with a higher ratio indicating that people are willing to pay more. Share Your Startup Valuation With Visible Use Visible to communicate with your current investors. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. Related Resources: A Complete Guide on Founders Agreements Who Funds SaaS Startups? Types of Venture Capital Funds: Understanding VC Stages, Financing Methods, Risks, and More Top Creator Economy Startups and the VCs That Fund Them

Startups have different options when it comes to financing. One of the most popular options is venture capital. To better understand if venture capital is right for your business, check out our breakdown of different types of venture capital below. If you believe you are ready to raise venture capital, understanding how and why the function will improve your odds of raising capital. To learn more about raising venture capital, check out our “All-Encompassing Startup Fundraising Guide.” Related Resource: Types of Venture Capital Funds: Understanding VC Stages, Financing Methods, Risks, and More What are the Types of Venture Capital Funding? As venture capital continues to grow and evolve so do the types and expectations of funds. As the team at Crunchbase found, venture funding by year is growing, mainly between early-stage and late-stage funds: Related Resource: Exploring VCs by Check Size Learn more about different types of funding below: Seed Capital Seed funding, which oftentimes includes “pre-seed” funding, is generally the first round of financing for a startup. There typically tend to be funds that specialize in pre-seed/seed-stage financings. However, as the seed stage has continued to grow so have the funds — later stage funds are now moving their way down to make seed investments. As the team at Crunchbase put, “One of the reasons many venture firms are stockpiling funds to invest into seed startups is that getting in at the earliest stages with a young startup lets those investors have a say in crucial decisions early on.” Check out the average seed size (from “large” investment funds) over the last 10 years below (from the team at Crunchbase): VCs will typically get more attractive terms as they are taking on more risk at the seed stage. Because of this, seed-stage investors oftentimes make more investments in the hopes that a small percentage of their investments will turn into huge returns (learn more about the power-law curve in VC here). Related Resource: Seed Funding for Startups: A 101 Guide Early Stage Capital Post seed or pre-seed funding comes to Series A and Series B funding. While some might categorize them as a later stage, both are earlier stage financings that come post-seed round. Early-stage capital is often when a company might have some traction and promise that it can grow into a massive company that is worthy of an exit. Related Resource: How to Model Total Addressable Market (Template Included) Related Resource: The Rise of Venture Capital in Utah: A Look at Utah’s Top 10 VC Firms Related Resource: Breaking Ground: Exploring the World of Venture Capital in France Expansion Capital Once a company has proven they have product-market fit, a massive market, and a repeatable sales process — chances are they are ready to expand. With this comes larger check sizes that will help you put your growth strategies to work. Venture funds at this stage are likely huge funds that make fewer investments with larger check sizes. At the point of investment, most companies will have proven success to in turn will raise at higher valuations. Related resource: Understanding the Role of a Venture Partner in Startups Late Stage Capital Lastly comes late-stage capital. These are borderline private equity funds and can be used to bridge financings for larger companies. This might be a final injection before a company sets to go public or to fund expansion into a totally new market. Related Resource: Private Equity vs Venture Capital: Critical Differences Rolling Funds More recently, “rolling funds” have become a point of interest in the space. While they are not typically dedicated to a specific stage (like the examples above) the way they raise financing and treat the general partner to limited partners relationship differs. Learn more about rolling funds here. Related Resource: 12 Venture Capital Investors to Know Venture Capitalist Fund Structure To better improve your odds of raising venture capital, you need to understand how they function. When pitching investors you’ll want to keep a few of these things in mind so you can fit into their duties as a VC. Check out a visual of how venture capital funds are structured below: Related Resource: A Guide to How Venture Capital Works for Startups and New Investors Guide A couple of key terms to understand when it comes to a venture funds structure: 1) Venture Fund As the Bank for Candian Entrepreneurs puts it, “A venture capital (VC) fund is a sum of money investors committed for investment in early-stage companies.” A venture fund is simply capital that is ready to be deployed by the venture capital firm (or the management company). 2) Management Company The management company is the people behind the fund itself. Not be confused with a venture fund. A venture management company can raise multiple funds. As the team at AngelList writes, “A management company is a business entity created by a venture firm’s general partners (GPs). It’s responsible for managing a venture firm’s operations across its funds.” Management companies often receive a management fee from their funds to help deploy and grow their funds. A management company is responsible for prospecting investments, collecting fees and expenses, branding, and more. 3) General Partner (GP) A general partner is someone who manages a venture fund and likely the management company. As defined by the team at Angel List, “A GP is a manager of a venture fund. They may be a partner at a large VC firm like Sequoia, or an individual investor using AngelList. Like fund managers in other arenas (stocks, mutual funds, crypto, etc.), they analyze potential deals and make the final call on what to do with the money they manage.” General partners are typically paid between their carried interest and management fees. Carried interest is typically where a general partner makes a living. Typically carried interest for a GP is 20% which means that 20% of a funds profits will be paid to the GP. It is worth noting that GPs oftentimes invest their own money so they have skin in the game. You can boil down a general partner’s responsibility into 2 key things — deploying capital in high-quality companies and raising future capital. 4) Limited Partners (LPs) You might be asking yourself where does capital for a venture fund come from? The answer is limited partners. Limited partners are generally much larger funds and are looking to diversity their investing via venture capital funds. Traditionally, limited partners tend to be: University endowments Sovereign funds Family offices Pension funds Insurance companies Etc. Because VC funds are competing with traditional assets, it is vital that they provide outsized returns to improve their odds of raising venture capital in the future. Learn more about the power law curves in our post, “Understanding Power Law Curves to Better Your Chances of Raising Venture Capital.” 5) Startups Of course, there are the actual startups and investments that a venture fund are making. For a startup to be deemed venture-worthy they generally have to operate in a large market, have promising economics, and the ability to create a massive return for their investors (and their LPs). Related Reading: Building A Startup Financial Model That Works Limited Partnerships & LLCs Role in VC Fund Structure As the team at Investopedia puts it, “A limited partnership (LP)—not to be confused with a limited liability partnership (LLP)—is a partnership made up of two or more partners. The general partner oversees and runs the business while limited partners do not partake in managing the business. However, the general partner of a limited partnership has unlimited liability for the debt, and any limited partners have limited liability up to the amount of their investment.” Because LPs do not partake in managing the business (e.g. the venture firm) they are relying on the GP and venture firm to be experts at investing. At the end of the day, every venture fund and firm wants to set out and raise a new fund every 10 years or so. This means that GPs need a strong record with LPs so when they seek further capital they have someone they can lean on. This also means that LPs are expecting massive returns as they are trusting and deploying their capital with a general partner, likely in a space lesser-known to them. Related resource: What is a Capital Call? Three Examples of How Returns Are Generated Of course, the goal of any venture fund is to generate returns for its limited partners. As we put in our post on power-law curves, “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 funds investments will yield the majority of their returns.” This means that VCs need to create liquidity and get returns to their investors so they can go out and raise capital again. This generally comes in 1 of 3 ways: Related resource: Carried Interest in Venture Capital: What It Is and How It Works 1) Mergers and Acquisitions (M&A) One of the most common ways that a startup exits are via a merger or acquisition. As put by the team at Investopedia, “Mergers and acquisitions (M&A) is a general term that describes the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions.” The terms of the merger or acquisition will impact how a VC is paid back. For example, an investor that invested at the seed stage will likely be greatly diluted if the exit is later in a companies lifecycle. Related Resource: From IPOs to M&A: Navigating the Different Types of Liquidity Events Related resource: What is Acquihiring? A Comprehensive Guide for Founders 2) A Buyout of Shares Less common is that startups shares will be bought out. This means that a new entity is taking a larger or majority stake in a company. This could come via a specific fund exiting their position or a founder finding liquidity. No matter the case, the terms, and conditions will greatly impact any fund. 3) Startup Reaches an IPO Lastly, there is an IPO (initial public offering). Becoming rarer, an IPO has the opportunity to create huge returns for a venture capital fund — especially their seed and early-stage investors. Looking To Get Funding for Your Startup? Understanding if venture capital is right for your business is a small part of the battle. Determining how to raise capital, what investors to raise from, and pitching investors is where the real fun begins. Having a system in place to raise venture capital is a great way to increase your odds of raising capital. Related Resource: All-Encompassing Startup Fundraising Guide Related Resource: 8 Most Active Venture Capital Firms in Europe Related Resource: 7 Best Venture Capital Firms in Latin America Related Resource: Exploring the Growing Venture Capital Scene in Japan If you’ve read this post and determined that venture capital is a good fit for your company, let us help. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

When communicating with investors in your fundraising funnel, you must make sure you tell a compelling story about why they should invest in you. Pitch decks are a powerful tool that can help you tell that story. Different investors will have different opinions about pitch decks. Some investors might want to receive them before the meeting, some might only want them sent via PDF or link, and some investors might not care if you have a pitch deck at all. Through all the noise, one idea we have seen emerge is having a send-away (or email deck) that founders can share with investors before a meeting. Brett Brohl of Bread & Butter Ventures recommends a four- or five-slide deck that can be easily shared with potential investors. While there is no prescriptive pitch deck template that will work for every startup, here is a 5 slide example email deck we have seen work well for founders (or check out the example deck directly in Visible here): Slide 1 — Title Slide Pro tips: Make sure your logo is high quality and easy to read Feel free to include a one sentence description of what your company does Want to use this template? Download here. Slide 2 — Problem Slide Pro tips: Clearly articulate your problem Use data to demonstrate how big the problem is Use stories and pain points to build empathy from investors Want to use this template? Download here. Slide 3 — Solution Slide Pro tips: Clear overview of what your solution is Use data and stories from customers to help investors understand why your solution is best Want to use this template? Download here. Slide 4 — Market Slide Pro tips: Make sure to use a bottoms up approach when modeling TAM (more from Gale Wilkinson here) Show the market in dollars VCs need huge exits — demonstrate why you can win your market Want to use this template? Download here. Slide 5 — Team Slide Pro tips: High quality headshots for key teammates Include relevant experience and skills Want to use this template? Download here. Related Resources: Visible Connect, our investor database Building Your Ideal Investor Persona How to Build an Investor List with Gale Wilkinson of Vitalize All Encompassing Startup Fundraising Guide Investor NPS: How likely are you to refer your current lead investor to fellow founders? Some Advice Before You Hit the Fund Raising Trail

Pitch Decks are put together by startup founders when they are seeking a round of investment funding to back their business. A Pitch Deck tells the story of your company, the problem it solves, why it matters, and most importantly why a potential investor should care and want to donate thousands if not millions of dollars. Every investment a venture fund or private investor makes is a calculated risk and a strong pitch deck is often the key tool a founder has to showcase the risk is worth it. Investors care about how they are going to make their money back plus a profit and want to see in your pitch deck how this will be possible for them. However, According to TechCrunch, investors only spend on average only 3 minutes and 44 seconds reviewing a pitch deck. Other sources have found that time to be less than 2 minutes. Its a safe bet to assume you have less than 5 minutes of an investor’s time to articulate why your company deserves their backing so taking the time to build a pitch deck that packs a punch in 5 minutes or less is critical. Communicating all that you need to in a pitch deck, to summarize why your business is worth a big investment, is much easier to do in concept than in practice. A strong pitch deck should be simple and clear but still compelling. Building a strong pitch deck is a skill founders should take time to learn as early on as possible to ensure every 5 minutes or less spent on their deck by VCs gives the best chance for investment and future success. To assist, we’ve built out a step-by-step guide to help you build a quality pitch deck for your business. Related Resources: 23 Pitch Deck Examples for Any Startup 1. Choose the Right Tools Let’s take it from the beginning – choosing the right presentation tool to build your pitch deck. This may seem like a small decision, but in reality, there are pros and cons to building your pitch deck on different presentation solutions. Keynote This might be the best tool if you’re going to have a brand or product designers working on your deck. Keynote comes installed on all Mac computers and has tools and functionality that is a bit more detailed and flexible allowing trained designers to create custom, clean, original designs and layouts. If you’re not a designer or don’t have design resources available for your deck creation, Keynote may not be a strong choice as it can be a bit hard to navigate and collaborate on without the knowledge and eye for all of its features. Google Slides Google Slides is a strong free option for crafting simple decks. Anyone can use Google Slides and collaboration is seamless. If you’re a solo founder or an extremely lean, cash-strapped team without design resources, Google Slides will allow you to build a super clean deck that’s easily shared. Past a certain level of company maturity, however, Google Slides may not be a strong option due to its lack of customization on the design side – it’s much harder to demonstrate the product and brand design in Google Slides. PowerPoint Another good free option, PowerPoint can be used on the web for free by anyone with a Microsoft account. Similar to Google slides, this can be a good simple, clean option for early founders without design resources. The paid version of PowerPoint is a bit more robust and can allow for a more mature, established design (even without design resources). The one main con of using PowerPoint for your pitch deck is that the presentation experience can often be clunky and the shared version isn’t as friendly to access as a Google slides or Keynote for non-Microsoft users. Canva For established startups with a clear brand and product aesthetic, Canva can be a great option as it provides more customization and design options than Google Slides and PowerPoint. Even the free version of Canva allows you to access many strong Canva-specific templates for customized pitch decks. Because Canva is a web-hosted platform that can make it challenging to present in some circumstances and doesn’t allow for as smooth off-line presentations, however, Canva is a strong design-centric option that is easy to use for founders and not as technical as Keynote. Later on, we will dive into the specifics of pitch deck design, but once you select your pitch deck creation tool, you can start exploring templates and popular deck flows that successful startups have used. Here at Visible, we recommend starting with these free pitch deck templates to generate some ideas. 2. Craft Your Message Knowing your pitch deck will most likely only get 5 minutes or less of review, crafting a clear message that tells the story of your company and a clear business plan including details like financial models and product roadmap is critical. Crafting your message can feel overwhelming knowing the window of review will be so small. There are many formats and philosophies you can use to craft a strong pitch deck. A popular methodology that many founders follow is Guy Kawasaki’s 10/20/30 rule – 10 slides that are readable in 20 minutes or less (aim for less here!) and use a 30 point font. This is a good structure for framing the flow and digestibility of your content. For the actual content, the message of this 10 slide deck, we suggest thinking about the message in 3 distinct parts: The Company Purpose, Problem, and Solution. Company Purpose This is the most important part of your message to keep simple. Articulate, ideally in 1 slide and only 1-2 sentences, why your company exists. The company’s purpose is often well articulated as a mission statement. With the company purpose, you are leading into the problem but not particularly addressing the problem just yet. You are simply sharing why your company exists. A few examples from successful companies on the market: Twitter: To give everyone the power to create and share ideas and information instantly, without barriers. PayPal: To build the Web’s most convenient, secure, cost-effective payment solution. Tesla: To accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to market as soon as possible. The Company Purpose should articulate in a simple way, why your business exists. Establish a clear, strong mission statement that articulates this and the rest of the deck will be built off of that articulated goal. Problem Now that you’ve established the company’s purpose, establish the problem that the company will be solving. This section shows not only the problem that exists, but the opportunity for the company or solution that can solve said problem. To ensure you are keeping the problem section clear yet powerful, lean on as much data as you can to validate the impact of the problem at hand. If there is a certain number of people or businesses that are impacted by this problem, paint that picture. If there is a cost associated with this problem or money currently being spent in the space the problem exists in, articulate that as well. According to TechCrunch, 73% of successful pitch decks include a breakdown of the market size and opportunity and 46% address “why now” or why this problem should be addressed at this point in time. Another way to think about articulating the Problem is to think about articulating the scope of the opportunity – ie, if the problem is this big, this is the opportunity that exists to solve it and this is why now is the right time to do so. Similar to the Company Purpose, keep the Problem explanation brief – 2-3 slides is our recommendation for tackling the Problem section. Solution The Solution section of your pitch deck should be the most comprehensive. In theory, your solution is your comprehensive offering from your product or service to your marketing and customer success. At the end of the day you want investors to be able to answer, “What is their competitive advantage or “secret” sauce?” Because of this your solution might fall into a few slides but oftentimes you can still create a specific single solution slide the example below: Why Now? Investors are oftentimes incentivized to collect as much data as possible during a raise. You need to give them the information they need to move quickly and invest today. Using market data and your own display why now is the right time for them to invest. Market Size and Opportunity Venture capital follows a power law curve. Investors are looking for startups that are poised to dominate a market or take a solid percentage of a massive market. In order to help win over investors, demonstrate that your company can become large enough to create significant returns to their investors (Uber is a great case study in how to properly model your market). Related Resource: How to Model Total Addressable Market (Template Included) Product This is the slide where you introduce your company’s product and how it solves the problem at hand. While investors will certainly have questions about the technical aspects of the product down the line, for the sake of a concise deck try to keep the product slide high level and easy to understand. Make this slide as visual as possible including product screenshots or even a light click-through animation. Competitive Landscape A big question for investors if they like the fiscal opportunity of the problem at hand is an understanding of who else is trying to solve this problem. Don’t shy away from highlighting competitors. Competitors validate that there is an appetite in the market. As you highlight other competitors in the space, be sure to highlight how your product and company are different and better for the problem at hand and also call out where there is missed opportunity in the market that your company can cover (this is especially important in a crowded space like marketing technology). Business Model Now that you’ve shown the opportunity in the market and what your solution is to address the problem, it’s important to talk through your plan to take this product to market or how you are currently taking it to market as well as how you plan to acquire customers. Check out our deep look at the Customer Acquisition pitch deck slide to ensure you capture all elements of your business model for investors. Financials and Metrics Even if investors like your idea, at the end of the day their choice to invest in your business is a financially motivated one. The Financials and Metrics Slide is a key slide to win over the support of a potential investor. Highlight how much money you have raised to date, your key growth metrics over the lifespan of the business so far, and your plan for the investment round in question. To ensure all key startup metrics are addressed in the Financials Metrics slide, take a look at our overview of key startup metrics. Related Resource: Important Startup Financials to Win Investors Team Use the Team Slide as a final push of confidence that an investment in your business is a good one. Highlight the folks on your executive team and what they bring to the table. For example, highlight the past successful companies they have been a part of and helped build, any relevant industry-specific experience, or any unique skills that they bring to the table that give your company a competitive advantage. The Team slide is also a great way to humanize the company and connect with your potential investors by putting faces to name. Additional Slides to Consider If you have room in your deck, consider adding a slide that highlights the product roadmap (especially if this furthers the financial opportunity and “why now” argument for your company). Any existing partnerships that you have in your company that add to the fiscal attractiveness of your business may be worth a slide after you highlight your business Model as well. Finally, if the round you are raising is for a later stage round and you can see an exit trajectory insight, it may be prudent to highlight your exit plan on a slide when you discuss financials and metrics to show a more accurate picture of the type of return your potential investors could see sooner rather than later. 3. Level Up Your Pitch Deck With These Tips After you’ve spent time designing a well-thought-out and clear pitch deck that articulates the company’s purpose, problem, and solution and have built a version you feel confident in, take the time to consider ways to take your pitch deck to the next level before taking it into the boardroom. Tailor The Pitch to Your Audience Personalization goes a long way. Make sure you find simple but powerful ways to tie in your pitch to fit the audience you’re talking to. Prior to making your rounds looking for an investment, do your research on the possible meetings you could have. Organize a list of VCs or investors by tiers based on who you would most like to work with. Additionally, take the time to understand each group’s investing philosophy. Prior to any pitch, make sure to tailor your opening talk track and ask “why now” to fit their specific investment philosophy and showcase why this opportunity would be a great one for their firm specifically. Our Visible Connect network is a great database of VCs that will aid in this process. Be Transparent, Accurate, and Data-Forward Don’t leave anything out. If your company has had a period of setbacks or pivots, don’t shy away from highlighting that. Additionally, take out any fluff from your presentation that could be seen as opinion or too high-level and instead back up every point you plan to make with hard data. Show, don’t tell. Numbers are the clearest way to give a transparent, credible view of your business and the opportunity at hand. Read and Revise (Now Do it Again!) Remember that you’re going into each meeting asking for thousands if not millions of dollars in support. This is a serious ask and you’d hate for a great opportunity to be jeopardized due to some simple errors. Once you think your pitch deck is in its most perfect state, read and revise it again. Now do it again. Take every possible second you can to look for spelling and grammar errors, design and presentation errors, and ensure it’s as clear as possible for any type of investor to process. Practice the pitch to peers and existing partners and employees as many times as possible to get multiple sets of eyes on it for review and revision. Related resource: Our Guide to Building a Seed Round Pitch Deck: Tips & Templates 4. Follow Pitch Deck Design Best Practices Once the content is perfect, take the time to ensure the deck design is up to par. A few best practices on Pitch Deck design to consider: Use a Consistent Visual Style: This will keep the presentation looking clean, easy to follow, and straightforward. Simple is always better so settle on a design theme and format for your slides and stick to it. Consider Bullet Points: Too many words on a slide can make an investor’s (or anyone’s) eyes glaze over. Minimize the amount of text on each slide by bulleting out the key points. These will be easier for the investors to remember and remove any unnecessary fluff from your deck. Keep Graphics simple: If you are going to include graphics or visual elements alongside your bulleted text, make sure they are valuable and not elements that are distracting from the purpose of the deck. Keep visual elements simple and make sure they serve a purpose. For example, product screenshots or data graphs are a good way to present information in a different but still valuable way. For more pitch deck design best practices, check out YCombinator’s guide on best practices from the thousands of pitches they see every year. Related Resource: Pitch Deck Designs That Will Win Your Investors Over 5. Prepare to Deliver Your Pitch Even the most perfect pitch deck won’t stand a chance without the right delivery. Practice makes perfect so ensure you have a clear plan in place and spend the time preparing to deliver your pitch. Determine who on the team is best to present. Pitches can be done by one leader with the strongest presentation skills or divided up across the team. The perks of multiple folks presenting ensure that there is coverage on different elements of the business and provide a good natural change to keep interested throughout the pitch. Regardless of who decides to pitch, make sure they are mock pitching and rehearsing as many times as possible. Get feedback from existing investors, partners, or peers and practice daily. In addition to preparing to deliver your pitch in person, make sure the way you are going to digitally deliver your pitch is glitch-free, clean, and easy to digest. Check out our template for sharing your pitch deck with potential investors here. Additionally, Visible can be a helpful platform for managing all elements of the fundraising pitch deck process. Use Visible to track and manage potential investor relationships and report out to existing and future investors as your business grows. Learn more here. 6. Share Your Pitch Deck with Visible Just as a sales team has dedicated tools for their day-to-day, founders need dedicated tools for managing the most expensive asset they have, equity. Our community can now find investors, track a fundraise, and share a pitch deck directly from Visible and completely integrated. Want to see a Deck hosted on Visible in action? Take a look here. Manage your fundraise from deck to check with Visible. Give it a try here. Related resource: Business Plan vs Pitch Deck: The Differences and When You Need Them

While a business plan might feel like a dying practice for startups there are countless benefits of building out and thinking through a plan. A startup business plan can be the backbone of pitch decks, investment memos, and strategy as you set out to build your startup. Related Reading: How to Secure Financing With a Bulletproof Startup Fundraising Strategy In our guide below, we lay out 8 concepts that will help you build a business plan as you begin your startup journey. You can skip around to specific sections below: Eight Key Concepts To Include In Your Business Plan As we mentioned above, the 8 concepts below are a great starting point to think through when forming your business. Inevitably, you’ll face questions and issues around all of the issues so having a well-thought-out plan and approach to each will pay dividends as you build your business. Related Resource: How to Create a Startup Funding Proposal: 8 Samples and Templates to Guide You 1. Build an Executive Summary As put by the team at Inc.com, “The summary should include the major details of your report, but it’s important not to bore the reader with minutiae. Save the analysis, charts, numbers, and glowing reviews for the report itself. This is the time to grab your reader’s attention and let the person know what it is you do and why he or she should read the rest of your business plan or proposal.” An executive summary is an opportunity for you to layout the contents of your business plan and set the stage for what is to come. Avoid going too deep into detail and rather lay out the backbone of your plan. You want to balance getting the reader’s attention with supplying the information they need to get a grasp of your report. A few items that we suggest you include: What is this product service/service? Who will benefit from this product/service? Who is competing with this product/service? How will you execute on selling your product/service? As you continue to build out other sections of your business plan, the executive summary might change as you tweak other components. Related Resource: A Complete Guide on Founders Agreements 2. Identify Your Business Objectives First things first, you will want to layout the objectives of your business. This should be a deeper dive into what exactly your company does and how it is set up. This will be your opportunity to highlight your market and communicate why your product/service is set up for success. This is also a chance to hit on the mechanics of your business (structure, model, etc.). A few items that we suggest including when laying out your business objectives: Gives investors a brief overview of what your company does Communicate the value of your product/service Highlights the market opportunity You will have an opportunity to go into more depth in each of the details above later in the plan so make sure you are giving just enough detail to build interest and give investors a solid understanding of your objectives. 3. Highlight Your Companies Products and Services Next, you can start digging into the fine details of your products and services. You will want to build excitement here and let investors know exactly what your product offers and why it is built to solve a big problem and win a market. This is a great opportunity to present any qualitative or quantitative data you have about the market and your ideal buyer. Layout the problem and make your investors feel the pain that you are trying to solve. For example: Let’s say you have an application that helps people find and book a camping site. You might want to lay out the problem you are solving below: Next, layout how and why your solution is solving the problem like the example below: A few other things you will want to make sure you include when highlighting your product or service: Face-to-face research on problems in the market How does this product solve the market’s problem? Data that suggests people are feeling the same pain point Stories from existing or potential customers that highlight the pain points The goal here is for you to have your investors understand the problem and start building empathy. Related Resource: How to Write a Problem Statement [Startup Edition] 4. Define Market Opportunities After you have laid out the problem and solution, you can start displaying the hard data behind the market. Venture capital follows a power law curve so chances are investors will want startups to demonstrate a large market and the potential to capture a large percentage of the market. One aspect is modeling your total addressable market. You’ll want to demonstrate a large market that piques the interest of investors. Make sure to use real numbers and a bottoms-up approach here. In addition to demonstrating your addressable market, we suggest including a few of the ideas below: Do research on the target audience Who is the target demographic for your product/service? What is the target location for your product/service? What is the typical behavior for your target audience? Related Resource: When & How to Calculate Market Share (With Formulas) 5. Complete Your Sales and Marketing Plan Now that you have demonstrated your product and the greater market it is time to start digging into the specifics of you will attract and close new customers. At the end of the day, bringing in revenue is the goal of a business to having a strong go-to-market strategy is an important aspect of your startup’s business plan. If you’ve correctly laid out your market and the demographics of your target market in the previous sections, investors should have a strong understanding of the space and will be able to have a conversation around your sales and marketing strategies. You don’t need to go into overwhelming detail here but laying out what channels you will rely on and how you will execute and hire on those channels is necessary. For example, if organic search is a strategy you can lay out what you are doing to execute on that channel but do not need to mention the specific posts and content you are creating here. To make sure you nail this section, be sure to include a few of the following: Sales channels Marketing objectives Early data points and success If you do not have any hard data points yet, no worries. Use your research and market data to build compelling cases for different acquisition strategies. Related Resource: 7 Startup Growth Strategies 6. Include a Competitive Analysis Report Of course, investors will want to know about the competitors operating in your market. They will want to understand how you are differentiated and why you are poised to beat them in the space. You’ll want to make sure you are clearly demonstrating who is operating in what aspects of the space. Compare your product or offering to them. Remember to be honest here as investors always have the ability to double-check your research and will do their own analysis of your competitors. A common way to show this information is by using a market map. Check out an example of what a market map looks like below: Related Resource: Tips for Creating an Investor Pitch Deck 7. Structure Your Operations and Management Teams In the early days of a business, most investors will be taking a chance on the founding team and management team. They will want to look at your team’s past experiences and skillset to understand why they are the ones that should execute on a problem. Highlight what managers and leaders are responsible for what aspects of the business and use their past experiences and skillsets to show why they are fit for the role. You can also use this as an opportunity to demonstrate hiring plans and how your teams will be structured as you continue to grow. Here are a few examples of what you might want to include: Define your team of experts and what tasks they are responsible for. Consider adding an organizational chart to clearly outline your companies structure 8. Financial Analysis Finally, you should include financial analysis for your business. Depending on who you are sharing your business plan with might depend on the level of financial analysis you would want to share. If you already have financials and data be sure to include the last 12 months of data. Make sure the data is incredibly easy to understand decipher. You don’t want someone to be looking at your financials and take things out of context to draw conclusions about your business that might be wrong. Another aspect you’ll want to include is your financial forecasts and goals. While chances are that your forecasts will be wrong it is a good way to demonstrate to your investors that you are thinking about your business in the right way. Check out why Gale Wilkinson of Vitalize Ventures likes to see early-stage founders model their future below: A few other items that might be worth including with your financials can be found below: Include revenue Major expenses Salaries Financial goals and milestones Related Resource: 4 Types of Financial Statements Founders Need to Understand Related Resource: A User-Friendly Guide on Convertible Debt Share Your Business Plans With Visible Once you have your business plan in place it is time to hit the ground running and collect feedback on your business plans and objectives. Use our Update and Deck sharing tools to share your plans with potential investors and stakeholders along the way. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

At the core of every business or startup is a big problem they are trying to solve. Founders are putting forth their expertise and skills to build a solution to help solve this big problem. In the early days of building a business, many investors and stakeholders will ask to see a business plan to address how you are attacking a market and solving a problem. When going out to raise capital (from angels, VCs, etc.) making sure that investors clearly understand the problem you are solving is crucial. One of the key aspects of a business plan is the problem statement. Learn more about business problem statements and how to craft one for your business below: What is the Purpose of a Problem Statement? As we mentioned above a problem statement is part of a business plan. It should be an overarching thing you are trying to solve that guides most decisions you are making as a business — product development, go-to-market strategies, customer support, etc. A business problem statement defines exactly what problem you are helping your customers solve. It should be fairly simple but can be the backbone of your decision-making and business strategy. Note: While you might not necessarily be sharing a “problem statement” with investors during a fundraise, it oftentimes can be useful when crafting your pitch deck. Learn more about crafting your first pitch in our post, “Tips for Creating an Investor Pitch Deck” Best Practices for Writing a Problem Statement A problem statement is fairly short and straightforward, there are best practices that you’ll want to keep in mind. An erratic or longwinded problem statement can lead to more confusion and questions, in turn leading to more work for you as a founder. Check out our best practices and tips for writing your problem statement below: 1. Clearly Define The Problem First and foremost, you need to make sure that the problem you are solving is incredibly clear and well-defined. If you are wishy-washy with the problem, that will show a lack of conviction in the eyes of an investor or stakeholder that might be evaluating your business plan. For example, let’s say we are a software company called Adventure App that is helping campers find lesser-known camping spots. Our problem could be, “Finding a camping spot requires existing knowledge of a location and deciphering of local rules, boundaries, and signage that can be intimidating to new campers.” 2. Assess Who The Problem Impacts Naturally, a problem statement solves the big problem you are helping your customers accomplish. However, a problem statement can have an impact on different stakeholders and aspects of your business. A few questions you might want to ask yourself when understanding who your problem statement impacts: How are your customers impacted by the problem? How are your employees impacted by this problem? How is your overall business impacted by this problem? Using our Adventure App example above, if we are helping customers find more camping spots, our employees are likely impacted because they enjoy the outdoors and camping themselves and have empathy for the customers. Related Reading: How to Build A Startup Culture That Everybody Wants 3. Provide Possible Solutions Finally, a well-written problem statement should offer a solution and detail why it will help solve the problem. There might not necessarily be a single solution but an approach as to how you and your team will execute on the solution. Continuing on with our Adventure App example, our solution might be “Creating easy-to-use software and tools that anyone can access from the outdoors to enhance their experience.” 3 Ways To Enhance Your Problem Statement Once you have your first iteration of a problem statement down on paper, it is time to start dialing in the statement and make sure it is something that is easily understood by investors and stakeholders, even if you are not in the room to explain the specifics. 1. Highlight The Pain Points Of The Problem When crafting your problem statement you want to make sure anyone reading it can really understand the pain points that your potential customers are facing. Being able to hone in the specifics will help anyone understand the problem, even if it might not be one they experience themselves. For example (continuing with our campsite finding software), you might initially write something like: “Finding a campsite is a pain.” However, you can go deeper with the problem by adding more specific pain points like: “Finding a campsite requires driving to a remote location with little internet access, deciphering different signage and boundaries, and exploring in the dark until you find a spot to set up camp which can be a barrier for many to enjoy the outdoors.” 2. Add Empathy To Your Story Going hand-in-hand with the pain points from above, add empathy to make sure that anyone reading it understands the problem. When pitching an investor, they might have a surface-level understanding of your problem but to really make sure they feel the pain your customers are feeling you need to make the true pain points are truly there. This will help investors find empathy for the end-users and paint a picture of why a solution is needed and why your solution is the one. Using our example, many investors might not know much about camping. Making sure they can understand the headache of aimlessly driving around in the dark looking for a spot is important. 3. Explain The Benefits of Your Proposed Solutions Now that you have built up the problem and given the readers an understanding of why there needs to be a solution you need to dial in the benefits of your solution and explain why you are the ones that should be solving the problem. Remembering that we want to keep the problem statement succinct, you need to be intentional with the wording of your solution. The rest of your business plan or pitch deck can be used to dive deeper into your solution and the economics/strategy/etc. behind your business. Start Your Fundraise with Visible Have your problem statement and business plan in place and ready to go out and raise capital? Let us help. You can find investors with Visible Connect (our investor database), add them to your Fundraising CRM, share your pitch deck, and track how potential investors are engaging with your fundraise. Give it a try for free for 14 days and kick off your fundraise here.

Startups are in constant competition for 2 resources — capital and talent. Without capital, a startup will fail to grow and execute plans. For startups just getting off the ground or ones that have yet to find product-market fit, securing capital via customers can be difficult. However, there are countless places (angel investors, venture capitalists, private equity, friends and family, etc.) to look for capital to help you and your startup secure the money you need to develop a product, scale revenue, hire top talent, and more. Related Resource: How to Find Venture Capital to Fund Your Startup: 5 Methods Learn more about how you can find and attract different types of private investors in our guide below: What is a Private Investor? A private investor is an individual or firm that provides financial backing for startups or businesses. There are varying levels of private investors. There are established venture capital and private equity firms that make a living privately investing in companies. On the flip side, there are wealthy individuals and angel investors, who are investing in small startups as a way to diversify their investments. Related Resource: How to Find Investors The Ins and Outs of Private Investing A private investor is a generally broad term. Private investors can come in all shapes and sizes and might be already in your network but you may not know it. Different private investors function in different ways. Related Resource: A User-Friendly Guide on Convertible Debt Types of Private Investors Learn more about the different types of private investors and what the benefits of them investing in your startup are below: Angel Investors As Investopedia puts it, “An angel investor (also known as a private investor, seed investor or angel funder) is a high-net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company.” Angel investors are generally wealthy individuals looking to diversify their investment portfolios. Because of this, financial returns are not their sole motivator. Angel investors might invest at a more personal level — e.g. a company might be in a space they are interested in, the founder could be a friend, etc. There are a number of benefits of finding angel investors to invest in your startup. To start, there are likely angel investors in your immediate network that you might not be aware of. As they are generally a friend, family member, or someone in your network, the fundraising process tends to be less stringent and can move along quickly (however, because of this check sizes tend to be smaller). Related Reading: How to Effectively Find + Secure Angel Investors for Your Startup Related Reading: Types of Venture Capital Funds: Understanding VC Stages, Financing Methods, Risks, and More Venture Capitalists Venture capital is the private investor most founders tend to be most familiar with. As defined by Investopedia, “A venture capitalist (VC) is a private equity investor that provides capital to companies with high growth potential in exchange for an equity stake.” Venture capitalists are professional investors. Venture capital firms have their own investors, Limited Partners, to who they need to return outsized returns to. Because of this, what they are looking for in an investment might vary from what an angel investor is looking for in an investment. Their thesis and investing principles likely come down to their ability to flip a huge return for their LPs. Related Reading: Understanding Power Law Curves to Better Your Chances of Raising Venture Capital However, the benefits of raising from venture capitalists can be huge (if venture capital is right for your business). Because of the growth in the venture capital space, there are more investors than ever before. This has created increased competition and the need for VC firms to offer more than capital. VC firms now offer to help with hiring, strategy, product development, leadership, fundraising, and more. When leveraged correctly, venture capital can be a great tool for a startup that believes it can grow to a massive valuation. Related Reading: All Encompassing Startup Fundraising Guide Private Equity Firms According to Nasdaq private equity firms are, “Firms that use their own capital or capital raised from investors to take companies private with the aim of running them better and later taking them public or selling them at a profit.” While venture capital is a form of private equity — VC firms generally spend their time and money investing in earlier-stage companies. Private equity firms are generally geared towards later-stage companies. Because of their focus on later-stage companies and straddling the line between public and private companies, private equity firms can offer some major benefits. The largest benefit is liquidity for founders and early employees. PE firms will generally acquire companies that free up capital for any previous investors, founders, and team members. Related Reading: The Understandable Guide to Startup Funding Stages Where to Find Private Investors? Naturally, the next question is “how do I find these private investors?” Luckily over the last few years different resources and communities have surfaced to help founders find the right investors for their business. Visible Connect — Connect is our free and open-sourced database of venture capitalists. We verify the data with investors directly so it is the most up-to-date, accurate, and important data for founders. AngelList — AngelList is a great tool for finding angel investors and syndicates for your startup. Online Communities/Twitter — Different online communities (on Discord, Twitter, etc.) exist and are full of eager angel investors and early-stage VCs that can be a fit for your business. Related Resource: How Startups Can Use an Investor Matching Tool to Secure Funding How to Network With Private Investors? Raising capital from private investors is a numbers game. You’ll need to talk to countless investors to find the right investor for your business. At Visible, we like to compare fundraising to a traditional B2B sales process. You are filling the top of your funnel with qualified investors, nurturing them throughout the middle of the funnel with communication, and hopefully closing them and cashing a check at the bottom of the funnel. Just like a sales process, there are different methods for networking and filling the top of your funnel: Warm Introductions — Oftentimes the best place to start is with your immediate network. By combing through LinkedIn and your personal network look for anyone that can make an introduction to one of your dream private investors. Cold Outreach/Email — When you can’t find a warm introduction, don’t be afraid to send off a cold email. Related Resource: 3 Tips for Cold Emailing Potential Investors + Outreach Email Template Events — The startup world is a typically tight-knit community. VCs, angels, and PE firms spend time at events to find deal flow. Attend events and speak with as many qualified investors as possible. Twitter/Social Media — Private investors, especially VCs, spend time building their personal brand on Twitter. Interact with their Tweets and build a relationship using the tools already available to you. By approaching your fundraise like a sales process you’ll be able to uncover the best methods for networking and building relationship with investors. Check out our Fundraising CRM and tools to track and manage your next raise. Related Resource: 7 of the Best Online Communities for Investors Related Resource: 6 Helpful Networking Tips for Connecting With Investors Related Resource: A Complete Guide on Founders Agreements Key Concepts Private Investors Look For in Startups Finding and networking with the right investors is only a small piece of the puzzle. At the end of the day, you need an investable business that excites private investors. A few of the key concepts they look for. Related resource: Dry Powder: What is it, Types of Dry Powder, Impact it has in Trading Increasing Revenue No matter how you cut it, a business needs to have increased revenue to be investable in the eyes of a private investor. If you’re revenue (and profit) and are not increasing, they likely won’t make money on their equity investment in the future. Liquidity Typically speaking, investing in startups is illiquid and can be risky for private investors. Clearly communicate this but also make sure to have a clear plan for successfully exiting at a later date. A Clear and Concise Business Plan If you can’t clearly articulate your business plan, strategy, and go to market efforts, investors will be left confused and likely not have conviction in your business. Be sure to clearly lay out your model and use any historical data to demonstrate how and why your plan is working. Controlled Spending Behavior In the eyes of an investor, they are cutting you a check and you are at liberty to spend it however you’d like. Investors need to trust that you’ll responsibly spend and budget your new capital. Demonstrate that you have a clear plan, historically have controlled your spending, and have unit economics that will scale. A Big Market As we previously mentioned, private investing generally follows a power law curve. Private investors are looking for some massive exits in their portfolio as most startups fail. Show potential investors that you are operating in a potentially big market that can create huge returns in the future. Related resource: 13 Generative AI Startups to Look out for Successful Team Startups, especially in the early days, are largely driven by their team. For companies that are pre-revenue, investors will spend time closely evaluating the founders and team members to build conviction on their ability to solve the problem and build a business. Strong Unit Economics Scalability and strong unit economics will be a huge plus in the eyes of investors. Show investors, you have strong unit economics and a model that will scale nicely as you grow. Learn more in our post, Unit Economics for Startups: Why It Matters and How To Calculate It. Your Funding Journey Starts With Visible Finding the right funding for your business is a journey. As you begin to scale your company, remember that different funding options exist and can be leveraged to best help your business. If private investors are not the right option for your business, great! If you want to kick off a fundraise and find the right angels and VCs for your business, awesome! We can help founders find the right investors, manage their conversations, share their pitch deck, and update potential investors. Find the right investors for your business with Visible Connect — Give it a try here. Related resources: Accredited Investor vs Qualified Purchaser The Top 9 Social Media Startups

Private Equity refers to an alternative investment class. This alternative class of investment is made up of capital not listed on a public exchange, meaning private equity is made up of funds directly from private investors or investment groups. In some cases, it is even the conglomerate of buyouts of public companies converting their public equity back to private capital. There are 9 main types of private equity funds out there, all with their own core purposes, structures, and strategies in place. Let’s dive in and understand the 9 types of private equity funds. Private Equity Funds: Illiquid, Predictive, and Powerful An alternative investment class is essentially an investment that isn’t a stock, bond, or cash. Also known as an investment that isn’t easily sold or converted to cash. Private equity falls into this category because although private equity represents a cash value, it is not easily converted and is not a traditional stock or a traditional representation of cash. Private equity has no public exchange value and is known to be illiquid. Private Equity is illiquid, meaning it’s not easily converted into cash. Private equity is different from traditional investments for a few reasons. Because they are not public investments or easily convertible to cash, private equity is not influenced by public markets. This means there is far less pressure on performance by investments from private equity funds as the swings of capital aren’t as dramatic, performance in the market isn’t a critical indicator of success. The overall goal of private equity investments is to provide the investors with profit, usually within 4-7 years – typically a much quicker return time than traditional investing. Today, there is $2.5 Trillion involved in private equity funds across the globe. The definitions provided so far have been high-level – overall, just an understanding that private equity is an alternative form of funding that is not public and not influenced by market conditions. More specifically, there are nine core types of private equity funds: Venture Capital, Growth Equity, Buyouts, Infrastructure, Real Estate Private Equity, Mezzanine Capital, Fund of Funds, Distressed Private Equity, and Secondaries. Let’s dive into each. 1. Venture Capital (VC) Venture Capital or VC is a type of private equity where investors specifically focus on investments that have long-term growth potential. VC funds typically operate with a managing partner and a handful of other operating partners or passive partners and are made up of pooled investments in high-growth opportunities in startups and other early-stage firms. VCs are typically only open to accredited investors. The ideal and typical businesses that are a good match for Venture Capital investments are startups. VC funding can be provided to both startups or entrepreneurs directly and is seen at all stages of a startup, scaleup, or growth company's evolution. A couple of well-known companies that have successfully leveraged VC funding are AirBnB and Slack. Both took on VC funds as part of various investment rounds over the course of their company life cycles and now are both public companies. Slack was also acquired by Salesforce after going public. Airbnb has raised 6B in funding over 33 investment rounds while Slack took on $200M in VC investments. There are a handful of reasons why you might want to consider a VC investment or not. The Pros of Venture Capital: Access to Large Amounts to Money: Venture Capital Firms typically are made up of very wealthy, well-connected ex-startup folks who know the business and have the access and influence to raise a lot of money. A major pro of taking on a VC investment is the access to capital you will have. Leadership and Networking Experiences: In addition to access of great amounts of capital, VCs typically offer great networking and opportunities to work with great leaders and advisors. From the VC firm’s partner experience, any operating assistance they may provide, or the network of other industry experts the partners have access to, there are typically plenty of opportunities for learning and networking with your investing VC that will lend a hand to your business. No Recurring Risk or Schedules: VCs are expecting a long-term return, not a monthly return. There is not a monthly or recurring fee that’s needed to pay back your VC, the expected gains they see are repaid by the success of your business. This open-ended return plan is helpful for a founding team to not have to consider any cost to taking on VC funds. Future Opportunities: Taking on a Venture Capital fund as an investor opens up the door for future large round investments from that same VC or other influential VCs. Additionally, VCs often provide assistance with public relations, hiring, risk management and more. The Cons of Venture Capital: Lower Ownership Stake: In return for the large sums of money without a recurring repayment schedule, VCs ask for long term opportunities to double or triple their returns. This means they are going to be wanting to take on a significant ownership stake in your startup when investing their money. This can be a con because it can easily turn into a dilution of your company and loss to the founding team as more and more VC money is taken on, becoming the price of scaling quickly – less ownership stake overall. Extensive Upfront Process: Often, the process of pitching to and securing VC capital is an arduous one. Founders may need to spend all of their time fundraising and prepping for investor presentations and conversations, losing the ability to engage with other areas of the businss. A distracted founder raising money, may lose sight of the real growth and details of their business. VC funding is rare relative to other types of funding and the time spent to secure it can be costly, especially since at the end of the process there is typically almost no negotiation leverage for the startup at all. High Pressure Stakes: At the end of the day, if your company is not growing to the aggressive expectations set out by the VC’s valuation, the company may come crashing down quickly. Funds are typically released on a performance schedule and low performers can lose their business (because they don’t have majority ownership anymore or don’t meet the board of investors expectations). If your company fails to grow, or doesn’t meet expectations, things can go south extremely quickly with VC funds accelerating to the end – if that pressure isn’t something your business or founding team is ready for, VC funding may not be the appropriate route. Related Resources: Venture Capitalist vs. Angel Investor Checking Out Venture Capital Funding Alternatives 24 Top VC Investors Actively Funding SaaS Startups What Is a Limited Partnership and How Does It Work? 2. Growth Equity Growth Equity is a form of Private Equity fund that is typically seen with late stage companies showing high growth potential. Growth Equity firms are looking to invest in companies with established Go-to-market business models and repeatable customer acquisition strategies already in place. Because of the already proven growth and success of late stage companies, growth equity is a lower risk investment to take on and to put forward, and a great choice if a business is looking to subsidize expansion of operations, make acquisitions, expand verticals of their TAM or enter new markets across the globe. Typically, a growth equity deal is a minority investment for the equity firm and is purely to capitalize on quicker capital gains vs. any long term benefit or ownership opportunity. Spotify and Uber are two major companies that have taken on growth equity later in the business and used it to scale new features and expand into new markets. As Uber became global and needed more money to front new markets, growth equity from companies like TPG growth was critical to their success. The Pros of Growth Equity: Maintain Control: Typically, growth equity funds make non-majority stake investments. Meaning they infuse cash to already established companies, taking on little ownership relative to the early stage investors. This type of investment fund takes on less risk and has a shorter runway on return, so for a founder, growth equity can be super helpful to grow the company without having to give up any remaining shares of ownership. Quick Growth Opportunity: Cash is king, so in a scenario where your business is doing well, you just want to move faster to achieve growth goals, an infusion of growth equity can be just what is needed. Growth equity capital allows for big moves and can be the game changer needed to hit aggressive valuations and pipeline KPIs. The Cons of Growth Equity: Value Added: The main Con of growth equity is that there really is no value added besides cash to the business. Growth equity funds aren’t invested in the same way a VC would be – the path to success is much clearer for their investment companies and they aren’t majority owners so the value to the investor to provide leadership, networking, or advisory value is not as evident or needed. This can be a con to take on money for growth and not have the accompanying support or guidance. 3. Buyouts A buyout, often synonymous with an acquisition, is when a controlling interest in a company is purchased. Buyouts consist of the majority stakeholder being acquired or bought, and then the now new majority owner buying out or purchasing back the remaining, minority stocks in the company. Buyouts can be completed by private equity firms or by other companies themselves. Typically, the ideal candidate for a buyout is a company that has some type of operational value or product value but is not hitting growth goals as quickly as expected or is not on a path to a profitable exit. A company may choose to buyout or acquire another company if they see the value of that company’s product, team, intellectual property, or customer base as a value-add to their existing company – making the combined power of both companies more valuable in the long run. One company that benefited from a buyout was Engagio, the software company. They were bought out by Demandbase, a leader in account-based-marketing software. This benefited Demandbase by unlocking new use cases for their customers with sales intelligence and insights, and benefited Engagio by pairing their customer base and trajectory with an even faster growing SaaS company. The combined product made the Demandbase platform that much more attractive to buyers. The Pros of a Buyout: Accelerated Growth Opportunities: A buyout could take your existing investment or company to the next level by bringing in missing product, leadership, or market opportunities. Stronger Outcomes: For the company being bought out, it could bring about continued growth and value opportunities for the employees and stakeholders, depending on the terms of the buyout. In a best case scenario, a company where stocks were losing value, is given a new life with stock converting to the new company value and continuing to accelerate. The Cons of a Buyout: Growing Pains: Acquiring a company doesn’t happen overnight. There are pains and challenges associated with acquisitions or buyouts and not all companies can overcome them. Overcoming growing pains around integrating product, teams, and customer bases is critical to see any positive outcome to a buyout, and is not always possible. No Guarantees: A Buyout doesn’t come with any guarantees. It requires the acquiring company to do well which is not promised. A buyout is also potentially at a loss for certain investors depending on how desperate a buyout was, making it a very un-guaranteed way to exit a business. There are two types of Buyouts, Managed and Leveraged. Managed Buyouts Managed Buyouts are most commonly seen with large corporations looking to sell off parts of their business, maybe sub-businesses, departments/divisions to another buyer in order to save the core business or make a profit off a poorly or average performing division. Another example of a managed buyout would be if a small, private business owner wishes to retire they may choose to sell their business to a conglomerate for a buyout. A managed buyout typically occurs with financing made up of debt and equity and is typically pretty substantial. Leverage Buyouts Leveraged Buyouts are buyouts that only require 10% capital and can take out debt to finance the rest of the buyout. This strategy of a buyout is extremely risky but if it pays off, it results in major returns with little cash down. A leveraged buyout is operating under the assumption that the buyout will be extremely profitable and a good business decision vs. needed to save the business. 4. Infrastructure Infrastructure Private Equity is the practice of privately investing in the equity of physical infrastructure needed to support society. A few of the types of infrastructure that infracture PE is used to invest in include: Utilities such as gas, electricity, water Transportation such as airports, roads, bridges, railways Social infrastructure including schools and hospitals Energy sources like power plants and pipelines Renewable energy like solar power plants and wind farms The Pros of Infrastructure Private Equity: There is always a need: Infrastructure investments are consistent and everlasting. There won’t be a change so suddenly in the market where all of a sudden a road or hospital isn’t needed. Consistent returns: Due to their consistent need, and typically low fluctuation in value, infrastructure investments produce steady, reliable, high cash returns. The Cons of Infrastructure Private Equity: The Impact of Social Factors: Macro factors like recessions, inflation, population changes etc.. have a direct impact on infrastructure investments. Planning for these changes and flexes is different from investing in a more high risk high reward type of investment. Expensive to Fix: Even though there is a consistent, unwavering need for infrastructure investments, in the case that there ever is an issue (a bridge collapses, the sewage system gets contaminated etc..) fixes can often be costly and slow down returns for a long period of time. 5. Real Estate Private Equity (REPE) A pretty straightforward type of private equity, real estate private equity invests in real estate projects and properties. A pretty risky investment, real estate private equity typically requires a significant amount of capital up front but 8-10% returns are often a common result. The types of businesses that are a good match for REPE are high-net-worth individuals with pensions, endowment funds, or LPs to invest because they come with a significant amount of capital up front. The Pros of REPE: High Reward: With returns up to 10% being typical (and in rare cases, even higher ones), the reward of REPE is tremendous. The Cons of REPE: High Risk: Despite the high returns, the amount of cash typically needed upfront is incredibly risky. 6. Mezzanine Capital Mezzanine Capital is a mix of debt and private equity financing. If a company is seeking Mezzanine Capital, they are essentially taking a loan from the investor alongside giving away some equity for part of the received capital. The investor can then decide to concert the debt owed by the seeker of the investment to equity interest in the company. The conversion typically occurs in the case of a default. Typically, later stage companies are a good fit for Mezzanine Capital. They will seek this type of PE investment if they have a short term growth project that they need cash for such as an acquisition. The risk level is moderate for the investor as the worst case scenario ends with them owning more of the company vs. just not getting their investment back at all. The Pros of Mezzanine Capital: Scheduled Payback Period: Because a portion of the investment is a loan, investors are set to make back their money on a timely payback schedule – providing a clear path to return assuming no default. Mostly Positive ROI: With the result of default equating to equity, the ROI is typically positive in either scenario for the investor with more equity resulting in more long term capital gains (potentially). The Cons of Mezzanine Capital: Moderate Risk: This type of investment is not 100% a loan so there is still a portion of your investment at risk as this is not the most low risk investment option out there. Dips in Valuation: For the portion of your investment that is for equity and any unpaid loan portion that turns to equity, you’re then banking on the valuation of that company keeping your money out of the red – any dips in valuation or future failures could make your equity worthless. 7. Fund of Funds (FOF) A FOF is exactly what it sounds like, is a private equity fund that invests in other funds, like hedge funds or mutual funds. FOF’s are also often called multi-manager investment funds. Individuals like you or I could invest in an FOF as it’s a great way for us to diversify our portfolios and start investing in a lot of assets with less capital needed. Emergence Capital is another example of an FOF, they invested in our investor, High Alpha. The Pros of FOFs: Minimal Risk: Due to the broad diversification that an FOF sets out to achieve, the risk on FOF funds is typically minimal with lots of different types of investments to balance out during various market conditions and outcomes. Broad Opportunities: Investors with minal capital to invest may lean into investing in a FOF so that they can diversify their assets without needing more capital. The Cons of FOFs: Higher expense ratios: Compared to other mutual funds and traditional funds out there, FOFs typically have a higher expense ratio – something to consider. Overlap fees and additional investor fees across the different investment funds are a potential concern. 8. Distressed Private Equity This type of PE comes into play when a company is in trouble. A Distressed Private Equity investment is one where an investment firm will invest in failing or in-troubled companies debt or equity to have a controlling state, make changes,sell assets, do what needs to be done to turn that company around, turn a profit and even in some cases take that company public. Bain Capital is well known for its distressed strategy, raising funds specifically aimed at this purpose. They’ve bought companies but also investments like properties that were failing – Just this spring, Bain purchased a 160+ room hotel in Ibiza that was failing and aims to turn it around. The Pros of Distressed PE: ROI Potential: The biggest pro of a Distressed strategy for investors is the idea that they could turn a major profit with very little if almost nothing down to take control (depending on how poorly off the investment is). The ROI can be huge with a distressed strategy but the right operators need to be in place. The Cons of Distressed PE: ROI Potential: If the right strategy isn’t implemented or the problems run too deep, even a super low cost distressed investment can yield little to no ROI and even lead to a loss. Operator knowledge and a strategic plan is critical to the success of a distressed investment. Time to value: A distressed investment return could be only a few years, however, the time invested by an operating team could cut into the ROI as well as make the time feel much more intense to get the desired value vs. the more passive nature of a lot of PE investments. 9. Secondaries Secondaries are the buying and selling of investments already owned. A Secondary PE fund or even individual traders are buying stocks or assets they see as valuable, holding them, and selling them when they know they can turn a profit. Many individual investors seek out Secondary PE experts to help manage their trades and advise on best practices. A financial institution writing a mortgage for a customer is a great example of a secondary. That financial institution can then go and sell that mortgage security to a company like Fannie Mae on the secondary market to hedge their bets and turn a profit. The Pros of Secondaries: Maximize your investments: Spending a minimal amount up front, or even spending a lot up front with the right knowledge guarantees you will maximize your investments if you buy and sell your secondaries with the right strategy. The Cons of Secondaries: Selling at the wrong time: Buy low, sell high is the goal but timing is everything and a misstep on selling too soon or holding too long can have major consequences for a secondary PE firm. How Crowdfunding Differs from Other Types of Private Equity One type of funding that does not make the traditional list of Private Equity is crowdfunding. This type of funding for a business is different in a few ways. For the most part, the key difference is that the folks or “investors” putting money into a project dont’ typically have any stake in the success of the ubisness and the ROI on their investment is very different. Instead of gaining ownership or guaranteed money back from said “investment”, crowdfunding is typically more so done to prove interest from a market – fund my product if you think this would be useful, support my business, donate to a cause – and the return comes in the form of something like early access, a discount on said final product, or a tax write-off for a crowdfunded charitable initiative. Because there is no ownership or partnership or lender / borrower agreement established with crowdfunding, it’s not considered traditional PE. There are many popular websites that exist for crowdfunding such as GoFundMe.com Tap Into Private Equity Funds and Keep Investors Updated with Visible Get involved with the network of PE investors and funds in the Visible Community and update existing investors on your progress today by creating your free Visible account. Find investors that are right for your business with our free database, Visible Connect.