We hosted an "Ask Me Anything" interview with Friso Schmid, the founder of Startup Fountain. During the interview, Friso shed some light on the fundraising process for early stage startups. Here are 5 takeaways from our discussion:
- Explain Your Staffing Strategy: Investors need to know that you have the right staff in place, including a commercialization leader (CCO), business leader (CEO) and a tech leader (CTO). If the company is only you and a co-founder, or if you're currently outsourcing a key department like developers, show investors how you will adjust your staffing strategy once funding is secured.
- If Possible, Create Investor Competition: Friso says that "99% of the time VCs are saying no to startups, and the other 1% of the time they're begging to be involved in startups." If you are lucky enough to garner interested from more than one investor, there is no shame in the game of creating a little competition (strategically and respectfully, of course).
- Transparency is Key: When multiple investors participate in the same round, it is quite common for them to have different terms or set ups. For example, an investor could issue you a convertible note with a 30% discount and a few quarters later, a different investor could issue you a convertible note with a 20% discount rate. If this type of situation comes about, it's crucial that founders are clear and transparent with both shareholders why there is a difference in terms.
- Know Your Outreach Strategy: Initial outreach to investors is tricky, as many of them receive more than 10,000 pitches a year. A warm introduction is always helpful, but it doesn't guarantee a meeting. Therefore, it's also important that founders have a clear, concise, and compelling elevator pitch that they can either verbalize or draft in a short email to get a meeting. Elevator pitches should tell them what problem the startup solves, for whom, and what you key differentiator is in the market.
- Over Prepare, Then Go With the Flow: There is no template for what information investors ask for from fundraising founders, so it's important to prepare as much as possible in advance. This means an understanding of your ideal valuation, a funding spending strategy, complete financials/projections, as well as a clear sense for how you will design an employee options plan (ESOP). Investors respond well to preparedness, and the worst-case scenario of preparing something that they don't ask for is that you're ahead of the curve. Often, these are helpful exercises for founders and their leadership teams anyway.