As consumers, we are much more inclined to get excited about the coveted new product with a 40,000 person waitlist than the free one spamming us with emails at an attempt to convert us. This is due to us having an instinctual bias towards exclusivity because it makes us feel like we are special.
This is exactly the same for investors when they evaluate a startup. They want to feel like they are investing in the next big thing, and a great signal for that is competitive tension within a round of capital raising.
Approximately 50% of startups don’t make it to their fifth year, and lack of funding is one of the primary reasons. Raising capital is no easy feat, but there are strategies you can implement to give your startup the best possible chance of success — and one of the best things you can do is to build (and keep) momentum in your raise. Below are a few tactics you can use.
1. Be ready to go from before day one
The fastest way to get an investor to lose interest in your round (and you) is by taking too long to respond to their information requests. Keep in mind how many startups investors look at in any given day and remember you only have their attention for a split second. When they’re excited, things move quickly — once your business stops being front of mind, the process will slow down.
Data rooms are your new best friend
One of the best solutions for streamlining the due diligence process is to have your documents in a neat, organised structure that investors can access. Don’t scramble to put this together as they request information either — have this well thought out long before you start to raise so you can send them documents as requested.
There are a number of ways to do this, ranging from something as simple as a Google Drive folder to a dedicated data room like Cake Equity.
Anticipate their needs
Yes, every investor will want slightly different things for their due diligence process. But you can anticipate the majority of what they will ask for based on the bucketloads of information out there on the topic. Do your research on what other founders or investors have experienced, and work on as much of that as you can. Here is an excellent high-level starting point.
Build a killer pitch deck
Your pitch deck is a continually evolving work of art that shows off your business while providing insight into your storytelling ability as a founder. Put together a core deck which covers the main elements of your pitch, and as you get feedback, create new slides to address the key questions you get so you’re constantly building new slides that you will likely be able to use with other investors.
2. More is always better
Build an extensive investor target list
In a perfect world, every investor you engage with would fall in love with your business and invest. Unfortunately, in the real world, the majority of investors will say no — and that’s fine! It’s a numbers game at the end of the day, so build a larger investor list than you think you need and you’ll likely have optionality.
Create competitive tension
Another benefit of going to a larger number of investors is the ability to create competitive tension. It’s basic human behaviour that when we think something is scarce, we want it more. If you can get your business in a competitive process, you are much more likely to get your pick of investors and terms.
A great way to lift your chances of this is to pre-market before you start your raise. Meet with your investors months prior to officially raising, and get them excited. Then when you are ready to roll, you’ll already have a list of investors that want in — and you have time back on your side.
3. Engage, engage, engage
Send regular updates
As humans, we love familiarity. Things and people that we understand and trust provide us with a level of comfort that makes us more willing — and when you build that connection with an investor, they will be far more likely to invest. The more you share, the more familiar you are going to feel to them.
Highlights the highs, but be vulnerable to the lows
Investors love to see how you’re growing and succeeding, so keep sending them your milestones and achievements (👉 see here for a great monthly update example). But also keep in mind that vulnerable leadership is also a quality many investors look for in founders. Don’t be shy to even ask for help where you need it, or for feedback on something you’re doing.
- Be as prepared as you can and know your business inside and out. There will always be curve balls thrown at you, but investors love an ‘investment ready’ startup.
- Have a surplus of investors to target for your round and create competitive tension to drive a quick raise.
- Keep up the communication and stay front of mind so the dialogue continues.