How to Master the Mindset to Raise Your Startup’s Next Funding Round in Today’s Market
A version of this article was originally published on Crunchbase.
As a former VC, I thought I knew what to expect when it came to being on the other side of the deal table, but I got way more “no” responses than I expected when I was first pitching Hum Capital to investors. At first I took it as a good signal that I had a contrarian idea. I was confident in the business, but as the passes rolled in I was forced to take a step back and ask myself what I was missing.
There’s no substitute for having the right mindset and cultivating self-awareness while fundraising. In practice, my experience as an investor along with the assumption that I knew best led to critical blindspots in communication and managing perceptions.
In today’s market, the bar has been raised for founders, and funding has fallen across every startup stage in Q1 2023. Deal terms are more restrictive, due diligence is more stringent, and investors are more selective. At the same time, raising capital and ensuring your runway is more critical than ever, so now is the time to master the intangibles in an investor meeting. Here’s how:
Confront your biases and manage investor expectations
A lot of fundraising preparation revolves around data and analysis, and you are just as critical a variable as your metrics. By practicing mindfulness, you’ll be able to identify your weaknesses and find solutions to get you to the next stage. For me, that was finding my co-founder Csaba Konkoly and getting a narrative coach — something I recommend all founders consider — to break down my communication barriers and start connecting with the right people.
There are no real shortcuts here. Do as much diligence on the investors as they’re going to do on you, including their portfolio and the kind of deals they invest in, and do some intel gathering on their working style and personality from your network or their social media presence. You could get lucky and hit it off with an investor; you’re equally likely to catch them on a bad day. Either way, it’s on you to make sure they don’t leave thinking they’ve wasted their time.
Once you’re confident you have an understanding of the investor you’re pitching to, be thoughtful about how you cultivate that relationship.
During my VC days, I remember feeling the relief of crossing a company off my list as one less thing to handle, and it’s hard to reverse course once you get a no. Ask for feedback without asking for a decision — for example: “What would it take for you to make a decision?” or “What do you need to know about my business next?
If an investor does pass on their own, reel it in by letting them know there was a miscommunication and you’re not looking for a decision yet. This keeps the door open for an ongoing relationship as your business continues to evolve.
Splitting your pitch for maximum impact
The general mindset with investor pitches is that you have one shot to land it all — and that’s a poor setup for founders.
Ditch that approach. VCs invest when they are convinced of 1) a founder’s mission/dream, and 2) that the team in front of them is the right one to carry it out. I’ve written at length about the concrete questions founders should ask when raising in a down market, but splitting up the meeting itself allows founders to give appropriate attention to both pillars.
Your first meeting is simple and aspirational: sell the dream. VCs are visionaries, so play into that mindset. Investors are predisposed to like companies they meet with because they want to feel like they’ve spent their time well. Ground your pitch in data as proof points to back up your performance, but keep your focus on your thesis and vision. Get them excited to learn more, then cut it off when there’s appetite for a second call.
This is also where both parties should get a feel for how each side will approach the investor relationship when working together. Here’s some sample language you can use to determine if there’s alignment between the teams in the room, and push for a second meeting if there’s a good fit:
- “It sounds like we’re both pretty excited about the idea of potentially working together. I’d love for you to have some time to think about additional questions you might have, so why don’t we get a second meeting on the books to dive into the details over the next week or two?”
Alternatively, if you are not feeling a strong mutual fit:
- “It seems like the timing and focus around this round may not match up, but I’m happy to be a sounding board on companies in this space if that is ever helpful.”
The key to passing with tact is to remember that the entrepreneurial journey is long and you never know where a new relationship could lead. At the same time, there is such an ocean to boil when fundraising that you need to focus your bets on the investors you feel a strong connection with.
The second meeting of the pitch should dig into the details and risks. Kick off with a reminder of your thesis, give space for questions coming out of the last call, then dive into all the ways it might go wrong. Don’t ask the investor to try and do two jobs at once — they already know they like the idea, so now they can focus on diligence and understanding the risks.
Take advantage of the time you have with this investor by making it collaborative while also demonstrating your working style and openness to feedback. A few specific tips:
- Create a shared document or whiteboard to workshop live;
- Share your top worries and ask what concerns they have; and
- Map out where they want to drill down more, and take note of data they mentioned as either interesting or missing.
You’re setting the investor up to walk out of the meeting both bought into your pitch and with some of the work already done for their own internal pitch to their investment committee.
There are no cheat codes
Every day I get emails from founders asking for 5 minutes of my time because “they’re in diligence with one of my VCs,” which seems to be part of a trend of emailing founders of companies in a VC’s portfolio to get intros to investors. VCs see patterns in their inbox change every month or two, and these hacks may sound good on the surface but people generally see through these workarounds. Instead, do the harder work to cultivate self-awareness, connect with people and take your time.
In today’s market, there are a lot of barriers to raising capital and macroeconomic factors that are outside of anyone’s control. But not all are — others are fully within control, and founders are making some basic mistakes here that are setting themselves back.
Investors and founders have gotten the logic and process side of this industry down to a near perfect science. However, we’re massively undervaluing the interconnectedness and human element. If you put in the work and commit to genuinely understanding those around you, you’ll get further than with any tip of the week.