At Tau Ventures we believe the fundraising process is always a bit broken — it works for some startups some of the time but by and large it’s inefficient. While part of it is by design, another part is very much in the hands of entrepreneurs to accelerate. Below are five guidelines we share with our own portfolio.
1) Outreach List — We counsel our startups to have a list of VCs they want to reach out to and crowdsource among existing investors for the warmest intros. The shared visibility allows everyone to avoid duplicating the outreach, or any duplication to be intentional. Obviously this spreadsheet should be strictly internal, probably shared with just the Board if there is one, since you don’t want prospective investors to know about each other too early. Some entrepreneurs go a step beyond and keep the spreadsheet up to date in terms of the status of conversations. We further counsel them to have just enough conversations going on at any given moment that they can realistically handle, often 4-6. Round dynamics are both a science and an art. If one conversation slows down then uplevel a new lead. If there is a term sheet coming then update all key prospects to accelerate the decision-making. If you have accepted a term sheet then focus just on the potential follow investors with a defined timeline around the close.
2) Links > Attachments — If you use a platform like DocSend, Google Drive or Dropbox you can keep your deck always up to date while keeping the same link. In many cases you also get analytics on who viewed what and for how long. Some platforms will also give you the ability to do access control i.e. have white or black lists, or the emails of people who are viewing, which are choices for you to consider depending on how tightly you want to regulate your deck. Links can get shared much more easily than attachments that can get lost when a message is forwarded. This is often a plus if you are shooting for efficiency, it is a minus if you want to keep the deck as private as possible but in that case just implement tighter access control. Finally, if the investor does ask for a hard copy you can email them or simply allow the download functionality in the platform you are using.
3) Fundraising Slide — It’s almost always better to include a fundraising slide in the deck itself talking about three things:
i) past: how much they raised, terms, when, who led, other key investors
ii) present: how much they are raising now, whether it’s priced or convertible, general expectations
iii) future: what the next round might look like, especially in terms of amount and timing
If the present round is a convertible the norm is to put down the cap and discount rate. If it’s priced you probably don’t want to put down the valuation since it’s in your interest to let that be a conversation. The typical exception is when you have a very hot company and are running a fundraising more akin to an auction rather than a negotiation.
Can you skip this slide completely? Absolutely. Some put in the email they send out, with the caveat the info can get forwarded and will likely fall out of date. if you are following links > attachments anyways then putting the fundraising info in the deck is better, you get to keep it current and closer to the vest sharing only what you want. The final alternative is for you to keep this info completely verbal, then be prepared to answer it repeatedly when interacting with VCs. Remember most VCs are deluged with information at all times and may misremember things or, as some would say, suffer from constant and massive attention deficit disorder.
4) Updating Round Dynamics — Want to keep dozens of potential investors up to date on who has committed? Once again, if you have a fundraising slide you could disclose it there. Else you could have a separate document / spreadsheet that you share alongside the deck. This can obviously backfire if your round is moving slow. So the general advice is to provide this kind of visibility if you have significant momentum, in which case you accelerate the fundraising even further. Note that stage matters here, indeed there is truth to the adage that early stage is collaborative whereas late stage is competitive. When raising a seed you will likely have more rows on the cap table, often a mix of VCs and angels, and it’s often better to reveal to smaller prospective investors right away when big investors are committed . When raising a series D it will very likely be a new VC taking up a large chunk of the round with existing major investors doing pro rata, so there isn’t as much reason to provide this level of real-time visibility.
5) Electronic Signatures — Law firms still overwhelmingly send documents as attachments first, which all parties have to print + sign + scan + send back, either by email or secure upload. Why people still prefer the old ways, in the age of eSignatures, still beats us. The typical counter-argument is that wet signatures are more secure, to which we reply they can be forged as easily as digital ones. At Tau we encourage everyone to ask for eSignatures by default and deal with attachments (or gasp paper) only if someone really wants or needs it. From our perspective eSignatures are just better — faster for processing, easier to share with others, more convenient for your own future access — and will save a startup time, energy and legal costs especially during the messiness of a close.
Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.