Fundraising is a Work of Art - Part III: Dealing with Investors

Once you’ve successfully attracted the interest of an investor with your pitch, a good start has been made! Following this, the investor will most likely invite you over for a meeting to ask you more questions about your startup. It will probably be followed by a period of silence and waiting before you hear from them again and if they do decide to invest in you, it will again take negotiation and paperwork until the money finally arrives.  Any single point of this process is vital and can determine your chance of getting the investment. Thus, it’s important to prepare yourself to deal with it all effectively and efficiently.

Get Prepared!

• Anticipating the questions investors might ask you and preparing your answers in advance with supporting evidence such as figures, proof of customer orders, screenshot of website analytics will ensure that you are not caught off guard in the process. Forbes has quite a comprehensive list of 65 questions VCs will ask startups. Most of the questions can apply to meetings with an angel investors too. Check it out!

• Investors can ask you very tough questions because they want to eliminate all of the ‘unnecessary noise’ and  get to the core issues to see if your startup is investable. During this process, they are also assessing you, as the founder. Thus, it important to show that you have the knowledge and capabilities needed to run a successful business. In this article, the entrepreneurs share their experiences of how to respond to the toughest questions by investors.

• When you give a pitch, it’s a good idea to stick to some commonly used simple metrics (such as revenue, sign-ups, number of paying customers) to show the potential traction of your startup, and rather use more in-depth metrics to illustrate the strengths of your business when you have time in a follow-up meeting. We found two articles that explain 32 important startup business and financial metrics that measure the health of a business.  It’s worth going through it! At the very least, you won’t get all surprised what an investor asks you “So what is your CAC?”: Read the 16 Startup Metrics and 16 More Startup Metrics.

• Entrepreneur Ryan Borker expands even more on these preparatory techniques in his blog post about How to Prep For Your First Investor Meeting and checklist of what you need to prepare.

• It is important to know the answers to questions such as “How do I calculate the amount of money I should ask for?”, “What’s more important to an investor, a business plan or an actual product or service?”, and “Is it bad form to turn down investors who approach us?”. Ben Yoskovitz helped fellow entrepreneurs with answers in this article.

• Grabbing the investor’s attention in the first 5 minutes of your meeting is vital, as this blog post illustrates: it’s all about structure, your opening, and keeping the attention of your audience.

After the Meeting...

• In this article, “I met with an investor, what happens next?”, VC Mark Suster gives advice on what to do after your meeting with an investor.  Some takeaways: 1) Send a brief thank you email and summary of agreed actions the next day (or the same day); 2) Continue to share good news about your business in the weeks after a meeting to illustrate the momentum of your business; 3) Find reason to re-engage the investor; 4) Use channels beyond email to follow up; 5) Be patient; and, if worst comes to worst, 6) Accept “No” for an answer.

• If an investor does say no to you (which is bound to happen to a lot of early-stage startups), don’t be upset! As an entrepreneur, rejection is going to be inevitable. In this blog post, Elizabeth Yin shares the possible reasons why an investor may have refused your proposal. The number one reason, also shared by many other investors, is that they think your startup is too early. According to Elizabeth, it’s important to figure out why the investor rejects you so you know where you need to improve; Ask for feedback wherever you can!

• If you get a positive response, congratulations, you’ve made it one step further! As investors conduct due diligence on entrepreneurs, so too should entrepreneurs research the investors. In this blog post, Rob Go, a seed investor, talks about how this is useful for entrepreneurs. He strongly recommends that entrepreneurs talk to founders of other startups that the investor has invested in.

As the title of this blog series states: fundraising is a work of art. It is often an unpredictable process with many grey areas. However, with enough preparation, devotion to your business, and tenacity to keep on approaching investors, there is definitely a chance that you may just turn your business into a masterpiece!