One of the hardest jobs of the founder/CEO of any startup is having enough cash to operate and pursue the dream you’ve committed to building. Raising capital is a topic that could mean a lot of different things depending on which stage of the startup you’re in.
In case you’re not familiar, scan over this infographic for a primer of the various stages:

For early-stage founders, it will be helpful to read my friend Will Little’s blog: “How to raise and spend ‘friends and family’ money most efficiently for your startup.“ He lays out 8 rules to follow that will seriously help you out. Things like being candid about the risk, being frugal, focusing on execution and communicating what’s happening to the people who made a bet on you. Assuming you’ve already used all the friends and family money you can get, you now need to raise a larger round from angel investors and professional investors. But first…
Why Listen to Me?
Well, I’m just one data point, so please check out other resources as well, but what I’ll share came from my time at Techstars in 2017, from none other than Techstar’s co-founder David Cohen himself. A teaser on Cohen’s tips are here. I used these tips to raise our $1.2M seed round from 25 different investors (19 angels and 6 funds/micro VCs), so I know this has worked for our B2B SaaS company in Seattle. I’ve also used this tactic as an investor to help get other investors in on impact deals I’m involved in as well.
Let’s dive in.
How Much Do You Raise?
There are two numbers you need to know. #1) The amount you absolutely need to raise to continue surviving for 12-18 months, and #2) The amount you would like to have so you can have breathing room to experiment, hire more people, and scale faster. Perception also matters. Get a feel for what we think you need, and benchmark that first. Do you think you can raise this money easily or will it be very difficult? Ask a friendly investor or advisor you know.
For example, if I need 750K, but would really like $1.5M, but I’m unsure that I’ll be able to get past $1M… I really don’t want to underperform on a $1.5M stated goal. It would be better to raise 750K seed round, and “oversubscribe” it because there is “so much interest.”
Listen to this: “We had too much interest, so we decided to take on more capital and raise 900K to accelerate our growth plans”. That sounds a lot better than, “We were hoping for $1.5M, but we only raised $900K.” Start conservative, oversubscribe, and bump the up the target. That means you might have a few different versions of your pitch deck.
Blurb vs. Pitch Deck
Your first impression to a potential investor will usually be in the form of an email blurb (3-5 punchy sentences about your company) and maybe an exec summary. Many investors will ask for a slide deck before you meet, and it’s important to withhold the juiciest details until you meet in person. If you need help crafting the perfect pitch deck, there are tons of great blogs about it, but Will Little did a great LinkedIn post you can check out here: Investor pitch deck and communication strategies: pre-seed & seed.
Before the Investor Meeting
The best meetings often come from referrals from one connected investor to others in their circle of influence. Upon an introduction, try to understand the relationship your connection has with the investor, what they might like or question about your business. If possible, your friend can introduce you with your company blurb and you can follow-up with a 1 page exec summary, and maybe the high level pitch deck (with no appendix slides) for them to get an idea of your company.
The First Meeting
When you land a 30 or 60-minute meeting with an investor it’s important not only to tell your story, but to create an interactive environment with the investor. If you’re meeting with an angel investor they might be really focused on hearing your story before getting into the slide deck. Ask questions about the investor as well to see if you like their motivtaions, their passions, their view of the world. After all, you don’t want to take money from people you don’t trust.
You can’t be overly focused on presenting your deck, but rather, you must create space for investors to grock your idea, and get interested, maybe even a little excited.
If the investor has experience in your space, be intentional to ask questions about the product, business model, customer, or market where they could “toot their own horn” and share their expertise. It’s often said, “Ask investors for advice, and you’ll get money; ask for money and get advice” (or a non-answer).
You should walk away with the investor knowing the problem you’re solving, how you solve it, how you make money, and why you’re uniquely positioned to build a great company in the space. You should ask if you can add them to your update list (a regular email that gives updates on your progress). They should also know that you’re thinking of starting raising a round of $500K (insert your target) in the next month.
Lines, Not Dots
Investing is a relational thing on both sides of the table. The first time you meet, you’ve placed a dot on the investor’s grid of who you are and what your company is doing. I want to touch on a point that Mark Suster coined when he spoke about “Investing in lines, not dots” (read here).
You can’t just have one meeting and expect them to make a decision. This is why the regular bi-weekly update is so critical. You need to create a trend line that shows a few things to investors over time:
- You as the CEO are a consistent and clear communicator (builds trust)
- You are making progress (customers are loving your product & buying, hiring people, landing key partnerships & notable investors)
- You are forthcoming with the challenges, and can navigate to find a way forward.
So if you only have one meeting, it’s rare that an investor will choose to invest in you. In addition to updates, you should have a second meeting after they’ve seen you in action for a few weeks or so. Let’s get into the important dynamics of the second or third meeting.
The Soft-Circle Concept
In the second meeting with the investor, you hope to be giving some more exciting updates on the business and progress. But you’re also looking to enlist their help and support of this investor (especially if you think they are smart money). One of the most valuable moments of power you have is when you share about the investment round, and ask the question two key questions:
Question 1: “I think you could add some value to my round with your experience in ______ and how that aligns with our goals in _________. When you make investments, what is a typical check size you write for a company like ours?” (A range is fine)
- They might immediately tell you they don’t invest in companies “this early”, which gives you a chance to learn about when they like to invest & at what amount.
- If they provide a range like 25K to 100K, it means they probably would invest 25K, but you can ask for 100 if you’re feeling like they are interested at that amount.
Question 2: “Given what you know about me and our company over the last few updates, would you be interested in investing 50K in our company? Of course, we would need to work out the terms and details as we approach a close, so this would be a soft commitment for now.”
Answer: Yes
Some investors will be okay with a soft commitment. If they are, let that sink in for a moment and thank them for their commitment. You can gently move towards asking them if they have any friends or firms they like co-investing with that you should also speak with. And, if you’re really feeling good vibes, ask “Would it be okay if I shared your name with others I meet saying you’re interested in my round?”
Answer: No, or not yet
Other investors just won’t be ready to invest. If not, this is another chance to learn why. If you sense there is hesitation or the investor is offering a weak or no commitment answer, be sure to gently probe with a clarification question like: “Assuming you like the space we’re in, what would you like to see or discuss that would help raise your level of excitement about investing and helping us ___ [change the industry or world]____.”
It’s actually not in the investor’s best interest to say no, but leave most opportunities indefinitely open. If your business starts taking off, and all their friends start getting excited, they might keep the option open just in case they want in. That’s where updates and customer/investor momentum can shift the tides. Some may be certain they don’t like your business or industry, and a firm “no” helps you not waste your precious time.
Tallying the Pipeline
Just like any sales process, it’s very important that you’re tracking your total list of prospects, and relevant information about them. For investors, you want to keep track of their typical check size (the low and and high end of the range). I often assumed the lowest number for the actual check they might write, just to play it conservatively. I had about 88 investors on my list and heard definitive answers from probably about 78 of them (most said no, but about 32% said yes, which was a really high hit rate, because I had friends invest with their friends).
If you don’t have enough potential investors, keep networking and building up the list. Now you know why some founders have said fundraising is a full time job in addition to your day job.
Creating Urgency
You want to close the round once you have a significant majority of the round committed, usually 60 to 75% committed. Telling investors that you only have spots for three more investors at 50K, or one more at 150K plays into their FOMO (fear of missing out).
Techstars coached us to oversubscribe the round (as mentioned above) so we could show lots of investor interest, and that our round was a hot round with lots of interested investors. It really helps investors justify the risk when other reputable investors sign up and commit. Approaching investors who are on the fence when you lift the round from 750 to 900K should be seen as a positive sign. As the CEO, you get to tell the narrative of the interest, but you have to have commitments to back that up.
So, you’ve soft-circled all the needed capital for your round, so now what?
Closing Your Soft-Circle
Professional venture capital firms will often present a term sheet with their offer to you, which you can negotiate. If you don’t have a lead investor like that, you need to approach one of your more trusted / notable investors and ask them if they can be the lead, or at least act like a lead for the sake of closing the committed investors. The easiest way to close this soft-circle is to have the most influential fund/vc, or super angel writing the biggest check “review the terms you’re thinking about”. This is a way of letting them “set the terms” for other investors to follow.
When you reapproach investors who’ve soft circled, you need to have your ducks in a row. That means you have investment docs ready to sign (and avoid further negotiations on terms or side agreements where possible). You need to confirm their original commitment amount, especially because life happens and many times commitments decrease or drop without notice. After all, it was only a soft commitment.
Many experienced CEOs have advised to set a closing date and push for investors to sign the docs the week prior to closing so you can give them a few days to move the funds with the clear wire instructions you’ve prepared for them to follow for the wire. Using an E-Signature tool is a must, because you don’t want to create any unnecessary friction for investors. Consult with your lawyer on the timing of letting people invest after the close date, as you might have more or less flexibility depending on the instrument you’re using.
Upon closing the round, your lawyer should help with SEC FormD filings, if they apply.
You can now consider announcing it to the public to fuel some buzz in the press. If this is a part of your strategy, you should get help from a friend in media or Public Relations who can help you engage with a few key writers who can cover the story of the raise. Read more on the topic from tech crunch here.
Setting the Tone
You did it! You closed a round of capital. Now you can establish your more regular cadence of sending updates. You might also send a more generic update to people who haven’t invested yet, while investors get the exact numbers and more specific details about how the business is doing. Stay in touch with investors who said no or not yet, because you will likely need them for a later round, especially if they normally invest at larger checks or in later rounds.
Did you establish a board to lead the company? That’s great. But don’t forget to keep your investors informed, because they are there to help you and add value so you (and they) can succeed.
If you didn’t hit your fundraising target, you can make that up by raising money from customers. Hopefully. If you are struggling to sell or doing great, your financial model will tell you when you’ll likely be raising more capital again base on when you will run out. Don’t have one of those, check out a blog series for that here.
Hopefully, now you can get out there and soft-circle investors effectively for your next round, compliments of Techstars!
#GiveFirst.
Cover image: Photo by Amy Hirschi on Unsplash
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