This is the first blog in a three-part series by High Alpha’s Senior Financial Analyst Maddy Cutler. She breaks down tactical advice from three talented co-founders within High Alpha Studio alongside additional insights of her own and High Alpha Principal Seth Corder.
Raising venture capital can be daunting, ambiguous, and difficult to navigate for many first-time founders. To make matters worse, getting it wrong can cost you your entire company.
As a Senior Financial Analyst at High Alpha, I’ve advised several of our early stage startups through multiple stages of fundraising. I’ve observed first-hand the upramp of knowledge required that CEOs encounter with their seed round. But you don’t have to take my word for it.
Below are two reflections from High Alpha CEOs regarding their seed rounds back in early 2020:
“I had never done anything like that before, so everything was new. My mind was bogged down with questions like, ‘What should I do now?’ and ‘Where do I stand?’ making it harder to focus on the actual pitch.” – Lindsay Tjepkema, CEO and Co-founder of Casted
“At the seed round, I had no experience and no knowledge of how it all worked. It’s all somewhat obvious in hindsight, but each investor has their own thesis, their own investment strategy, and the type of companies they want to see from B2B segments.” – Darin Brown, CEO and Co-founder of Docket
With this gap of knowledge in mind, I’ve decided to create this 3-part fundraising series. Over the course of the series, I’ll break down tactical advice from three talented co-founders within High Alpha Studio alongside additional insights from myself and High Alpha Principal Seth Corder.
Below are the co-founders who graciously agreed to share their experiences — the good, the bad and the ugly — throughout the process.
- Jim Goldman, CEO and Co-founder of Trava. Trava raised a $3.5M Series Seed in March.
- Lindsay Tjepkema, CEO and Co-founder of Casted. Casted recently raised a $7M Series A in April.
- Darin Brown, CEO and Co-founder of Docket. In December of 2019, Docket raised $1.5M in seed funding.
Tip #1: Start the Process Early
“What I learned from the first time around is how little control you have and how it will always take longer than you think. I know we thought, ‘Hey, we have this great thing. We have all this momentum and we’re going to have competition to come invest in us and it’s going to happen so fast.’ But, at the end of the day, it took much longer than that.” – Lindsay Tjepkema, CEO and Co-founder of Casted
One of the most common mistakes made is waiting too long to start the fundraising process. There is a lot of due diligence that needs to be done before you can dive into investor conversations (e.g., building your pitch deck, investor list, financial forecast).
As many experienced CEOs can attest, raising a new round of capital will always take longer than you anticipate. You could be building the world’s greatest product with the mindset that investors are going to be fighting over you (I sincerely hope this is true). However, nine times out of 10 that will not be the case, and it will take a lot of work to get your round over the finish line.
At High Alpha, we highly recommend starting the process three to six months before your anticipated cash out date to give yourself enough time to put together a strong pitch deck and financial model for investors. This will also allow you to spend some time pitching to friendly investors (we’ll dive into this in part two) and work through several drafts of your pitch deck to ultimately craft a strong, compelling narrative.
Tip #2: Craft a Compelling Narrative
“There are three P’s that the venture firms are most interested in: problem, passion and people.
First off, is it a compelling problem? Every successful business is solving some problem. Trying to alleviate some pain that exists with some audience, so the venture firm to whom you’re pitching has to be able to shake their head yes. Problem equals opportunity to them.
So, the problem is the first gateway stuff, then do the investors like the founder that they’re talking to? Do they have a sense that this person has passion for solving that problem?
And lastly, people, the next P. Why is the individual that they’re talking to uniquely qualified to solve this problem? The experience, intellectual, wherewithal, charisma, etc. whatever they decide they are looking for.
If you hit those three P’s in the first three minutes, you’ve got a good chance of having a decent conversation. If you don’t, then they may stay on for the rest of the call, but they’ve most likely already made their mind up.” – Jim Goldman, CEO and Co-founder of Trava
It’s important to note that you are not only selling the vision of your company, but yourself as a founder and the team you’ve built.
You need to understand what challenges the business will face and proactively address them as part of the pitch. If you are able to build that into the deck in a compelling way, by the time an investor walks out of the meeting, they won’t care about the challenge because you’ve convinced them that you have a plan on how to deal with it.
Tip #3: Build a Short, Visually Appealing Deck
“The deck is incredibly important, especially the visuals of the deck and the ability to craft a narrative and the story that makes sense in a 20 minute time frame. I would also recommend getting comfortable talking to each individual slide and not relying on a memorized talk track. I’ve gotten comfortable talking about the main points of each slide, then building the narrative depending on what order I put the slide deck in.” – Darin Brown, CEO and Co-founder of Docket
Time is an important consideration when building your deck. While raising his first round, Jim gradually slimmed his deck down to 7 slides and a 10 minute talk track, after realizing it was all he really needed.
Seth Corder, Principal at High Alpha, has also seen his fair share of great — and not so great — pitches.
New founders running out the clock with their pitch and not allowing time for questions is a common issue he encounters. He highly recommends knowing the time frame of your pitch and watching the clock to ensure you leave at least 10 minutes for questions as part of your meeting.
At the end of the day, engaging potential investors in a conversation about your company is the best way to build a relationship and understand what they are looking for.
As demonstrated by advice from our founders, spending time upfront crafting your narrative, building a powerful deck, and creating a cohesive financial model is one of the most valuable things you can do for yourself and your company.
Stay tuned for part 2 of our fundraising series for more on finding your ideal investor fit, pitching to friendlies, and tailoring your pitch to make it personal for each investor.