How Startup Financing Rounds Get Oversubscribed

Wondering how startup financing rounds get oversubscribed? Ready to launch your first fundraising campaign and want to make sure you bring in enough money? How do some startups seem to attract more money than they asked for while others struggle with hundreds of investor rejections for years?

Getting offered more money by startup investors than you asked for is a good problem to have. It is certainly far better than coming up short and having a campaign fail. This typically doesn’t happen by accident. Here’s how to get your next round oversubscribed…

What Does It Mean To Be Oversubscribed?

Before you need to ask yourself how startup financing rounds get oversubscribed you need to know what oversubscribed entrails.

Oversubscribed means that you get more investors or money offered than you asked for. For example; you set up a campaign to raise a $2M pre-seed round and had many investors interested, and offering to put in $3M or more.

Turning them down may not feel or be great. You may want to grab all the cash you can while it is on the table, and bring in those backers, even if it means a little more dilution than you planned.

Oversubscription may be very simple to absorb in an online crowdfunding campaign. It can be more complicated when you’ve already got agreements on terms with investors. Either way, it is going to help your startup, brand and future rounds to show you were oversubscribed in the past.

Typically those founders that get oversubscribed tend to be those that master the art of storytelling. Being able to capture the essence of what you are doing in 15 to 20 slides is the key. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) where the most critical slides are highlighted. Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400M (see it here).

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

Start Early

If you are wondering how startup financing rounds get oversubscribed you need to know that the number one key to an oversubscribed offering is to start early. Trying to go from planning to closed in 30, 60 and even 90 days is tight. There can be seasonal restraints, and it generally adds a lot of stress, leads to sloppy work and underperforming.

The most successful, and fastest funding comes when the preparation has been done well and everything is planned and lined up in advance. When you see hot crowdfunding campaigns that get overfunded in hours, it is usually the result of months of work in advance.

This is even more critical when raising offline and trying to pitch angels and VCs. It takes time to build relationships with them. 

Early Commitments

Getting advanced commitments in startup financing rounds is one of the most impactful factors in fully funding a raise.

Rounds drag and stay empty when no one else is in. If no one else is in, no one wants to be the first. You’ll hear “come back when you have a lead investor,” a lot.

The reverse is true too. Success breeds success, and when others see around filling up fast they want in on that. They won’t want to miss out.

You should be securing 25% to 30% of your raise via advance commitments. Or put another way, you should only make your initial ask 70% to 75% more than you already have lined up. Once you quickly hit your ask, you can always extend the round to take more capital.

If you don’t have commitments, you at least need to have built a big list of well-matched potential investors and have them in a database.

Wind Up Your PR Machine

The second most important factor to keep in mind in startup financing rounds is to market the capital raise well. This also takes money, planning and strategy. It’s not something you want to be trying to hack together when you’ve only got a few weeks to close a round.

You should be dripping marketing, branding, and building relationships well in advance of your raise. All of your most prime targets should be looking forward to the moment you tell them they can finally participate.

Then you’ll also need to keep the momentum moving fast through the weeks of active raising. You’ve got to get noticed, stand out from the crowd, and convey the sense of urgency that they’ll miss out unless they take the time to act now.

Start Low, Close More

If you are thinking about strategies around how startup financing rounds get oversubscribed, the best way to get oversubscribed is to start with a low ask. Maybe you really want to raise $3M. Though you only have $1.5M in advance commitments. Begin by asking for $2M. You’ll be immediately 75% subscribed.

As soon as you break $2M, you open it up and ask for $3M to $4M. The same applies to auction and bidding on just about anything else in life, including when it comes time to exit and sell your business with the help of an M&A advisor.

Keep Updating Them

Keep dripping updates to your database and potential investors throughout the process. Whether emails, social or some other medium, you want to be keeping up the energy. Let them know which new investors have jumped in, what percentage you’ve raised, how the clock is ticking down, and any new features or milestones you are strategically announcing through this phase.

Have Strong Assets In Place

There will be different things that investors are looking for at each stage of fundraising. Know what they are putting the most weight on, and have those boxes checked. In the earliest stages of a startup, it is a lot about your team and pitch deck.

You might want to have a strong explainer video and to bring in celebrity advisers to really stack things in your favor. Later you may be showing growth, customer love, revenues, and profits.

Summary

You have a lot of power to ensure your next fundraising campaign is oversubscribed. Plan early and have a strategy. Make sure all of your assets are in place in advance and you have a strong team working on presentation, PR and follow up.

Get those early commitments, and choose your initial ask strategically. It’s a lot better to be oversubscribed than to be wallowing in the mud with very few interested investors. If you raise far more than you hoped, your fundraising advisor will help you figure out who to accept and how to make the paperwork work.

You might find interesting as well the video below where I share how rounds of financing work for startups.