Momentum is key when pushing a startup financing round. No matter which stage you are at, it can be real work and take strategy. Here’s how to build momentum in a financing round to get the funds and close the round.
1. Get Your Data in Order
Be prepared. Be ready to answer questions and overcome objections so you don’t leave investors room to go think about it.
Know your key data that you will be raising on. Pick one metric and rock it. If you are thinking how to build momentum in a financing round you can always send follow-ups covering the progress around that metric.
The Ultimate Guide To Pitch Decks
Know your competitors’ data too. How much have they just raised, at what valuations? How do their metrics shape up against yours?
2. Polish That Pitch Deck
Even if you are at a Series E round, you want to have a strong pitch deck. Make an effort. Recognize trends change. Visually, and in what investors want to see and put the most weight on.
Storytelling is everything which is something that you will need to master. 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.
3. Research, Research, Research
In real estate, they say success is all about location, location, location. In startups and fundraising, when it comes to how to build momentum in a financing round it’s all about research, research, research.
Even in the best scenarios, you can run into an overwhelming number of no’s when trying conducting a financing round. Even in the best of time, it can be very time-consuming.
Get more efficient and enjoy a far better return on your time by really, really getting to know the potential investors out there. You’ll want to focus on fit more than anything else. So, you need to know which investors’ portfolios you are going to be a good fit for.
Of those, you’d like on your team and on your board, which are eagerly funding startups like yours, at this stage?
4. Know Your Partners
Just like with real estate brokerages, stockbrokers, and plumbers, it’s really the individual partner that you’ll be working with that matters when it comes to Venture Capital. Do your research on them. Look them up. Talk to other founders who have worked with them.
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If you are trying to figure out how to build momentum in a financing round a good approach could be to have the relationships built way before you need them. That way when you are ready for financing you call them all at the same time. This approach helps to build confidence and to also increase urgency.
5. Start Way Early
Now you’ve got your prep work done, get started raising. Begin early. As mentioned above, this may be months or a year ahead. This will depend on the round and the relationships you have already built. The best relationships can take years to build.
The earlier you start means the more slack you have, and room to improve your game. You can present and negotiate from a comfortable position, with more negotiating power.
6. Take Commitments
You start building momentum by taking commitments. You don’t have to get the money in the bank yet. Yet, you can gain a good amount of traction and make your round more appealing to others if you already have commitments.
For example, if you are just raising a $250k pre-seed round and you get three $50,000 commitments you are already over halfway there. There will be more of a sense of scarcity and urgency for the others you approach. Or ‘FOMO’ (Fear Of Missing Out’).
7. Start Low, Raise High
It’s a lot harder to raise when the odds look slim that you’ll hit your number. Investors are more motivated to jump in if they look like the round is going to be a success.
So, consider beginning with a smaller ask. Then once you begin filling up, you can extend it, but still, look like a good portion of the round is subscribed to.
For example; asking for $1M, then once you hit $750, announce you’ll be going for $2M. Then you’ll already be close to halfway subscribed to the larger raise.
8. Offer Discounts
You may choose to offer discounts to early participants in the financing round. Tread carefully. It could be just what you need to get those first investors in.
Though, it will set expectations of discounts for follow up rounds too. Later investors may try to negotiate better terms. Only consider it if you really need the money to survive and are rapidly running out of runway.
9. Secure & Announce Your Lead Investor
No one wants to lead a financing round, everyone wants to follow. Which is obviously very ironic for a space which prides itself on innovation and new things. It’s just the way it is. Secure that lead investor, and more will fall into place and join the herd.
Announce other investors too. As well as meetings. Just don’t be misleading. It’s a far bigger deal than you think to misrepresent pledged investments and exits.
10. Pack in the Meetings
Pack your investor meetings tight. Meetings don’t mean you are going to get a check. Sometimes it doesn’t matter. It’s good for positioning. Jam in meetings if you are going to one area. Like San Franciso.
Then announce you’ve got one hour slot left during your trip other investors can fight for. You’ll seem in demand. It can help you be more efficient too.
11. Power Updates
This is critical when thinking about how to build momentum in a financing round. Keeping up momentum is all about power updates. It is for startup fundraising in general.
In addition to the above be including data on growth, sales, new clients and of course your one key metric. Email can be ideal, though make sure you are connecting with everyone in a medium they’ll get.
Send out countdown messages. How much opportunity is left for them to grab? When are you shutting it down and closing the round? Keep up the time pressure. Some investors just need a little nudge.
Follow the steps above and you will be well on your way to figuring out how to build momentum in a financing round. If you want to do a deep dive on how to build momentum in a financing round you may want to watch the video below where I cover it in detail.
FULL TRANSCRIPTION OF THE VIDEO:
Hi, everyone. This is Alejandro Cremades, and today we’re going to be talking about how to build momentum in a financing round. Let’s face it; the sense of urgency, that fear of missing out is ultimately what pushes the investors to get in and invest in your business. Without that, when they see that the train is stuck, that the train is not leaving the station, it’s going to be very difficult for them to give you a check and to invest in your business. So, with that being said, let’s get into it.
The first thing is to get your data in order before you’re even getting out there and speaking with investors, you want to really understand your numbers; your data around the competition, maybe there are some numbers on the competition; the data on your own market, the market size, how the market is growing. So you need to have all that data already in place in your head memorized because, for sure, the investor is going to ask you about it.
Now, here’s the tip: if you go into the meeting and there’s a certain question that the investor is asking you that you don’t understand or you don’t know, don’t make it up. Just say, “Thank you. If it’s okay, I’ll follow-up with you later.” Then after that meeting, later in the day, you send a thank you note, and you say, “By the way, to your question, here is the answer.”
Never make it up; never lie because that’s all going to come out on the disclosure schedules when you do the due diligence, and that is going to be a reason for the investors to pull out of the deal. So, get your data and understand your numbers.
The next thing is you need to constantly be polishing your pitch deck. A pitch deck is never a final and complete document. It’s always a work in progress. And by the way, you can download the pitch deck template below, which you can get for free and that founders have used to raise millions all around the world.
This pitch deck is going to be 15 to 20 slides. On every single meeting, there are going to be new things that are going to be popping up. Perhaps there are certain holes that you didn’t know were there. So, that’s why it’s key to listen because ultimately, those questions that you receive, let’s say, on meeting #5 or meeting #6, you’re going to see that are starting to repeat. That’s why you want to iterate and optimize your deck, and you want to continue to polish it as you go so that you can nail it for subsequent meetings when you’re speaking with other investors.
You also want to do a ton of research either with investors that you’re already in discussions with or with investors that you’re about to have discussions with. For example, with the ones that you’ve already had discussions, you’re doing your research, you have your Google news alerts when they do a new financing or anything else that could impact your own round or something that is an update on how well they’re doing. It’s a good way for you to stay on top and either send them a thank you or to use that information that you’re getting as a way to polish the way that you’re engaging with that investor.
On the other end, with the new investors that you’re going to be reaching or that you’re going to be meeting with, you want to have done your research, or the articles that they’re tweeting about, the groups that they’ve joined on LinkedIn so that when you arrive on the call, you have done your homework.
You know, even though you have never met that investor, you’ve already done the research to a point where it could be as you’ve known them all their life. If they’ve published a book, you want to read that book. If they’ve done a ton of blog posts, you want to read the ones that have the most amount of popularity on the internet. You want to arrive at those meetings and also do those engagements with certain information that is going to give you an advantage and an edge toward everyone else in order to understand how you handle the communication.
The next thing is, you want to know the investor. Obviously, at the beginning when you haven’t had that much of an exchange, one of the tactics that you can use is you can go out to founders that have already received an investment from that specific investor and not only use those to receive an introduction but also use those founders to ask them how the investor is. Maybe there are certain stories that they can share with you.
Ultimately, those stories and that information that they give you is certain info that is going to help you understand if that’s an investor that you want to have involved in your business; but then also, an investor that you want to handle or approach in a different way that you didn’t know you could. So that’s a good tool that you can use, founders of portfolio companies, and ideally, those founders that are working at a board level and that have a tight relationship with that investor that you’re looking to target.
The next thing is, you want to start early. The biggest mistake that I find founders making is that they wait until the sixth-month mark when they are about to run out of money, and then they go out and try to find the investors. The problem is that time is of the essence – the more time, the more leverage that you have.
What I would recommend that you do is, even if you’re not raising money today, you’re already building the relationship with that specific investor that you may be reaching out to in the next 12 to 14 to 18 months, whatever that amount is. But you’re doing it ahead of time so that they get comfortable with you so that they get to know you, and also, they get to know your business. That way, when you actually meet them, it’s just one phone call away rather than having to start everything from the ground up. So, start early – as early as literally having an idea on a napkin.
The next thing is taking commitments. There are going to be investors that are not going to be lead investors. Maybe it’s not that person or institution that’s coming in; it’s pricing the round for everyone else to come.
One thing that you could do is, even with the people that you’re speaking with, you can ask them, “Would you be willing to make a commitment? Would you be willing to commit to making a certain amount of investment, and what would that be?”
With that, you’re already creating some type of storm, some type of snowball effect where you can leverage that potential commitment, especially if it’s a good name, a big name in the space that perhaps is signaling to others so that for further discussions, you can say, “By the way, (investor’s name) has already made a commitment of this amount, and we are going to move very quickly as soon as we get the lead investor. That’s a good way to get things kickstarted and to push them into that fear of missing out state, which is what is going to push investors to go over the edge.
Then, you want to start low and go high. What this means is rather than, for example, if you need to raise $5 million, and you’re not sure if you’re going to be able to raise the $5 million, then you go for that amount that you know for sure, from the relationship that you already have, that they’re going to come in and they’re going to invest in the business.
For example, if you think that $2 million is going to be a for-sure amount that you can raise, go out and don’t say that you’re going for $5 million. Just say, “I’m going to be raising $2 million or maybe $2 million to $5 million,” that way, if you fall short and you don’t hit the $5 million, you’re not sending a negative signal to the market where people are going to be like, “Hold on. He or she didn’t raise that money. Perhaps there’s something off with this business. It’s all about signaling, and it’s going to give that psychological message to the market that you’ve reached your target very early and that you got the money that you need in order to execute and that you’re not falling short.
Another great method to build momentum is to offer discounts. What this means is that if you see an investor that could be a very well-regarded investor or a popular investor, and perhaps send a very positive signal to the market, one thing that you could do is offer them a convertible note with a certain amount of discount and interest on their investment if they were to help you in structuring the equity round later on.
Maybe there is an equity round that is happening 3, 6, or 12 months, but for that investor, it makes total sense to jump in now so that they get to benefit from that discount, and they also help you in forming the entire round by making the right introductions, and then by guiding you to structuring it the right way.
Next, you want to carefully use that moment when you announce who your lead investor is meaning who that investor that is coming in and investing 20% or more of your financing round because that is going to send a super powerful message to the market if it’s a well-regarded investor, or it may scare investors out if perhaps that investor is someone that people are not that familiar with. Here, you want to not treat this lightly.
You want to make sure that the moment you announce that is the moment where you’ve already built meaningful relationships with those investors that you want to push over the edge that are followers; because, ultimately, when it comes to fundraising, investors are like sheep; they follow other investors. They typically don’t want to take the lead. They don’t want to be the first ones that up a price tag on the round. That’s why you’re never, for the most part, going to hear the word no from investors because they want to leave that door open just in case your deal gets traction.
So, with that being said, wait for that lead to come in. Always go for feedback. Never say that you’re raising money, and once one of those people that you’re engaging and receiving feedback from, they say, “Are you looking to raise money?”
At that point, you give then that little push to become the lead investor and to go to the other ones that have been giving you feedback to tell them that a round has started, and if they would like to receive the offering documents – that will lead to their wiring the money in the bank. That’s also how you use that as a way to show progress and as a way to drive that sense of urgency to get people to want to jump in.
You also want to pack in the meetings. The last thing that you want is to have the emails, the communication all over the place. This is like a sales process. It’s on that sales final that you have created; you have different stages that you’re going to pass those investors from A all the way to Z.
You want to have them all in the same stage all at the same time because that’s also going to give you a great boost of confidence because you know that there are going to be other options in the event that investor doesn’t come in, and also, in many instances, that is going to show up even though you’re not realizing that. People are going to know because the venture world is quite small. They’re going to know that you’re meeting with other investors, and perhaps they’re sitting on another board or things like that.
So, that confidence is going to come across and perhaps they’re even going to ask you who else you’re speaking with. Those are things that you can use to leverage and to continue pushing them to think that they’re going to miss their seat, and if they don’t jump in now, they’re either going to lose their ticket or that ticket is going to be more expensive.
Then, remember: you want to really send powerful updates. Fundraising is not about that first meeting that you have where you’re pitching them because you’re never going to receive a check on that first day. You need to follow-up as time goes on, every couple of weeks until you have that lead investor that is pushing everyone over the edge.
During those follow-ups, those powerful updates that you’re using, you want to talk about those great milestones that you’re accomplishing, those team members that you’re adding in, those milestones that, all of a sudden, are happening with press mentions that are putting you all over the place in a very good light.
I find that those updates are going to tell the investor that you’re delivering on the promises that you made to them during those first days when you were meeting. That’s going to give that sense of trust, too, in that relationship-building that is super-critical for them to jump in and make an investment in your business.
The last thing is, you could use a countdown. But the countdown, you want to be very careful how you use it. Never use a countdown unless you have over 20% of the round already covered, meaning 20% of that round that you know for sure is going to come to your bank account.
This is when you have a lead investor. This happens when you reach out to all the other people that you have been in communication with after having your lead investor, and you tell them that the round is going to be closing by x-date and that either they’re in or they’re out. At that point, you’re pushing them over the edge. If that doesn’t do it, then they’re not a good investor in any case.
With that being said, hopefully, you like this video. Make sure that you click the Like button below. Also, make sure that you leave a comment and subscribe to the channel so that you don’t miss out on all the new videos that we’re rolling out every week.
Don’t forget to take a look, as well, at the fundraising training, which is the program where we help founders all the way from A to Z with everything related to fundraising, live Q&As, templates, agreements, a community of founders helping one another all over the world, and I think that you will find tremendous value in it. Thank you so much for watching.