The Investing Playbook VCs Hope You Never Read: Hidden Fundraising Tips

Are there any hidden fundraising tips? How about some little-known tactics that can accelerate results from my investor outreach strategies? Is there anything I’m doing wrong? These are questions most founders are likely to have at some point when building their startups.

If you’ve been watching this space, you’ve probably noticed that we’ve covered fundraising strategies extensively. We’ve even explored how investors view your pitch and the key aspects they’re focusing on. The objective is to give you a quick peek at the thought processes at the other side of the table.

With hidden fundraising tips, we’ve got a selection of additional approaches that typically feature in the investors’ playbook. These tips will likely help you get in their shoes and understand the investor perspective.

You’ll cut through the noise and ensure the maximum chances of success at minimum costs. If you can run a lean campaign, you’ll lower the typical campaign expense. You’ll have a bigger chunk of the capital left over to power your startup and reach its next milestones. Let’s take a quick look.

Target the Right Investors

This one isn’t exactly one of the hidden fundraising tips you might be expecting. But it’s also one of the most crucial ones. Understand that angels and venture capitalists (VC) are often veteran founders and entrepreneurs who have prior experience with companies.

They have built and exited top companies and/or are running successful ventures concurrently. Their objective is to identify viable projects and support them by providing more than just capital. Sharing their hard-won experience and giving back to the community is also an objective.

This is why these investors prefer to target startups in niches where they work, offering networking opportunities and industry-specific expertise. These assets can be incredibly valuable for a growing company, as is having a seasoned board member at the table.

VCs prefer to invest in companies that have proven traction and can use the capital to accelerate their operations. These investors are looking for the next potential unicorn that can deliver fantastic profits and top-notch returns on exiting. And, they are interested in supporting your company in getting there.

This is why one of the foremost hidden fundraising tips is to select a list of investors carefully. Pick people whose objectives align with your company’s goals. Narrow down your list according to the specific sectors, growth stage, and other screening criteria that investors typically use.

That’s how you’ll maximize your success rate. Don’t overlook the fact that investors prioritize great concepts with the potential to capture audience attention. Next, they focus on the founding team that can transform the ideas into marketable products and run a thriving company.

So much so that a new investor class of venture studios has now emerged. Venture capital firms sponsor and organize research facilities that develop viable ideas. Then they invite entrepreneurs with experience or potential to build companies around these ideas.

Get the Timing Right

When talking about getting the timing right for your fundraising campaign, founders think about when to raise funding. That’s typically six months before you run out of runway. But have you thought about the right time to approach investors? Picking the right month is one of the top hidden fundraising tips.

Like your expert consultant will advise, you’ll plan for the campaign according to when investors are most likely to respond. For instance:

January and February

Initiate your campaign toward the end of January when investors have returned from the Holidays and are back in office. At this time, they have started scouting around for investment opportunities and are sifting through applications.

Investors also begin working on their budgets for the year and have significant amounts of capital ready for investing. They are keen on deploying the funds quickly so they can start generating returns.

March through mid-June

Investors typically prefer to hold off making investment decisions until after the end of the first quarter. That’s usually when companies release the results of their performance, which investors review when screening candidates.

Spring is also a great time for networking events and conferences. You can spend time interacting with investors, building warm intros, and honing your elevator pitches.

Mid-June through mid-September

Since it’s summer, most people take their vacations, and funding activity tends to slow down. Don’t expect to get many responses from investors or see any real momentum since they tend to put off decisions.

Use this opportunity to regroup and assess how well your campaigns have performed. You can also plan your approaches and look for hidden fundraising tips for the final quarter of the year.

Mid-September through Thanksgiving

You’ll likely see substantial momentum during these months. Investors are anxious to put their remaining capital to work before the end of the year. They have adequate company financial data to base their selection of opportunities.

Data about market trends and geopolitical conditions is also available. This is why you can also expect competition to heat up as most startups ramp up their fundraising efforts. Everyone is keen on getting their checks in before the Holiday season starts.

November and December

Winter can be a good and a bad time to run your funding campaigns. Since it’s the end of the year, investors are open to grabbing the best available opportunities. They may also relax some of their screening criteria and move quickly with investing funds.

Alternatively, investors may prefer to put their investment activities on hold until the start of the new year. As the year draws to a close, many founders and investors may wind up their activities to make travel plans. The focus is on spending time with families.

Don’t Let the Momentum Slack Off

One of the earlier hidden fundraising tips stressed focusing on a selected group of investors. At the same time, you can’t let the campaign momentum slack off. Remember that you have a six-month window before running out of runway. You need to get that check in the bank before that.

Also know that moving quickly signals to investors that you’re confident about the startup’s potential. And its ability to secure capital from other investors. It signals that you have multiple term sheets to choose from. Scarcity drives value and creates the perception of FOMO (Fear Of Missing Out).

Being aggressive about securing capital quickly is a good strategy. That is as long as you have the verifiable data to back it up. Don’t make the mistake of waiting for investors to make their decision and offer capital–which may or may not happen.

If you don’t get favorable responses, move on to the next investor or VC fund on your list. Be aware that closing a funding round is a time-consuming process. Here’s the typical timeline you can expect, assuming that you’re ready with a list of pre-screened investors.

Timeline Breakdown

• 2 to 4 weeks to confirm the investor is interested.
• 1 to 4 weeks to confirm that the fund or investment panel is interested.
• 1 to 2 weeks to negotiate the term sheet.
• 2 to 4 weeks to complete the due diligence. (Let’s anticipate this process taking less time if investors use AI-driven diligence tools to analyze data.)
• 1 to 2 weeks to draw up the necessary paperwork and iron out legal nuances.
• Up to 2 weeks to get money in the bank.

By this calculation, you’ll need to plan for the process to take at least 18 weeks. If investors identify red flags during the due diligence, the deal could fall through. That takes you back to step one. One of the crucial hidden fundraising tips is to recognize the signals that investors are not interested.

Keep in mind that storytelling is everything in fundraising. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that founders worldwide are using to raise millions below.

Calculate the Round Size to Align with Milestones

How to calculate the round size is another of the top hidden fundraising tips every founder should know. Every founder thinks in terms of the runway the company has left. But more than runway and keeping the company operating, you’ll focus on achieving Key Performance Indicators (KPIs).

Before approaching investors for a fresh capital infusion, you’ll calculate the milestones you intend to achieve in the next 12 to 18 months. Next, you’ll estimate the asking amount based on this number. That’s your perception. But also think from the other side of the table.

Investors examining the company’s financials are likely to analyze how you deployed the funds from the previous round. They expect you to demonstrate that you have efficiently used the capital to reach the targeted milestones. Capital efficiency and a lean approach are keys here to convincing investors.

Your KPIs tell investors that the company is performing as anticipated and growth is on track. This is a project worth backing with more money.

Avoid Cold Outreach Strategies

Don’t overlook the importance of warm introductions before pitching for funding. At least 70% of venture capitalists appreciate entrepreneurs who go the extra mile to be resourceful. They call it the preferred outreach method. A meaningful connection is more likely to attract their attention.

Interestingly, reaching out via networks, channels like LinkedIn, events, and webinars has become a lot more streamlined. If you can be creative enough to connect with them and get an introduction, that’s one of the best hidden fundraising tips.

From the investors’ perspective, it indicates resourcefulness and persistence–qualities that can prove to be invaluable when hiring talent. Or, when convincing customers to purchase your products. Having a third person introduce you validates your capabilities as a founder.

This initial conversation is where you can create an excellent first impression that will carry through to the presentation room. You’ll have a better chance at engaging with your audience when pitching your company and asking for funding.

Another of the most effective hidden fundraising tips was revealed in an interview with Tim Davis on the Dealmakers Podcast. He believes in sending investors a three to four-page memo before the actual presentation, enabling them to understand the concept.

Davis then dives into whiteboarding, answering questions, and cutting right to the chase. This strategy has been incredibly successful, and the way to get there is with warm introductions.

Are you looking for more information on how to build relationships with investors? Check out this video in which I have explained how to build warm intros.

Don’t Overlook Reverse Due Diligence

Another of the top hidden fundraising tips is to conduct thorough due diligence on the investors you intend to target. Find out everything about them by reaching out to entrepreneurs they have backed in the past. Ask questions about their experiences with the investor and board representative.

You’re looking for adequate expertise and an alignment with the company’s goals. Supportive people are committed to the long-term success of the project and will help you achieve the vision and mission behind ot. They are unlikely to push for decisions that are unfavorable for the company.

Be wary of investors who push for a premature acquisition or IPO to match their investment horizons. Also, be watchful of their typical conditions in the term sheet and possibly dirty clauses that can threaten your position.

If the investor has a track record of initiating hostile takeovers, rethink your decision to approach them for funding. Reverse due diligence at this stage can prevent unwanted conflicts and confusion later. You’ll also check the venture capital (VC) fund’s background for more information.

For instance, know that VC funds have a 10-year lifespan within which they intend to earn maximum returns. General Partners (GP) managing the fund hope to exit their investments within this time. With this factor in mind, you’ll ensure that the investors intend to hold their investment for a longer time.

Avoid funds that are likely to want to exit within the next couple of years–particularly if you need long-term capital. You’ll also confirm that the fund has adequate capital remaining to match your needs. Or, if it can raise more money in the coming years to support you during follow-on rounds.

Before We Sign Out!

Securing capital for your company is an incredibly tough challenge, but not entirely insurmountable. Rely on these hidden fundraising tips to get your foot in the door. The objective here is to understand how investors think and their thought processes when screening a company.

Spend a few minutes on the other side of the table and view your company objectively. That will not only help you gauge investor reaction and calculate your success probability. But also direct you to the company aspects you need to fix.

You may also find our free library of business templates interesting. There, you will find every single template you need to build and scale your business completely, all for free. See it here.