What You Need to Know Before You Start Fundraising

This contributed article was prepared by the authors in a personal capacity. The opinions expressed in this article are the authors’ own and do not necessarily reflect the views or position of Startup Genome.

Dhaval Chadha 

Prior to co-founding Justos, which is redesigning insurance in Latin America, Dhaval Chadha co-founded and exited a startup to ClassPass, where he then ran a business division and headed Latin American operations. He advises Lever VC, an early-stage fund focused on alternative protein, and has invested in early-stage Fintech startups. Dhaval is a certified coach, and he occasionally works with founders in an advisory capacity.

“Almost every fundraising process ever is mostly made up of rejections.”

Ever since we raised our Series A round in 2021, founders all over Latin America have been reaching out to me to ask how we did it and to see if I might want to be an angel investor in their startups. Since I’m not able to help everyone and am certainly not able to invest in as many companies as I’d like, I thought I’d share the main tips I have found myself offering to all of them:

Make a List (AKA Do Your Homework)

Target at least 30 funds, although I would recommend 50–100. You only need one lead, but it’s hard to know who it might be ahead of time. Find funds by looking at who invested in similar companies around the world. Look them up on Crunchbase and LinkedIn. Check out their websites. Make a spreadsheet. See who you know in common, and then ask them for a warm introduction.

Prepare Yourself for Rejection (Be Resilient)

Almost every fundraising process ever is mostly made up of rejections. Make sure you’re ready for this psychologically. If you don’t meditate, exercise, journal, or have other types of self-care practices, now is a good time to start them. In this day and age, a startup CEO without a self-care routine is like an athlete showing up to play for FC Barcelona without training.

Iterate

Start the process with the funds you are least excited or hopeful about. Learn from these interactions. VCs are smart people with a lot of potentially transformative advice for your company. Listen to what they have to say and then iterate on your business, on your story, and on your deck.

Run a Tight Ship

Make a clear timeline and then stick to it. For example, week one is for first meetings, week two for second meetings, week three for partner meetings, and week four for negotiating and signing term sheets. This creates momentum, urgency, and FOMO.

Don’t Misrepresent or Oversell Your Startup

VCs do this all day every day. They see thousands of deals. You’re probably on your first or second round — at best, your fifth. They will smell inauthenticity a mile away.

Plus, it’s not ethical to lie or misrepresent. Focus on the facts and play the game by the rules! If you have a partner meeting, you can mention that. If you have an offer, mention that too. And if you have a term sheet, that’s something else you can talk about. But don’t disclose which funds and what amounts — you can alway say that you want the market to price you.

Don’t be Overeager

If a VC doesn’t respond to you, don’t email them until you’re moving to the next step of your timeline. When you do follow up, simply ask them if they would like to move to the next stage. That’s it — one email. If you have really important updates, then share them in that email, but keep in mind that important updates mean significant progress on a key business KPI or on a key fundraising metric.

Focus on Key Milestones

Your first key milestone is a meeting. Your deck is only useful insofar as it gets you the meeting. From there, your next milestone is to meet everyone else you need to meet. This could be in one or many more meetings. Then, your goal is to get an offer, and then a term sheet. If someone makes you an offer, ask for it in writing, preferably as a term sheet. The more term sheets you get, the better your outcome is likely to be.

Focus on General Partners

You want to meet with partners who have enough influence that they can push a deal through quickly. The more junior someone is, the more research and backing up they need to do to make a strong case. Junior investors don’t have the experience or clout to bet on intuition, so find someone who does.

Optimize for Relationships

Whether the VC is your top choice or not, make sure you build a good relationship. Do not optimize for valuation (at least in the early stages). There are far more important things that you should focus on, such as who you want to work with (trust, value add, etc), as well as other terms like liquidation preferences, board seats and scope, and the size of the stock option pool. Talk to your lawyers to understand what else is important and what you consider negotiable.

I hope this helps you to raise the rounds you need to to build amazing companies. Go get ‘em!