Advice on early-stage fundraising

Philipp Zentner

I rarely find time to write (as you can tell), but over the past few months, I've been inundated with requests for advice on fundraising. The most common request is for direct introductions to investors, but many other frequent questions came up. I've summarized some key insights from our Series A experience (17.5M amidst a crashing market - investors were in deer-in-headlights mode) up here, for which I spoke to >300 investors. Overall, I've raised $23 million for LI.FI. While most of the advice counts for any company stage, it's worth noting that this article predominantly pertains to early-stage ventures, from pre-seed to Series A, since that's where most inquiries originate. While it sounds like I made it a numbers game to close the round, I still had choices. Given the tanking market, creating a competitive round took so much more work.

One person does the raise

Fundraising brings the general challenge of keeping traction while entirely focusing on fundraising. That ultimately means only one person can own the fundraising process and should do nothing else than that - the CEO. That way, the rest of the team can remain focused, and the one person will get better and better at telling the story. Raising full-time means you are either on a call with a potential investor, are organizing the next one, or are refining the materials. 

Speed of execution matters

It’s essential to do nothing else to create a competitive round. You not only want to get better at pitching and optimizing the whole thing, but also you aim to get as many term sheets at the same time as possible. It's hard to imagine in a bear market like this, but the good teams and those solving a big problem (or running the latest narrative) will still get into those situations. Money is scarce (in the bear market); good deals are more scarce.

Like with your execution, speed is everything. And this is an end-to-end mentality. You want to respond fast, make the analyst’s homework easy and fast, and get to a yes/no as quickly as possible. 

Get prepared...

…so that you can execute fast. Blurb (small text people can use to pitch you - e.g., the company does X, had Y traction, and is raising Z), pitch deck, data room, target investor list, list of people that can potentially introduce you to someone. Have all that ready. We’ll dive into all of this in this article.

The blurb should be concise. What for whom and why and traction. Example blurb (which people out of my industry will understand): 

LI.FI provides financial institutions & fintechs a smart order routing across all DeFi liquidity to build crypto-enabled products without worrying about fragmented infrastructure and liquidity. LI.FI already moved billions of dollars across its system and works with companies like MetaMask and Mastercard. They’re raising $50 million for Series B.

Make the analyst’s homework easy.

Create a simple Notion sheet and call it your data room, in which you have a small write-up on Why, What, and How, and list all the relevant links: social channels, Github, and anything product-related. If the analyst has to Google for anything relevant, it’s missing in your “data room”. For our Series A stage company, it also meant: a link to the org chart, a link to your financial model (if you have one at this stage), a partner list, etc., and a rough spending plan.

Once the analyst comes back with questions, have answers ready. Maintain an internal FAQ, and keep your answers concise. Avoid fluff. Your case is either big by opportunity or by numbers, and all you want to do is have an answer. If you don’t have a good answer to something, then this is exactly the answer: “We don’t know yet.”, or “We didn’t make this a priority yet” or “I can’t give an educated answer to this, yet.” signals that you’re honest to yourself and them. Everyone can smell if you know what you’re talking about or not. It’s okay not to have an answer; just acknowledge it.

Again, you want to answer fast and keep up the momentum.

Prepare: Physically, Mentally, Emotionally

Investors are going to swipe left on you all the time. On your deck, on your website, on your half-ass working microphone (fix that shit, fix your cam and light, fix your body posture - all of it matters). People (investors, talents, customers) invest in you as a founder as much as in your product (why would anyone want to invest and work with an amateur?). Own it. Document all the questions you’re getting, and answer them yourself in writing. Do it in writing and speak it out loud. Film yourself, watch it, hate it - become self-aware. Work with your story and on your story every day. 

Understand that you’re selling yourself

Let me get deeper into this. Especially in an early stage, a huge part of the investor’s bet is their investment in you. All societal and psychological rules apply at this point: Appearance matters. A person who looks healthy and fit and suggests (s)he’s taking care of her-/himself reflects a certain sense of discipline, the ability to overcome stressful situations, and enough endurance to win the race, which is an emotional marathon. Being euphoric, awake, and well-spoken suggests leadership capabilities. Having a good microphone, good light, a good cam, and a silent environment supports your communication in remote calls and shows that you care. Being on time, being polite, being helpful matters. Showing up matters. First and foremost, show up for yourself. Respect your body, respect your mind, and respect other’s time so that others can respect you. That goes a long way, but it starts very small. Discipline starts with the smallest things in your day. Successful people know that. I personally genuinely believe that VCs and others are seeing that. 

Be honest with yourself

If there is any doubt in your own story, you’re lying to yourself, to your team, and to your potential (and existing) investors. Making the decision to move on in life is one of the hardest things. But it’ll let you grow and save you many opportunity costs since you could be working on something else. With each new project/startup, I got more organized, more clear, and more focused. 

Your pitch deck

Your main pitch deck - your story - is supposed to be 12-15 slides max. If you need more, your pitch probably sucks as much as your deck. Cut it down. Telling a compelling story here doesn’t mean it should be put to sleep. With each slide, you want the other person to add a mental checkmark on what they just saw: “Yes, Yes, Yes, Yes, Maybe, Yes, Yes - I want to take a closer look” - that’s what your pitch deck aims for. You can then have a backlog or advanced deck on request. You can find inspiring pitch decks here - beware of the stage. A Series B pitch deck looks different and is more exhaustive than a Seed stage deck. This article aims at the latter.

  • Have your pitch as a sharable link (e.g., via Docsend or pitch.com)
  • I don’t put passwords or any other blocker in front of it. I like to reduce friction. Someone who wants to share your deck can do so anyway. People pass on the deck, including the password, using extensions to rip your Docsend or take screenshots.
  • Have that link on a keyboard short-cut on your computer as well as mobile phone
  • Keep the slides mobile-friendly - not too much text, no too small font sizes.

Think in steps

Once you have your investor list, gather who could make introductions to all those players. Then, asking people to make all those introductions on a specific date can be helpful so that you’re starting with a wave. After that, keep it going. However, you do have to iterate your answers and materials fast to adjust to investors’ pushbacks and concerns. The complete focus on your fundraising will help you a lot here. You’ll get into a mode.

Initially, each interaction with an investor should have a clear goal. They don’t have time, you don’t have time. 

  1. Goal after written intro -> getting to a phone call:
    Only provide as much information in writing as necessary to get them there. That is why your initial pitch deck should be short. 
  2. Goal for the phone call -> evaluation for both sides:
    You have to shine as a founder, but you also want to know if they lead or only follow and if there is a strategic fit. More on this later. 
  3. Due Diligence Process -> Get as fast as possible to a yes/no; the more qualitative feedback you get, the better the VCs (note that down; you can get back to them in the next round). Ask how their investment committee (IC) works and how long it would take them to decide. Agree on a deadline for yes/no and then move on. 

As you think in steps, don’t flood investors with information before they’ve asked for it. 

Investor Evaluation

You want to understand if an investor can lead, how they can help you, and if there is a strategic fit in how they are positioned. On top of that, you should ask for reference intros to other portfolio companies. 

  • Pick companies you could potentially sell to and kill two birds
  • Pick a company that shut down and see what happened when things didn’t go well
  • Pick companies that aren’t referenced to get more bias-free feedback
  • Typically, a newer investment has a much more robust engagement with the fund than an investment that is a year old. So, take into account the time the fund invested.

Larger funds have hiring arms, and sometimes, they have helpful LPs they can leverage; sometimes, they have solely invested in similar business models and can share advice on that, B2C vs. B2B vs. marketplace focus, etc. I also like to state that I’m fine if they only give money. Just figure that out, though. There is nothing to be expected from a VC. Any resource they could provide, you have to ask for. It’s a pull relationship, rarely a push relationship.

E.g., for our Series A, we went with Coinfund and SuperScrypt. Coinfund is based in New York and has venture partners with a solid traditional finance background. SuperScrypt’s sole LP is Temasek, which is Singaporean’s wealth fund. Our Series A pitch was to shift our target group towards traditional finance and fintechs. With Coinfund and SuperScrypt, we chose partners that can open many doors in different geographic regions. They fit the story we wanted to tell.

Your pitch

My pitch lasted 5-10 minutes when I started my Series A. In the end, it went down to 2-3 minutes, and I let people process what I just said: WHY/Thesis/Problem (60%), WHAT/Solution (20%), HOW (10%), TRACTION (10%). Reproducing your pitch deck (Yes, Yes, Yes, Yes); then shut up and let them ask questions. You then better have good and concise answers for everything (not written down but out of your head) - own your story and understand that they (and you), first and foremost, have to understand the size of the problem you’re trying to solve.

Pitch the problem and the timing - “Why now”

It’s so easy to get fooled by a good idea. But all you need to do is solve a big, present, and growing problem. The 50th crypto check-out process is probably not solving a current problem. The pain, the need, is probably not big enough for your target group (let’s say e-commerce) as we speak  - if you need to educate and sensitize your customers too much, your timing is off. Make the bull case: Amazon were to implement your crypto checkout process right now, good for our industry, but how many of their customers would use it (%)? How much more money would they spend? I can’t pay with jewelry and art either. (Exaggerating). You can still pitch a crypto-payment solution, but you better have an intelligent go-to-market strategy or unfair advantage (Daddy owns Shopify).

How to meet as many investors as possible?

Avoid cold-mails. You always want to get introduced. But first, you should show that you’ve done your homework and have a good answer to “Whom do you want to talk to?”. Create a list of investors you’d like to talk to; many are out there, but you should have some key targets that have invested in your field. If you can’t find a list, go to Crunchbase and check out companies in your space and who has invested in them. Have that list prepared and pass it on to people.

You might also want to “design” your round. A designed cap table combines investors with complementary backgrounds. We, for example, did a seed extension with just strategic angels that were founders & potential integration partners from our space. Knowledge, network, geographies, reach, background (corporate, DAO, founder, consultant). Be smart about it. Let people be part of a story.

Those introductions can come from many places:

  • Ask investors in your space you know or who have already invested
  • Pitch to anyone, including investors who don’t invest in your space - convince them to introduce you to investors who invest in your space
  • At Events, ask anyone from the organizer team who managed the guest list, ask if VCs have been invited, get introduced.
  • Ask friends who worked in other startups to get in touch with their founders.
  • Ask other founders you know to introduce (don’t expect them to do 20 intros, but you can ping them three times in a matter of a month to do three intros each time)
  • Do hackathons or ask hackathon organizers for introductions; VCs will be around. 
  • Ask friends who work in law firms or consultancies; you’ll get a few intros there.
  • Accelerators (I’m not a fan; it’s expensive equity; I’ve never done them, but it can be helpful for first-time founders.)

Responsiveness

That meant a few things to me: 

  1. I had my Calendly-Link and a short blurb on what we’re doing on a keyboard shortcut. I had the same shortcut on my phone to respond quickly to introductions. 
  2. I fundraised at 8 am as well as at 1 am. - In a global market, you’re raising globally across all timezones, so be the f*** on it. Each introduction entails momentum; don’t let that escape. 

Fundraising as Sales can be a numbers game

This is not an advice. This is not how it should be. But your job as a founder/CEO is to let the company survive. There is a conversation-rate to any sales process. To create a competitive round despite the crashing market (not only by volume & prices but also by huge scams, hacks, and fraud cases) last year in crypto, we had to talk to ~300 VCs, LPs, family offices, angels to get a strategic round together (that still matched our desired valuation range). We’re oversubscribed eventually, but it took time, commitment, and, I hate to say it, hustle to get this done.

I hope this all helps you to get in shape for your fundraise! You can find me on Twitter and LinkedIn.

A special thanks to Pierre Chuzeville and Regan Bozman from Lattice, Peter from 1kx, Dmitriy Berenzon, and Hochung Nam from Timeless Wallet for reviewing this article.