How to Raise Investment Capital

A Wafer of D-Wave Quantum Processors, c. 2018. Photo by Steve Jurvetson

A Cautionary Note

When you raise investment capital, you are selling someone a piece of your company. Raising investment capital is a sale. You are selling your ownership for cash.

Ten Guidelines

Once you have committed to selling equity in your company, and you are preparing for a capital raise, there are some important things to do and not do. Here are ten guidelines to follow as you make your way through the process.

  1. Expect it. It’s not personal. You will 100% get rejected by the first 29 people you pitch. It’s just the way fundraising works. Think of it like the suffering you know is a part of running a marathon. There’s just no way to avoid it. Who is gonna carry the boats? You are.
  2. Every time you get rejected, ask the investor for feedback. Consider it carefully. If after this careful consideration you think they may have a point, modify your pitch to take their feedback into account. Note that just because someone passes, and they give you a reason, it’s not always true that they are right, or even that it’s the true reason they passed. Investors are, in the main, very insightful people; listen carefully to their feedback; but use your own judgement about whether to change your mind about something.

Tactics — What to Actually Do

0. If this is your first raise, use a Simple Agreement for Future Equity, or SAFE, as the financing instrument. If you are a pro, still consider using one. They are founder friendly and can be used at any financing stage. Templates are here — I suggest using the discount and cap variant.

  1. People: Create a slide deck with one page per person on your team. Each slide has a bio, a picture, and links to anything important / relevant. Get your team to each do their own slide, but make sure everyone follows a slide template you like. Do a slide at the beginning of the deck that is a summary of important information (leadership, headcount, number of people in different roles). (By the way, this is a good idea anyway for your team, especially in the age of distributed work. It used to be the case everyone knew everyone else because you saw them every day. This is no longer always true.)
  2. Images and Video: Any images or video that help tell the story. This includes third party stuff like appearances in the media.
  3. Technology: Relevant journal articles authored by the team, white papers, media about the technology, anything where a credible third party says your tech is awesome, etc.
  4. Product: If you have one, put all your marketing / sales material here.
  5. Market Information: Most venture investors put the size of the market you are going after first in how they evaluate you. How big you can get is limited by this. Put any information you have about the addressable market size in here. This could be market research reports, information you’ve collected yourself, information from competitors’ sales.
  6. Competition: Any information about companies and / or products you consider to be competitive. Showing that you know a lot about what’s going on in your world shows maturity and credibility. Don’t downplay competitors, try to be honest when appraising them. If you can find a list of valuations of companies at a similar stage to yours (and who their investors are) that you consider to be direct competitors, put that in here.
  7. Corporate Legal: Incorporation docs, employment contracts, NDAs, legal agreements you have with suppliers / partners, basically any contract the company has.
  8. Financing Information: Any documents outlining the terms of the investment deal (eg the SAFE template would go here). Don’t put any information here about other investors (eg signed SAFEs, that’s internal information).
  9. Patents: Any patents you have filed for or have granted.
  10. Financials: Audited / unaudited financial statements going back to the start of the business.
  1. A spreadsheet containing a list of all the potential investors in your orbit. This includes everybody — even investors that you don’t think are good fits (you can sometimes help each other somehow, which may help you later on). This spreadsheet will be the master document you will work from to plan strategy, remember who you talked to when, track who is hot, warm, cold or dead, who has committed what to the round, and the like.
  2. For each investor on your master spreadsheet, create a document with all the information about them that you can find by doing background due diligence. This includes links to all the web content about them (LinkedIn is a good place to start, personal websites, news articles, interviews) and information related to their investment history (what have they invested in, which boards do they sit on, what do the companies they’ve invested in do). Most professional investors have done at least a handful of interviews — you need to read the print ones and watch the video ones, take notes, and put those notes in the document. The main objective of this due diligence is to create a profile of the investor so you can understand (a) are they likely to find your story appealing; (b) is the structure of your deal in the sweet spot of their investment mandate (funds have constraints and restrictions above and beyond what the partners might like to do themselves); (c) how to tailor your pitch and approach to push their specific buttons; (d) increase your credibility and memorability by making it clear to them you’ve done your homework like a pro; and (e) find out about any potential negative stuff. This last one is particularly important if they are outside of your circle of trusted contacts — you don’t want to inadvertently bring a toxic person into your company. Most really bad things about someone will come up in an internet search. Sometimes a cursory search is not enough, for example if it’s an inbound angel investor with a really common name. In cases where you don’t think you can work up a good profile, you will need to ask them questions directly in order to flesh it out. Don’t be shy. Remember being an investor is a critical job, don’t feel bad grilling them. You don’t want to find out about a skeleton in the closet after they join. Or have a reporter point it out.
  3. All of your pitch decks. As the process unfolds, you will end up creating a lot of pitch decks. As you pitch more and more, the pitch will evolve and get better and better. In addition, each generation of pitch will be shown to different investors and each investor will get a tailored pitch, and you will need to save snapshots of every pitch you deliver so you can go back later and remember exactly what you showed each investor.
  4. All the assets that you will be using a lot to build your pitch decks. This includes slide templates, brand assets (logos etc), interesting data and data visualizations, and images, graphs and videos you use a lot.
  5. The investor job description you wrote. So you know where it is and can check it against the list you’ve got in the master spreadsheet.
  1. Never use industry jargon or acronyms
  2. Try to think of what it’s like for a very smart person with none of your background context to follow your slides. One thing I sometimes do is think of a PhD level scientist in a totally different discipline to what you do (say a zoologist or something) as the audience — write your slides for that person
  3. Internalize that the reader doesn’t care as much as you do, and they will probably spend AT MOST five minutes skimming the deck if they get it via email, and will pay attention for AT MOST 20 minutes if you pitch it in person; this means any points you want to make have to be super punchy and obvious; don’t be coy, say what you came to say in straightforward easy to understand language
  4. Never make typos or grammar or spelling errors. Do I trust you with my money if you can’t figure out how to use a spell checker?
  5. Always be transparent and clear about who you are, what your company’s mission is, and what you want. Don’t beat around the bush.
  6. In your pitch, you have to find a balance between not overselling and not underselling. If you oversell you will lose credibility both right away and in the future when you don’t deliver. If you undersell you are making yourself look worse than you really are. This is another thing that’s hard in practice; one tip is to think about how someone else who knows you and your company well might tell your story (ie channel a third party). This sometimes helps be more objective about things. Another tip is that you typically want to err on the side of under-promising in the short term and over-promising in the long term. The reason for this is that people (including you and your team) tend to do the exact opposite; when you do this you will slant your story more towards what is actually likely to happen over both timescales.
  1. Know as much as possible about every single person who will contribute to an investment decision. In your internal data room you should have a document for each person you’ve identified in this category. Google each person’s name, and document everything interesting you can find. If you can find their pets’ names, write that down. It is remarkable how much you can find out about people by doing this. If they have done video presentations, watch every single one and make notes. Note: this isn’t just the people who are the obvious ones. Understand how decisions are made in every case and make sure you have done this with everyone. Also, if you have been corresponding via email, make sure you do it with everyone you have spoken to. Executive assistants often are critical to the culture of an organization and very important parts of investors’ lives; make sure you do this with everyone.
  2. Use this information, together with your interactions with the investor up to this, to take your opener deck and modify it to address anything that may be top of mind for this particular person or group. Not all investors care about the same things with the same weight. No matter what, ask your primary contact what you should specifically emphasize, or points of concern they have when you are going to do the closing pitch, and address these points head on. This will be your last chance to either clarify something or change someone’s mind.
  3. One thing you can effectively do to create a closer deck is modify the opener deck by keeping pretty much the exact same deck as the opener in the main pitch, but adding a (potentially large) number of appendices that address specific topics that may come up for different people. Think of these appendices as going one or two levels down in detail in areas that the investors may want to understand. This is the sort of material you really wanted to put in the opener but had to leave out.
  4. Try your hardest to keep following the 30 point font rule in your appendix material and more generally in the closer deck as a whole. It really will help you understand how to communicate more effectively. Use a lot of images, video and (sparingly) charts if they help tell the story. You are going to be speaking words to these people, the words don’t have to be in text on the slides except as a guide for you to remember flow and potentially sharpen a specific point. Also don’t use more than 5 slides and 10 minutes to run through any section of your appendix material. If an investor asks a question about something (and you knew it was coming because you did your homework) you want to give them a concise and punchy answer that shows not only do you know your stuff, but you are well aware that whatever the subject of the question was is an issue and you’ve thought it through.

Some Summary Thoughts

Hopefully you find these notes useful and they help you raise capital. If any of this has been helpful in a capital raise, please reach out to me and let me know!

  • Aim high. The world needs people with unrealistic ambitions who attempt to do great things.
  • Expect setbacks, but don’t accept failure. There is a weird toxic idea floating around that ‘failing fast’ is good. It isn’t. You will have setbacks. But failure is always bad, and unacceptable.
  • You do not have to ask permission to do what you really want to do. The world is filled with people who will tell you to not follow your dreams. Ignore them.
  • The future is not fixed. If you want a particular future, you need to take personal responsibility for making it happen.
  • Expecting someone else to create the future you want is risky. There may be people who want a very different future than the one you want, and they are not sitting around waiting for it to happen.

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Geordie Rose

Geordie Rose

I am currently working to create the world’s first human-like intelligence in general-purpose robots at Sanctuary.