How to prepare for your first VC fundraising May 8, 2019 RICCentre You had an idea. You built your team. You created an MVP and you’ve even found a few potential customers. Now it’s time to grow…and fast! As operators, the team at Ripple Ventures knows that scaling can be a hard and slow process if you’re doing all the work yourself, but hiring experts requires capital. This is the point where most founders realize they need external funding, and if their friends and family have already been tapped, Venture Capital can be the next best source for strategic capital. And believe it or not, it can happen pretty fast if you’re prepared. Properly preparing for your first VC meeting will greatly affect your chances of success. There’s more to it than just expressing your vision for the company and promising a revenue chart that goes up and to the right. Investors need to not only understand your business, but also have faith in the company’s early leadership team. One of the best ways to impress institutional investors is to show that you can handle any questions and concerns they throw at you, so preparation is key. Here are 5 keys to getting VCs to say yes, and fast: 1. Do your research This one may sound obvious, but you would be surprised by how many founders go into VC meetings not knowing the basics about a firm. Before sitting down with any investors, make sure you have looked into the following: Their LinkedIn — you may have items in common! Their website — make sure you meet their investment criteria Their portfolio — do you fit in with their previous investments? Doing your research ahead of time ensures that you have a minimum level of understanding about the firm, the people, and the overall investment thesis. This will allow you to ask educated questions that will impress your potential investors. A good first impression can go a long way when it comes to capturing investor attention, and making them want to move forward with you quickly. 2. Know your Numbers Similar to doing your research, knowing your numbers (or not knowing your numbers) can greatly affect how investors view you as a founder. You need to know your numbers. Each investment firm will have different statistics they care about the most, but without exception, any educated investor will want to know the basics. While it may be tough to remember every number, here are some stats we wouldn’t enter a VC meeting without: Financials MRR/ARR One-time revenue (Pilots/POCs) Debt (Short and Long-term) Monthly Burn/Runway Customer/User Statistics Average contract value Average contract length Customer acquisition costs Usage statistics (where applicable) Previous Investments Past investors Previous investment terms How the money was spent Market Total addressable market Market growth rates Competitor market share and differentiation Remember, investors expect you to live and breath your company, and knowing your numbers lets them see you that you’re doing just that. Although your numbers may be changing constantly as you close more sales and optimize processes, having a good sense of where your company is at is an important skill for any founder. 3. Build your deck In today’s day and age, a pitch deck is an expected aid in any VC conversation. This means that VCs end up seeing hundreds to thousands of decks every year, and as such, it is very easy for an investor to get bored of a deck and move on without even fully understanding what a company does. To avoid VCs losing interest, it is important to make sure the essential points are easy to find, and that there are not too many slides and distractions. A good rule of thumb is to keep your deck to fewer than 15 slides, with any non-critical slides included in an appendix at the end. Here is a good general outline for a VC pitch deck: Problem statement (1 slide) Company overview (1–5 slides) Market overview (1–3 slides) Team (1–2 slides) Previous investments and today’s ask (1–2 slides) Appendix (0–10 slides) Having a good flow to the deck is another critical component to keep in mind, but if you cover all the topics above you should be ready for your initial VC meetings. Even though you know the contents of your slides really well, practice really does make perfect for VC pitch presentations, so make sure you put in the effort ahead of time to make sure the pitch goes flawlessly! 4. Know your story Many great startup ideas are developed as a result of a personal problem or experience, and these stories can be a great asset for getting VCs onboard. Realizing this is the first step, but developing and refining the narrative to the point where it’s essentially a sales pitch is the hard part. Just like when building a slide deck, it’s important to be succinct when telling your story, while still being compelling. Your audience needs to believe there was actually a problem, and more importantly that the problem drove you to a novel solution that’s leagues ahead of the next-best alternative. This story can often be told as a prelude to your pitch as it is a good segway into Section 1 or 2 of the VC pitch deck template above. Once again practice makes perfect, so practice delivering your story over and over again until you can recite it in your sleep! 5. Put it all in one place So, you did your research, you knew your numbers, you told your story, presented your deck, and the VC is interested! They want to move forward to the next step towards committing capital, which is often getting access to your data room. A data room is a single place with all your company’s documentation, research, financials, etc. for VCs to review. It takes a lot of work for a founder to prepare a data room, and as such, this is quite often one of the slowest parts of the capital raising process. If you go into your fundraising process with a data room already put together it can streamline the review process by the investment firm and help you raise money weeks faster. Here is a good template for what investors expect to find in your data room: Folder 1: Company Overview Materials (pitch deck, product overviews, and executive summary) Legal Formation Docs (certificates of incorporation, bylaws, stock purchase agreement, voting agreement, etc.) Board Docs Presentations Minutes Resolutions Finance Audits (if applicable) Financial Model Historical Financials Operations (lease agreements) Go-To-Market (marketing strategy, customer discovery and acquisition) Sales Customer Contracts LOIs Pipeline Pricing Model Partnerships/Integrations (descriptions and contracts where possible — lots of detail) Employees (employment agreements, stock option grants) Intellectual Property Patents Trademarks Folder 2: Industry Market Research Competition Top 3–5 competitors, outlining what they do well, what they do poorly, and what advantage you have over their solution Folder 3: Fundraising Materials Cap Table Previous funding documents (SAFE’s, convertible notes, priced rounds.) Any current funding documents, including documentation of existing commitments (if any) This template is not exhaustive, and the more you can add to your data room the better. VCs like to know that all the cards are on the table, and by going into your conversations with a data room ready to go it creates a sense of transparency and professionalism that investors will appreciate. It is also a good idea to keep your data room up to date as your company grows, as building a new one from scratch for your next raise is a lot of work. Next Steps: Although the 5 keys above will go a long way in helping to secure funding for your startup, they are only part of the puzzle. Once you have completed your VC meeting it is a good idea to follow up the next day asking if any new questions have come to mind since you last spoke. Getting VCs to commit to next steps can sometimes be difficult, but always make sure to ask what their next steps would be if they are interested and identify ways to help the investors navigate the due diligence process. Raising money is a sport, and if you come prepared by using the suggestions above, you stand the best chance in receiving your financing…FAST! About the AuthorJosh GarbeAssociate at Ripple Ventures.Ripple Ventures is an early-stage venture capital firm headquartered in Toronto, Ontario and a panel member of RIC Centre’s Investment Review Panel. They are a group of successful entrepreneurs looking to seed the next big idea, with a focus in enterprise software, healthcare technology, industrial technology (i.e. real estate and construction), and enterprise blockchain.