MELINDA ELMBORG • MAY 13, 2021
Structure your Seed Round for Success
Fundraising for your startup is no easy task. It’s even harder if you’ve never done it before! Investors go through the process multiple times per year, so the person you have on the other side of the table is an expert. However, you as a founder might be doing it for the very first time!
As you might have heard before, conversion rates to get an investment are terribly low. With a VC like Speedinvest getting over 1400 pitch decks per year and converting just 1% of those, competition is spicy. If you are not courting multiple VCs at once, you’re at a huge disadvantage!
When asking a number of founders who raised a seed round what they regretted, many of them say they wished they had used a more strict and structured process.
It’s vital to be structured -- that’s the key to success when the margin of error is small.
During an average pre-seed-round you contact 54 investors and meet with 26 investors. That might sound like a lot, but it gets worse...
During an average seed round, founders contact 77 different investors and meet with 40 different investors. Usually these are VC funds, which means that you meet with two people from each fund, both an associate and a partner. Suddenly we’re talking about almost 80 funds and over a 100 people that you need to remember so you can get your seed round closed.
There’s no way around it, you need to use an Investor Relationship Management sheet (like a CRM but for investors) 😉.
Introducing the Investor Relationship Management Sheet
A CRM helps you stay organized while keeping in touch with hundreds of possible clients in parallel. An IRM helps you do the same for investors!
Based on feedback from multiple founders, I’ve created the IRM template to serve you during the fundraising process. If you want a copy, head to this link.
Now, let’s talk about the columns you need for an effective IRM.
It may seem obvious, but your first column should be the name of the VC or business angel that you are communicating with. Seeing these names first will also help you remember them, which is important when you have so many to manage.
In the same way that you go through a sales process, you’re also going through a process with each investor. At first, you’ll list a bunch of investors that you’re interested in, and put them all in the Research stage. Make sure to properly study what kind of deals the investor has made previously to see if there’s a good fit. You can use Crunchbase, for example, to get comprehensive information on investors.
If it seems like a good fit, you move them to the next step, which is To Contact. If you reach out to investors long in advance of your round to build relationships (which is highly recommended!!), and you schedule a meeting with them, then move them to Intro Meeting.
Once you start to seriously fundraise and you’re meeting with the investor regularly and move ahead in their process, move this investor to Meetings.
If the investor really likes you, they will have you present in front of the investment team, or the responsible partner will present your startup to the investment team. This is the time to move your investor to the Investment Committee stage. If you get a term sheet from an investor, move to the Term Sheet stage.
Very often, investors will get back to you with a “No”, because they’re not interested in investing. An unfortunate reality, but a common one. Then move them to the No stage. If they say no because it’s too early for them, and they might be interested in the next round, put them in the Next Round stage.
Sometimes investors are not very organized themselves, and they forgot to follow up with you. If you haven’t heard from them after a week, put them in the Ghost stage. Don’t hesitate to keep on sending a reminder once a month or so!
Write down here what the next step is - is it to send an intro meeting or send your teaser deck or anything else? Always gently drive the investor to the next step in the process to get to a close. Remember, they might not feel the rush to spend their money on your startup. It’s up to you to get them there!
You don’t want any valuable relationships with investors to slip away. Keep track of when you last spoke with each and every investor in this column. Life happens fast, and it’s easy to lose track of who you spoke to and when. Keeping a record of your most last interaction is a good way of avoiding too much time apart!
This column shows how much capital each investor has a mandate to put in each investment. This is important, because you need to know that you’re focusing on investors who can actually invest in the round you’re raising right now.
You will discover which sectors the investors have a mandate to invest in during the research phase. It might be that they invest in software but not hardware. Or they’re investing in both but don’t do Life Sciences. You don’t want to waste your time pitching to an investor that won’t be interested in your product!
Type of investor
Pick in the list if the investor is a Business Angel, a Pre-Seed VC, a Seed VC, Series A VC or a Series B+ VC. This is a quick and effective way of reminding yourself the type of investor you’re dealing with ahead of a call or meeting.
Some investors want to lead a round, and put the largest ticket. Some investors follow lead investors and put smaller tickets, we call them co-investors.
Put in the name of the partner at the VC that you’ve met with. Typically one partner from the investment team is responsible for each deal. Leave this empty if the investor in your list is a Business Angel.
Usually, a partner in a VC firm is not doing all the work themselves. Associates do a first screening and will do the more in-depth analysis in the process. If this is applicable for this investor - put the name of the associate here. It’s important to remember that every member of the process is part of the team.
It’s great to get warm introductions to investors from someone you know in common. Put the person you think can help you with this in here.
Before your first meeting, or straight after it, you want to send your pitch deck. This is the shorter deck with 10-15 slides to tease the investor in the beginning of the process. To find out exactly what I mean with this, check out this post on the ultimate pitch deck. Tick this box when you’ve sent the pitch deck.
Once the investor has shown interest in a meeting, share your entire data room with all the facts and figures they need to evaluate your startup. You can read more about data rooms here. This can be replaced by a longer pitch deck appendix if you prefer that format. Tick the box here once you’ve sent the Data Room.
If you start with intro meetings months or years before you start to actively fundraise, you want to send an update monthly or quarterly to warm up investors before your actual fundraising. Keeping them actively interested will make the transition to fundraising much smoother. Tick this box if they’ve agreed to receive your email update.
As you can see, there is plenty of information you need to keep track of for just 1 potential investor. Now imagine trying to manage that info for up to 100! But the fact is, if you want to be successful in raising your seed round, this information will be crucial.
If you want to be one among the few startups that raise a seed round, you’ve got to be on top of your game. Using an IRM like this one will save you tons of time and energy, and any advantage you can get in the push for funding is one you should take.
PS: 👉 Join us in the incubator for only 1€! You will join a community of founders, get answers from me in to weekly calls and get access to a library of packages like the customer acquisition package, the investment package, the product market fit package…
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About the Author:
Melinda Elmborg was a Venture Capital Investor at the French VC firm Daphni. To help founders build, grow and raise capital to their startups, she switched careers to become a startup coach. In 2018, she started Startup Action.
Based on her learnings, she has developed The Startup Action Framework that guides startups from launch to exponential growth.
So far, over 400 founders have already joined one of her workshops and thousands of founders have taken advantage of her templates and guides to succeed with their startup.