June 11, 2017
At Mimir we’ve been through a couple of fundraising rounds. Our first raise took close to a year while our most recent one took just a few weeks. We’ve definitely learned a lot between the two. If you’re setting out to fundraise for your startup for the first time, I would recommend the following steps.
Some founders are too eager to raise money. Don’t raise money because you see other startups doing it. Raise money if you need the capital for extending your runway a predictable number of months to reach profitability, or if you are already profitable and want to scale faster.
Some founders reside on the opposite side of the spectrum and are hesitant to give away even the smallest piece of their company. I get it, it’s your baby. Think of it this way, good fundraising will result in you having a smaller piece of a much bigger pie. Would you rather have 100% of a $1M company or 75% of a $4M company? Here is a good resource about this:
Also keep in mind that there are options beyond traditional fundraising for initial capital such as accelerators like Y Combinator and grant programs like NSF SBIR. If you decide to fundraise, understand that it will be a full time job.
Figuring out how much to raise and consequently how much equity to give away can be very difficult. I want to emphasize that the amount of money you raise is not a metric of success. There is also no right answer to this and every founder has their own formula. Here is mine:
Before you calculate this, you need to know what you want to spend your money on after the raise and your post raise burn rate. You can calculate the post raise burn rate with the following and using that number you can then calculate how much capital to raise.
Pro Tip: “burn rate” is startup jargon for your monthly net income.
Essentially my philosophy here is to be able to run for 24 months after a raise assuming you do not add any additional revenue.
Assuming you are a SaaS company, your goal with this new capital is to increase your monthly revenue to match your new post raise burn rate. I also recommend working with a lawyer that knows equity math and investment instruments really well to help you structure your fundraise. We worked with Gutwein Law for this and had a great experience.
You’ll want to have a pitch deck ready before talking to investors since it will be the first thing they’ll ask to see. I’ll write a detailed post on how to build a good pitch deck, but in general you want to tell a story about your startup not just state facts. This is the flow I like to follow:
Talk about the problem you are solving and why this problem urgently needs to be solved.
Identify how you are solving the problem and be sure to mention some high level specifics that make you unique.
Show your traction and growth (i.e. how much money you have made and how quickly you have made it).
Show your market size (i.e. how much money you can make).
Present yourself and your team. You need to show investors why you and your cofounders are the right people to execute on this idea.
Ask for something. Every pitch should end with an ask, otherwise there is no point in pitching.
Steps 1–6 don’t translate to slide numbers. Some people claim that they found the golden number of slides in a pitch deck, but honestly it’s just how ever many you need to efficiently and effectively tell your story. Below is our most recent pitch deck with some sensitive info removed.
IV. Start networking and pitching.
Once you have your deck, the next step is to find investors to pitch. You can try Googling VC funds and start cold emailing investors but you’re better off getting involved in your local startup community. Odds are there will be investors hidden in the crowd at public pitches. Take this opportunity to get on stage and pitch. This is a great way to quickly get the word out about your company. Finally, be sure to reach out to your personal network to see if your friends know of any investors.
Before you start fundraising, make sure you review SEC rules about general solicitation and securities. I know it’s not fun, but it will keep you safe down the road. Here are a few good resources:
Once you have the attention of a few investors, you will need to meet with them for an in depth pitch about your startup. Be sure to research who you are meeting with and their previous investments. They will be assessing both you as an individual and your startup as a whole. Before closing the meeting be sure to create a follow-up plan with the investor and establish a timeline of next steps.
You are going to hear a lot of noes. You’ll need to get comfortable with that as an entrepreneur. When you get that email from the investor you met last week saying that they’re going to have to pass this time don’t just delete it. Ask them for feedback and use it to improve your pitch.
You should also build a mailing list of investors who have passed on making an investment and keep them up to date. Just because they passed this time doesn’t mean they are going to pass the next.
One day you’re going to get an email that an investor wants to move forward to a due diligence phase. This step is to make sure that everything you said previously is true and your financials are in order. As long as everything checks out, odds are they will invest.
This first investor, or lead investor, will work with you to establish your company’s valuation and terms. That being said, keep in mind you can say no. You don’t have to accept any offers you get.
Once you find your lead investor it gets a lot easier. An investor is much more than just money. They become a partner in your company.
Depending on who the lead investor is, they may not give you all the money you are seeking. You will need to continue pitching to fill the rest of your fundraising round, but your lead will be by your side helping you do so.
Even after you close your round and sign all the paperwork, it’ll be important to continue building relationships with new investors. By doing so, next time your raise you’ll already have an established network to work with.
This whole process is hard. I personally know most of this is easier to say than do. Perseverance is the biggest key to raising a round of investment.
When we started Mimir in 2014, Jacobi, Colton and I didn’t know a single investor or even another startup founder. I strongly believe that our success was tied to our involvement in the Midwest and Indiana startup communities.