We won’t be arguing whether you should bootstrap or raise funds – the topic has been heavily discussed for years. However, we all agree that capital shortage will lead to failure.
And if you are to raise funds, better understand how it works before diving in.
Entrepreneurs taking part in Impact USA might have very different backgrounds and their companies be in various stages – from seed to series A or B – but they share the same goal : launch in US. And they’ve never raised funds here before.
This is why Impact USA offers a specific fundraising track for those who want to develop a sophisticated understanding of the US fundraising landscape and process: Know when and how to raise, who to meet and why, and never breach the local etiquette. Speakers include angels, investors, venture capitalists as well as successful CEOs who have mastered the process and are ready to give back and train our cohorts.
One of the first session of the track covers the basic landscape overview. We’re happy to share a few takeaways below.
How is investment distributed worldwide?
It’s no surprise that 53% of global investments are distributed in the US, 55% of which in California. The East coast accounts for 25% of total US investments.
France only accounts for 1.3% of Europe’s 12% : there’s definitely room for growth!
And in the US the level of investment is up to $83 billions while in France it represent $3 billions.
Deal volume trends in the US
Today’s investment trend: less deals, higher rounds
Where is the money?
- Business angels: they can be your best option if you plan to raise no more than $1m AND if you want to keep full control of your company vision and execution.
- Independent Venture Capital Firms: hundreds of firms are competing (and cooperating), at all investment stages. The best ones are very involved with their portfolio companies and meet regularly with CEOs to provide guidance (a reason why most VCs will not consider investing in a company that is not based locally).
- Corporate Ventures (15-20% of all VC activity): established corporations that make equity investment in startups. Generally speaking, corporate investors aim to leverage innovation in order to stimulate the development of complementary products and to identify new market opportunities. Eg: Google Ventures, Salesforce Ventures, CrunchFund…
- Accelerators: fixed-term and cohort-based programs that include mentorship and educational components to help startups access to VC money. Usually take equity. Eg: YC, TechStars, 500 Startups…
Fundraising with a VC – How does it work?
1 -How much should you raise?
First, a few words about valuation and VC expectations. Usually, a company’s valuation revolves around 3 or 4 times the amount funded for seed capital phase and 5 times for serie A and B.
Generally, LPs expect a 20% return goal on the VC’s portfolio. However, on average, there will only be 2 successful companies out of 10. This means that venture capitalist funds expect these 2 companies to have multiplied their value by 6 over 10 years.
Based on that, you should define a realistic amount to raise. You need to determine how much to take in order to have an adequate cash flow to run your business. You shouldn’t raise too little or too much. Usually, startups raise amounts that are high enough to keep them going for the next year.
Entrepreneurs and investors recommend that you raise just what you need: you are looking for some breathing room, not cash to burn in unnecessary resources… which tends to happen when you raise too much.
2 – Understand the VC landscape and build you wish list
You want to have a very personalized approach. Raising funds is like selling. You need to know your audience and build a funnel.
Start by identifying:
- Who invests in the same type of company as yours : industry, business model, stage
- How do they invest, how much, what is their process
- Where do they meet and what are their preferred channels of communication
- Which VCs have already invested in French startups. Because French companies (and fiscal system) can be a little daunting to an American, it might be a little easier to target those VCs who have already been down that road.
In short, do your homework!
3 – Network
Work on your network and develop it to access the investors on your wishlist. Mingle with like-minded professionals who may want to introduce you to their network. You might also want to consider setting up your office in a coworking space where you can easily connect with peers and investors.
Ask for advice and practice pitching.
You might want to start by reaching out to lower-level VCs first to train and test yourself in such situations.
4 – Deck, Pitch, Roadshow
Only 0.05% of entrepreneurs get funded in the US.
Preparation is key.
Train yourself to pitch again, again and again. Know your audience and what metrics they want to see.
Define the strategy, have everything in place, and when you’re ready… pull the trigger. your goal is to create a sense of fear of missing out (FOMO) and obtain several term sheets at the same time.
Show consideration to all professionals who have accepted to meet with you and to give you some of their time. Be proactive and don’t focus on a few of them, on the contrary keep exploring all the possibilities you have.
“Business success require business preparation. You don’t have to be a master tactician, but you do need to have a plan in place. This plan will act as a foundation for everything you want to achieve.”
― Alejandro cremades, the art of startup fundraising
5 – Fundraising closing
Don’t pop the champagne too soon! It’s not done until it’s signed.
There’s also the entire due diligence process to go through. The way you handle the process, the proactivity you show and how swiftly you reply to requests matter just as much as the numbers.
Talking about numbers, there is an entire session dedicated to kpis and metrics that matter to VCs. Stay tuned!