2. Plan for funding

Having a well-developed funding plan is critical to the success of any fundraising effort, including seeking venture capital. A funding plan can help identify the right types of funding sources and establish clear roles and responsibilities within the team. It can also help determine how much money needs to be raised and how much equity needs to be offered to VCs or other investors.

In this phase, we work with founders to create a funding plan specifically focused on securing VC funding, including identifying the appropriate VC firms to approach and defining the amount of funding needed based on the startup’s valuation and the VC’s investment terms. We also help startups set clear milestones and timelines for preparing and securing funding, and assist with identifying the right amount of equity to offer to VCs based on the startup’s valuation.

We also help entrepreneurs demonstrate the financial health and performance of their startups by building financial models and conducting scenario analysis to show the potential and true value of the company. This can be valuable in negotiations with VCs and in developing overall capital raising strategies based on a range of potential funding sources and scenarios.

3. Startup valuation

When seeking equity financing, it’s crucial to accurately value your startup. A valuation that is too high can scare off potential investors, while a valuation that is too low can result in the sale of a large amount of equity. A fair valuation is also useful in negotiations with venture capitalists (VCs), as many terms depend on the valuation of the startup. Through our funding program, we help entrepreneurs determine the fair value of their startups using various methods, such as the RFS, DCF, and VCM methods. This will also assist in negotiations with VCs and ensure that the startup receives a fair evaluation. We understand the importance of securing VC funding and how it can help maximize opportunities. To this end, we split the funds raised into different rounds, with the first round targeting at least one angel investor to show traction and credibility to VCs and persuade them to invest while reducing the amount of equity given.

4. Finding the right VC

One common mistake that startups make when seeking venture capital (VC) funding is not adequately researching the background, investment history, and criteria of potential VCs. This can lead to a lack of success in fundraising efforts and wasted resources. It is important to carefully consider the VC’s investment stage, industry, and country preferences, as well as any other strict criteria they may have. A good way to find VCs is to connect with angel investor networks and attend business and networking events. If those resources are not available, other options for funding a startup include crowdfunding platforms and corporate partnerships or licensing agreements. A funding program like ours can also help match startups with the right VC based on the amount being raised and the VC’s investment criteria.

5. VC meeting

Arranging meetings with venture capitalists (VCs) or introducing them to startups can be challenging. Many entrepreneurs rely on sending emails to VCs, but this approach is not effective because VCs receive hundreds of pitch decks daily. A better approach is to reach out to VCs and introduce your startup in a polite and professional manner. Some entrepreneurs hire companies to pitch their startups to VCs, but this approach often has a low response rate and is not effective. A fundraising program like ours uses heartfelt referrals provided through shared connections, which typically leads to a response rate of 20-40%. It is also important to carefully review your startup’s pitching documents, such as the pitch deck, business plan, and financial model, to ensure they contain all the necessary information and help your startup stand out.

6. Closing the deal

Negotiating with a venture capitalist can be difficult and time-consuming because there are many people and factors to consider. The Raise Capital Program from FasterCapital acts as a facilitator to bring the entrepreneur and venture capitalist together and helps with the negotiation process, including payment terms and legal advice. These negotiations can take about three months and FasterCapital’s goal is to help entrepreneurs avoid common mistakes.

7. Micro VCs

Micro VCs are companies that invest in early-stage startups. They typically invest amounts ranging from $25,000 to $500,000, but some micro VCs act more like a group of angel investors, investing smaller amounts ranging from $25,000 to $200,000. These types of micro VCs are easier to work with because entrepreneurs only need to talk to one or two of the top angel investors. Micro VCs are different from traditional venture capital firms in that they are informal groups of angel investors who make their own investment decisions without strict guidelines. It can be difficult to contact micro VCs, as some may not have websites or contact information. There are around 20,000 micro VCs, and entrepreneurs can raise money from them by contacting one of the angel investors in the group.8. Types of VCs

There are three main types of venture capitalists.
Angel investors, venture capitalists and private equity (PE) investors.

   8.1 Angel investors

Angel investors are individuals who invest in early-stage companies. They typically invest small amounts and look for opportunities that offer good value. Venture capitalists, on the other hand, invest in later-stage companies that have the potential to become large, successful businesses. They are willing to take on more risk in exchange for potential rewards. Private equity investors are similar to venture capitalists, but they also invest in stocks and securities. They often have more money to invest and can be more aggressive in their approach.