Strategies and Insights on Venture Rounds

Having raised several rounds before, I knew I had to trust the process. My plan was to target around 200 investors. Typically, one-third wouldn’t respond, one-third would pass without taking a call, and one-third would agree to a first meeting. From about 70 first calls, half would show some interest, and 10-15 would lean in with real excitement.

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Fundraise as a Process

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I used to work in the insurance industry, where process is everything. As an engineer by training, I’ve always been drawn to reverse engineering outcomes, and fundraising is no different. I start by asking: what needs to be true to land 2-3 strong term sheets? In my experience, that means having 10-15 genuinely excited investors, which requires around 70 first calls. To get those calls, I need to target about 200 qualified investors, knowing that roughly one-third won’t respond, one-third will pass without taking a meeting, and one-third will agree to a first call. Of those, most will say no, and that’s fine. The No’s are part of the path.

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In the context of fundraising, I view every “No” as a stepping stone toward landing that term sheet. Most raise processes follow this pattern.

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In my process, the first and most critical step is building a broad but targeted top of funnel. For each investor, I look for key signals: do they have a track record of leading rounds? Have they invested in our space before? Have they been active in recent quarters? Do they have any competitive conflicts? Are they stage-appropriate?

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The second step is driving strong conversion, which comes down to two things: (a) clear communication and warm introductions from mutual contacts, and (b) compelling materials, with a heavy emphasis on the deck and data room. The best decks don’t just tell your story, they teach something new and make your strategy feel both unique and inevitable.

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Selling an Apartment

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For first-time founders, I often suggest thinking about fundraising the same way you’d approach selling an apartment. To get the best price, and to actually close the deal, you wouldn’t limit yourself to just 3-5 potential buyers. You’d try to get in front of as many qualified people as possible. And just as importantly, you’d focus on the right buyers, ones whose preferences align with what you’re selling. If you own a downtown apartment, your best bet is someone who values location. Someone hunting for a large backyard probably isn’t your buyer.

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The more people you engage, and the more targeted and precise your outreach, the higher your chances of closing the deal. Nail the process, and that’s how you get the best price.

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Disclosure: David raised the round in under two months. Shortly after closing the term sheet, he made an unsolicited angel investment in Metal, simply because he was genuinely excited about the product. Metal remains the only product he’s ever used as a customer before investing in as an angel.

As a first-time founder, I knew two things – I had to learn about fundraising and had to find a way to get to know people who in turn knew the people that invested in startups. I started my fundraise by figuring out the former part first.

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Learning the Pre-Seed Dynamic

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I started my approach by first digging into Metal’s product documentation and content sections. I first learned the perspective that the pre-seed landscape is unique (given the limited number of investors specialising at this stage). I learned about investor expectations at pre-seed and how to zoom in on the “most likely” investors.

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On pitching investors and developing the right collateral, I was lucky and fortunate to have access to terrific mentors within the Telora ecosystem. In that context, I found myself in a unique position whereby I had the guidance and recommendations of mentors that were invested in my success financially and that had traveled the same path before.

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Building the Right Pipeline

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With access to Metal, I found it particularly straightforward to build out my pipeline. I relied on data to first identify institutional investors that specialised in pre-seed and that were particularly active. Specifically, I used %_Investments_at_Pre-seed for the former, and 12mo_Deal_Count for the latter.

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After identifying investors, I spent some time qualifying them through a three-step process. I first evaluated their investments that were most similar to my Company to assess if it was a good fit. This allowed me to eliminate a lot of investors that were focused on deep tech or other niche sectors.

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Subsequently, I looked at the geographical breakdown of investors to eliminate ones that weren’t focused on North America. And finally, I looked for investors that had done a lot of work in the “B2B Software” sector.

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Through this process, I identified Afore VC that had done a lot of work in the B2B Software space, that was focused on North America, and that was super active in leading pre-seed rounds. I wouldn’t have identified Afore if it weren’t for Metal.

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Building Access to the Right Investors

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Before starting the raise, I knew I had to connect with people that knew the people that invested in startups. Using the relationship intelligence and intro pathways within Metal, I identified VC-backed founders that I knew that had raised pre-seed rounds.

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The Gmail and LinkedIn integrations within Metal were a true game-changer. Through these integrations, I found another Telora company that knew Haven, a startup whose founders were connected with many VCs, including a principal from Afore VC.

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In total, I had less than 30 conversations (of which only about 10-15 were calls with investors). By following a super focused approach, I was able to close our pre-seed round within the first four weeks of getting started.

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In hindsight, I believe our process and overall raise effort would have been particularly directionless if we weren’t using the right software to identify, qualify and access investors.

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Zephyr Technologies is a sports analytics startup that assists sports teams with using statistical insights to drive strategy. With software processes that can find any clip from the game and that can replay specific videos, Zephyr enhances coaching decisions and team performance.

Our team has had the benefit of observing a large number of early-stage founders, as they embarked on their journeys to build access with investors. In the below post, we have documented our observations around the most common access points.

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Building Founder Networks

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In the earliest stages of company-building, founders generally find it a lot easier to establish relationships with other VC-backed founders, and then use these relationships to get introductions to investors. We have observed founder networks to play a central role in successful raise processes, irrespective of the stage.

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When building a strong network of other VC-backed founders, users have reported the most success with the following strategies:‍

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1. Mining LinkedIn & Gmail Connections: As a starting point, founders need to first mine LinkedIn & Gmail connections to identify VC-backed founders that they already know. By integrating Gmail and LinkedIn contacts within Metal, a vast majority of Metal's customers report identifying useful connections that were previously not on their radar. Additionally, customers also report being able to research the networks of their connections in ways that enable them to identify which introductions to request from a given person.
2. ‍Introductions via Existing Investors: Founders that have raised from accelerators and/or other investors with large portfolios are able to get introductions to specific founders via their investor network. In general, investors tend to be particularly open to brokering introductions across the portfolio.
3. ‍Introductions via Product Usage: In recent months, an interesting new avenue has emerged whereby users first identify specific founders that have previously raised from a given investor. Subsequently, they shortlist ones that are in the early stages of building SaaS products, and then contribute to their journeys through product usage and feedback. When done thoughtfully and authentically, this has proven to be a particularly useful channel.
4. Cold Emails: In most scenarios, cold emails tend to have an extremely low response rate, and are typically not a particularly productive use of time. In a few scenarios, however, we have observed cold emails to work surprisingly well -- this typically happens in instances whereby the recipient and the sender have a meaningful common ground. This could range from raising capital in a specific country (I.e. founders in Indonesia) to raising late-stage rounds in a unique sector (I.e. founders that have raised $10m+ for hardware companies).‍

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When building access via founder networks, users are able to get a useful perspective on the investing personalities of various investors directly from founders that have raised from them. Based on feedback from our customer base, we have observed this insight to be even more useful than the introduction itself.

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Leveraging Existing Investors

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Your existing investors are heavily incentivised to help you raise your next round. The ability of founders to mobilise the support of existing investors is a learned skill. The below guidelines can serve as a useful starting point:

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1. Build Trust: Your relationship with your existing investors starts from the very first meeting (before they even decided to invest). As is the case with most relationships, your ability to build value will depend on the relationship history. Frequent and detailed investor updates along with quarterly calls are a good starting point.‍
2. Use Network Insights to Prioritise Asks: During a raise process, before making specific asks, you want to conduct extensive research to identify the 3-5 most valuable introductions from a given investor. The total number of introductions that you can request depends on the nature of the investor and your relationship with them. It is, however, a finite number, and you want to ensure that you are ruthlessly prioritising your asks.

For most founders, their existing or current cap table is one of the most critical assets in a raise process. Founders that successfully close rounds tend to be most effective in getting the most value of our their existing cap table.

Pre-Seed investors routinely invest in companies in the pre-product and pre-revenue stages. With this write-up, we look to bring clarity and precision around what investors look for at this stage.

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Implications of Pre-Seed Valuations

At Pre-Seed, investors are often investing at a median valuation of $4m. Given the low entry price, Pre-Seed investors end up doing well as long as the Company is able to develop a reasonably strong product.

Put differently, the factors associated with whether or not the Company grows to a multi-billion dollar enterprise may not be super relevant for Pre-Seed investors. If the Company builds a strong product, and even if the Company is not wildly successful, Pre-Seed investors will still do fairly well.

Investor X invests $500K in the Pre-Seed round of Company Y at a 4m post-money valuation. Let's assume that the Company succeeds in building a reasonably strong product, but is ultimately unable to scale. The Company ends up selling for $18m (without raising subsequent venture rounds). Pre-Seed investors end up realising a 4.5x return on the original investment.

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Basis for Pre-Seed Investments

While there are broad variations in how Pre-Seed investors look at companies, a common theme is a clear focus on the founder's ability to build a strong product. How, then, do investors assess whether or not a founding team will succeed at building a strong product?

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At Pre-Seed, the main bet is on the founder's ability to build a great product. Investor discussions are, therefore, focused heavily on developing an assessment on whether or not a given founder will be able to build a great product.

Of all venture stages, Series A shows the steepest drop-off point. Specifically, of all companies that raised Seed rounds in the five-year period from 2015 to 2020, only 45% successfully raised Series A.

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The most common cause of drop-off is simply company performance. Most companies are unable to achieve the growth metrics that are typically required for Series A.

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For companies that hit exciting performance milestones, a sizeable drop-off stems from an inability to work capital markets. In Robotics or Consumer, for instance, raising capital has historically been much harder than for B2B SaaS or Fintech. Relative to the Seed landscape, we believe Series A is distinct in the following ways.

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In how founders manage their financing strategy, Series A rounds generally require a lot more sophistication than do seed rounds. From targeting to process, and from narrative to collateral, the general skill set required at Series A is fundamentally different from prior rounds.

In a given raise process, the type of investors that founders pursue varies broadly based on the context of the round. Are you looking to raise on the back of sustained growth and traction, or are you yet to see traction? Are you looking for a lead investor, or are you instead seeking a party round with a lot of small investors?

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In the below post, we explain how founders can go about forming an empirical criteria to zoom in on the right type of investors for the round.

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Example Scenario

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For purposes of the below example, let's assume that the founder is raising a $12m Series A round for a "Buy Now, Pay Later" company that operates in the Fintech sector and is based in the US. In this specific scenario, the founder will need a lead investor to put the round together.

• Geography:
  • Criteria: Investors that have made at least 10% of their total investments in the US
  • Rationale: The above criteria helps limit our focus to investors that are focused on the US

• Stage:
  • Criteria: Have made at least 15%+ of their total investments at Series A
  • Rationale: Limits our focus to investors that truly specialise at Series A

• Sector:
  • Criteria: Have made at least "3" investments in Fintech
  • Rationale: Limits our focus to investors that are at least familiar with Fintech

• Inclination to Lead:
  • Criteria: Have led at least 10% of their total investments
  • Rationale: Limits focus on investors that have the capacity and the inclination to lead rounds

• Fund Size
  • Criteria: Have a minimum fund size of $250m‍
  • Rationale: Limits focus on investors that have the capacity to write $3m+ lead checks

Conceptually, founders should distinguish between attributes that serve as qualifications versus ones that work as disqualifications. The above list shows a list of factors that should serve as disqualifications. If an investor does not meet the above criteria, then they probably should not be on our target list. The specific thresholds can be adjusted based on our preferred levels of flexibility or rigidity.

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After closely observing thousands of raise processes, we find that a vast majority of founders end up targeting and pursuing investors that aren't a great fit for their Company. In the absence of a data-driven process, it can be challenging to identify the right investors.

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On the contrary, targeting the right investors leads to:

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• Improvements in conversion rates from first to second calls,
• High-context and high-fidelity conversations,
• Higher probability of actually closing (versus just talking to investors).

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It takes time and effort to take a super targeted approach (versus just getting on calls with whichever investors can be easily accessed). At Metal, we view the time and effort invested on this front as the highest leverage activity in a raise process.