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Fundraising Strategies: Insights from Years in the VC Arena

Fundraising Strategies: Insights from Years in the VC Arena

Although these days it might seem that there are startups and funds just about everywhere, I would suggest that this is in fact a relatively recent development. If we look at Spain, it is only now that second and third cycle entrepreneurs are finally being identified, i.e., individuals who have founded a “technological” startup, have successfully sold it and have then returned with a new idea.

Tuenti, Social Point and Idealista, to name but three of the most high-profile cases, pushed startups to the center of the stage, showed the business community that tech entrepreneurship affords huge opportunities, and laid the foundations for what is now a country featuring several high-performance hubs (Barcelona, Madrid, Valencia and Bilbao), a law that brought improvements, and local funds able to lead decent-sized rounds.

As a venture capitalist and after eight years on the front line, first of all I would proffer a tip that may seem self-evident yet is anything but: founders need to measure the timing of funding very carefully. Raising a round in the middle of a venture capital winter is very different from doing so in times of absolute buzz, or at the peak of a technology’s hype or when that industry vertical is on the slide. This decision will set the startup’s value and future growth requirements in stone.

Once you take the decision to embark on this career, two things come into play. Firstly, funds greatly welcome the fact that the entrepreneur seeks them out. Rather than playing the quantity game, it is better to stress the qualitative dimension: I want you and I want you for these reasons. Express a genuine interest in the potential investors, emphasizing why you specifically want them on board.

Secondly, it is crucial that the startup knocks on the VC’s door with references, with a background, and with the endorsement of other proven entrepreneurs. The cornerstone of the founder-fund relationship is not the initial email or the subsequent video call: it is reputation. This prompts another question: are events essential to get good press? The best event (and the best networking) is a dinner at a serial entrepreneur’s home.

Besides, in the startup funding game, cultivating long-term relationships is a strategic win. Prioritize connections with proven colleagues and investors for a track record that speaks for itself. Beyond a one-time pitch, this approach builds trust and opens doors for ongoing support across various ventures. To delve deeper into understanding investors, prioritize exploring their portfolios as part of your journey. It’s not just about the immediate pitch; it’s about playing the long-term game and winning over investors with your proven history, talking with portfolio experience and even aligning your expertise with the fund thesis.

We always talk about the pitch and the deck, the obvious next steps in this fledgling relationship, and here I would emphasize not only eloquence and look (eloquence depends on the speaker; the look can be hired) but also keeping track of all the information made available to investors. Spending money in the look of the pitch deck is also advised, in a competitive landscape, the use of visuals becomes particularly valuable. A data room is indispensable and the most scalable way to get across a startup’s KPIs. It is also recommended to send a monthly update that really helps to generate transparency and builds trust with the VC.

As you embark on this journey, careful budget management is key. Manage your budget by not spending on expensive M&A advisories, consider prioritizing expenditures on valuable investor information and databases. Combining an in-depth understanding of VC portfolios with savvy resource allocation increases the likelihood of building meaningful connections with investors and optimizes fundraising efficiency. Sometimes, specially in advanced stages, a dedicated investor relations profile can be valuable, balancing this role is essential to avoid overwhelming the CEO. Traditionally, the Chief Financial Officer (CFO) has shouldered this responsibility, embodying a conventional corporate image. However, in the evolving VC landscape, bringing in a professional with diverse commercial skills can enhance the organization’s capacity to effectively pursue and secure funding from various sources.

As for the industry verticals and technologies that funds cherish most, we already know there are all kinds of investment theses. Leveraging the location in the world where you operate is arguably almost more germane. In Spain, an edtech will cash in on the language factor; if you are a fintech you will find enormous opportunities in the United Kingdom; in France there is a significant state aid framework.

Artificial intelligence is presently at the forefront of technological advancements. However, as always, there will be an 80-20 pattern: 20% of the players will grab 80% of the market. There will be business opportunities in that other 20% free from the stranglehold of a few, as there still are in SaaS (software as a service), cybersecurity, process management, and technology that supports traditional sectors amenable to speedy digital transformation (restaurants, fitness centers, etc.).

Venture capital fund and selection teams meticulously scrutinize potential investments, and certain red lines can act as obstacles. A founder’s first startup without a solid foundation of intellectual property or proprietary technology may give pause, signaling a potential lack of unique value or defensibility in the market. Additionally, unvalidated business models raise skepticism about the startup’s viability and market fit. Furthermore, seeking an excessive amount of funding or presenting an overly diluted cap table can be perceived as signs of financial mismanagement or an unrealistic understanding of the startup’s needs. While exceptions might exist, these elements can create hesitancy among investors.

In essence, entrepreneurship and venture capital are not bound by rigid formulas. Amidst the complexities of numbers, situational analyses, and business models, the underestimated force of common sense proves to be a formidable tool. Success transcends quantitative metrics, relying on intangibles like impeccable timing, unwavering transparency, a resilient team, collective expertise, and an ongoing readiness to respond to inquiries while sharing key performance indicators (KPIs). The intricate interplay of these elements defines the art of navigating the entrepreneurial landscape and securing venture capital. It’s the amalgamation of strategic insight and human dynamics that drives ventures towards enduring success.

Darío Villena
Feb 13 · 2024 Darío Villena Advisor