Fundraising in the New Normal
We caught up with Jonah Midanik, Managing Director and General Partner for Acceleprise in Canada as part of Connection Silicon Valley #CollaborativeCoffee series. Jonah shared valuable insights and practical tips on what startups need to do when targeting venture funding in this new environment.
Jonah opened it up with a great quote that we can apply in all facets of our life
“Just because it’s not your fault, it doesn’t mean it’s not your problem.”
The bar has been raised
Fundraising is hard. It was hard before. It has never been easy for first-time founders. But the bar has clearly been raised with #COVID-19.
For now there are less funds that are deploying capital and there is downward pressure on valuations.
On the bright side
VCs need to write checks. They charge fees to deploy capital. So there are plenty of funds that are looking to invest and Acceleprise is looking to write checks in the next 8 week. Reach out to Jonah directly (or contact us for an introduction) if you fit their investment criteria of early stage Enterprise SaaS.
Fundraising is a sales process
When you’re looking for revenue, you need to understand who is your target customer. And the same “ideal customer” mapping needs to be applied for startups looking for the ideal investor.
Venture scale returns
When we say the bar has been raised, you have to know that the bar has already been really high. Venture scale returns means that VCs are looking for 30 to 100x return on their investment. So that means they are looking for HUGE outcomes. Since the success rate is so low, this massive outcome justifies the risks they need to take.
Need a big “winnable” market
For Acceleprise, that means a software market size of $1B. And there needs to be a clear path to a minimum $100M in revenue. You don’t have to have a clear operational plan to that $100M (that wouldn’t be feasible for an early stage startup) but you do have to demonstrate that you have the vision to get you there.
VCs are looking to de-risk
And this means a few things:
Traction is more important than before.
Have you executed in the new normal? Ie: Have you brought on new customers in this changed market?
More runway is needed and less burn is demanded. What would happen if you didn't get more capital?
How do you plan to execute and what are the proof points?
The world has shifted its focus to a more sustainable business and operating model. This bodes well for Canadian startups because they are known for being capital efficient and more conservative with their targets. So how are you de-risking your business to make it attractive to an investor?
Principles have not changed
When it comes to fundraising, even in today’s times, the general principles have not changed.
Vision Matters. A ton. Without a clear narrative nothing works.
If you are a pre-Series B company, then by definition you have not proven that you are long term viable. So you need to demonstrate your vision - clearly, coherently and concisely. You need to demonstrate that you HAVE a vision. That you have conviction. That there is a market insight that sparked that vision. And that it’s a unique vision.
The single biggest determinant of why people lose out of the game is because they are not telling a convincing story. If you can’t express your vision clearly there is no way VCs (or anyone) can get excited because it’s unclear.
So you need to make it clear. That is why narrative is important. You’re telling a story and why someone should buy your story.
Winning A Market
What story are you telling on how you are going to win a big market? Not tactically how you’re going to win a billion dollar market, that is not possible, but broadly speaking, why are you going to win?
Is it because the incumbents are sitting ducks? Is it because 5G is changing the world? VCs need to get excited about the vision you present and be convinced that you can win that market.
And you have to do it within 5 minutes or less. Because the associate or partner needs to sell the vision to the other partners. So if you as a founder can’t do it, how will anyone else?
Demonstrate vision
You need to show that you’re the expert and tell a compelling story. It needs to be an exciting story that layers in proof points. Those proof points can be customers, market growth, other companies that did it, an advisor on your cap table, etc.
VCs are experts in almost nothing. You are the expert in your market. VCs can’t know the market like you do. Clearly show them that you know your stuff.
How will you operate and win in the new normal
The world has changed.
Budgets have been shattered. Consumers are running scared. Of course there will be a recovery at some point - but how will you operate and win in this new normal and until then? Speak to this and show that the value your offer is now more important than ever.
Economic downturns increase the technology adoption curve 100% of the time. You increase productivity per person by applying either more capital or increased technology …. and people are not applying more capital in the near future. So there is a credible story to tell about technology adoption in this new paradigm.
Know your metrics
You need to know your metrics and how they are going to get better. If you’re early stage then you likely have one metric that is really stellar and others that are mediocre. And that is normal. But knowing your metrics demonstrates knowing your business - which helps you de-risk for the investor. Know your metrics, cold.
Tactics that matter
If you’re a Canadian startup pitching in the U.S. you need to put everything in American dollars and use American spelling. The story needs to be how you’re going to win the U.S. market. Having U.S. customers is going to be critical. Canada is very credible as a test market but it’s not how you’re going to secure U.S. investment.
The 5 slide teaser deck
If you’re trying to get a meeting and you haven’t met someone, don’t send a deck that is 17 slides. We see this time and time and time again. The send deck needs to be five slides. Period.
It includes: your vision, the story on how you're going to win, and it needs to demonstrate how you’re going to win a market. That is it.
Highlight your best stuff - do you have 5 crazy impressive logo customers? Is your past experience what people will buy into? Have you secured amazing patents? Tell a compelling story, and tell it first.
VC’s don’t need to know everything about your business. They just need to know whether or not they should take a meeting!
Your bigger deck can be 12 slides and get into more details.
Pitch practice is NOT reciting your pitch
Pitch practice IS being able to recite your story and your vision, cold. Without your deck. It is getting hard questions from great people.
Great people are …. industry experts … people that have built businesses in your space ... founders that have raised venture previously.
The goal is to get a list of objections. And then you need to go back and make sure you have the answers to those objections (which can turn into details on your appendix).
The list of objections are the reason why you’re not getting funded.
So find people that aren’t fit to fund your business or are two stages up and get them to ask you hard questions.
In summary … the bar has gotten higher - but the principles are the same. You need to show a clear path to crazy revenue and you need to articulate the vision and apply the tactics to get there.
