We often talk about those who stand at the side with clipboards, and those that drop the clipboards and get on the field. At Founders Factory, we drop the clipboards. We measure ourselves on the value we add to our founders, and our dedicated team works hands-on with our portfolio, including helping them to fundraise. We have been involved in each one of their fundraising activities from the hard side—the sell-side.

We’ve had our own banner-raises: Shop Circle recently raised a $120m Series A, bringing their total raised to $185m. Perlego, Storyblok, and Peptone have all raised £40m+. Ask any of these companies what their experience of raising capital was like and they will say it was hard. Fundraising is hard. Really, really hard. 

A lot of what you will read in this guide is going to run counter to the advice you’ve heard on popular investment podcasts and blogs. Those content providers see the world through their prism—and before taking-as-read the musings of a partner-level Tier-1 Series A investor, remember that they are suffering from massive survivorship bias, as often for them to take real notice a company has to have already achieved the highly improbable (£150k MRR anyone?).

For example—I came across this as a summary from a panel of Accel, Balderton, Index, Atomico and Northzone:

Now, I'm not saying there is anything wrong with this per se: it may even be true. The problem is this—in the real world, much of the above is out of the founders’ control. No seed company I've ever come across wanted to have 20-30 investors on their cap table.

One of my favourite examples (some flavour of which I've seen at least thirty times) can be summarised in the following (imaginary) conversation:

When you set about fundraising, you’re going to get a lot of advice from investors you speak to, but who don't invest. Often their advice is worse than rubbish. At least with rubbish you know to trash it immediately. On the other hand, no-strings, no-cheque investor advice can be dangerously diverting. 

Here is an interesting counter-intuitive view by Harry Stebbing of Stride.VC and 20VC fame:

Something I believe to be true is that good investors invest because they get a great (but intangible) feel for the founding team (their passion/enthusiasm, integrity, team dynamic etc). Ironically, at the very early stage, there might be something optimal about that. If you spend too much effort on go-to-market, market size, product, you tend to over-fit.

Equally, GTM, market, product etc are often used as a post-rationalised excuse for why investors won’t invest. In other words, they tend to jump to a “no” quickly, rather than taking the time to post-rationalise it. They might take longer to get to yes, but their reasoning is often equally post-rational. In other words, even when getting to yes, most-times the (real) reasons are often much fewer than the number of variables founders agonise over.

The question then is how to help early-stage founders best avoid the quick jump-to-no. 

Without further ado—this is my No Bullshit Guide to Fundraising.

2. Raise what you can get—not the amount you think you need

The maximum amount you can raise is dictated by the market, not your financial model.

When it comes to seed and pre-seed investments, there’s a popular narrative that founders need to be raising enough for 18 months of runway. I’ve heard this a lot.

Many pre-seed founders take this advice to heart, so they go away and create a financial model, which tells them that they need to raise £2m to survive for 18 months. The problem is that the market won’t support that raise.

A small minority of pre-seed startups will be able to raise £2m, but most won’t. But everyone still seems to think they are the exception to the rule—in the same way that 93% of Americans think they are above average drivers (the classic Lake Wobegon Effect).

Remember: what matters is…

• How much you can raise

• What the market can support

• NOT what your model says

b) VCs

VCs typically enter the fundraising race at a later stage. Institutional seed funds, such as Connect Ventures can put in a decent cheque size (usually around £1.5m into a £3m raise). The bigger VCs, such as Accel, Balderton and Index, come in at Series A or B. But no matter the stage, all investors think about the returns in the same way.

Before we delve into returns, it’s helpful to remind ourselves exactly what venture capital. means. This can be confusing because not all companies are venture-backable.

In essence, a venture backable company is one that can scale as a function of capital.

This presupposes two things:

• A scaling element (internet-based, tech-enabled)

• Future capital rounds

When investing at seed level, investors are fully aware that you’re going to have future funding rounds, which will dilute their investment. They might decide to do a follow-on investment later, but if your business is going to become a $1bn unicorn, they know their investment will be diluted. Because of this, they need you to scale quickly in order for them to see a return despite their diluted position.

Investors are also aware that they are taking a risk investing in a startup:

• 90% of new startups fail

• 75% of venture-backed startups fail

• Under 50% of new businesses make it to their fifth year

(Source)

Therefore, the investor will need to believe that each one of their investments can return their fund at exit. Not that each individual company will return the fund—no-one can know that for sure—but that it could. 

To put that into context, Atomico’s fund V is an $820m fund. If you assume Atomico will have a 10% holding at exit, that means it needs to believe that each one of its investments could get to a value of $8.2bn.  

Contrary to popular opinion, VCs are not monsters. As a rule, they are generally helpful and accommodating people. The most likely response, however, to any interaction with any investor at any time is an explicit or implicit “NO”. So learn to expect little or no response, and prepare to be let down and disappointed. This is intractable—and it doesn’t mean that you should give up.

5. Finesse your investor materials

a) The investor deck

1. Your decks need to tell your story using your product

2. Your decks need to look great

Here’s my secret: show, don’t tell. Instead of using bullet points to describe your product, or communicate a big partnership, show me what this looks like on your product.

Take a look at this slide:

Here is a new slide making the same point:

The second slide instantly shows several things: it’s clear how the triaging process works, and how it might be useful to the customer while demonstrating how the product uses its mobile application powered by an AI chatbot. Do you see how this slide is more powerful?

Make your deck look amazing. I could give you all sorts of reasons why you should do this, but I’ll leave it to just two:

(i) There are several online services that allow you to send your decks as a link (DocuSend is one), where the reader can tab through the presentation without downloading the deck. We do this at Founders Factory, and we send out dozens of long investor decks to hundreds of investors.  

How much time do you think an investor spends reading one deck? If they look at yours for more than a minute, you’re doing well. Most slides within any presentation only get a cursory glance. Once the investor gets a feel for the idea, they decide if they want to take it further or not. The time they can take to get to “no” can be lightning fast.

Do you think it matters how the deck looks when they tab through the slides in a lightning-quick fashion? The rational response should be that looks don’t matter, that it’s ultimately about the content—but the truth is more nuanced.

Investors are humans. Sending over your deck is all about leaving an impression – and how it looks contributes significantly to that.

This brings me to my second point…

(ii) Your competition will be making their decks look amazing. Think you’re only being assessed on your merits? Not true. At least in part, you’re being assessed relative to your competition. And you need to be better.

One of my all-time favourite quotes is that by Mark Suster:

"Whenever you write your deck and send it out I think you should actually think to yourself, “My competitors are probably going to read this one day and this will be forwarded widely” and if your response isn’t “so what!” or “that would be awesome” then I think you’re doing something wrong anyways."

b) The Financial Model

The Founder/CEO of the company needs to own and produce the financial model, which tells your investor-story using numbers.

For early-stage tech startups, the Financial Model is a relatively simple beast. Using a decent template, you can piece together a cohesive model fairly quickly and simply.

There are only three general rules when it comes to financial models:

1. Your assumptions have to be credible (however, optimism is allowed)

2. If you are a VC-backed tech startup, you need to include a cash-flow line that shows in the right column that you have done enough with your previous raise in order to justify the next one. Making the new raise fit the VC Dao.

3. If you want VC backing, you will need to show how you will scale (in a capital-efficient way) to be a sizeable business within 7-9 years

For example, depending on their industry, a Unicorn business could have a £300m annual recurring revenue with a 10% EBIDTA margin—I'm not saying you need to be there by the end of the seventh year, but you get the point.

For more, read our startup guide to financial modelling.

c) The Cap Table

Finally, the Founder/CEO needs to understand and have the technical skills to manipulate an excel version of the cap table. There is good advice here. This will not only ensure that you understand the fundraising process, including how dilution works – it’s also the kind of skill that can help you close the deal on an investment. Sometimes being able to present a deal in the right way -  is the final nudge needed to get it over the line.

Most importantly: it helps you to get cash in the bank.