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The first half of 2021 witnessed a mega-flow of investments by U.S. venture capitalists, breaking previous records. Experts identified that the total amount of funds generated in the first six months alone was up to $288 billion, reaching an all-time high.
It’s safe to say that VCs are pouring more cash than ever into promising startups, and the ecommerce industry is no exception. Raising funds online is a trend that is here to stay for 2022. Here are some insights that our company (3DLOOK) learned along the way. These lessons can apply to any business that’s looking to fundraise in today’s competitive, digitally-savvy market.
Leveraging the benefits of online communication
The pandemic has virtualized all of the fundraising processes, and this is not necessarily a bad thing. When fundraising, you typically have to spend a great deal of time planning and setting up important meetings – continuously traveling back and forth to meet and greet investors. As the lockdown shifted all communications to virtual mediums, companies can take advantage of the flexibility and opportunity to meet investors faster since there is no traveling to meetings involved.
This saves valuable time for both the company and the VCs. Leverage your outreach strategy to attract investors from anywhere in the world via virtual platforms. In addition, this will help cut costs and cater to the potential partners without physically being there in person. The company can often times close important deals completely virtually, with the exception of perhaps one meeting with the lead investor, before signing the term sheet.
Preparing for the round in advance
Series A is different from earlier stages since this is where the complete focus is on the company. In earlier stages, investors primarily focus on the team and the founders behind the company. They evaluate whether the founders have a broad vision and if they can indeed successfully implement their plans.
However, Series A is different as it focuses more holistically on the company. You must be ready to answer any and all questions about the company’s present and future plans, its milestones, goals, hiring projection, client portfolios, etc.
Before initiating the fundraising process, we at 3DLOOK created a multifaceted team from marketing, finance and production. We spent countless hours brainstorming on the pitch deck and ran various iterations every week. We also consulted with our advisors and early investors, asking them to review the pre-final version of the deck. Unsurprisingly, we reviewed and updated our initial deck up to 40 times.
For example, we focused on the following factors:
Our growth rate: We emphasized this achievement in our decks and communication.
Two five-year contracts with large enterprise clients.
Long-term, loyal clients who were willing to share positive feedback.
Our successful case studies with some of our earliest clients.
It is important to regroup and meticulously evaluate the feedback that is received from advisors and consult VCs on the steps that can be taken to improve proposals.
It’s all about gathering the right materials beforehand and making sure you’re prepared to answer any questions that come your way. Solid preparation is the key to successful fundraising. For example, you will need the following:
All key information the VCs require, such as the deck, cap table pro forma financial model, kept in the data room.
All documentation pertaining to your teams (such as CVs, employment agreements, consulting agreements, stock options, grants, etc.).
Relevant and up to date financial data.
Additional information such as client contracts, case studies, etc.
You should develop a clever strategy to reach out to the investors. In our case, we categorized a list of primary VCs we wanted to approach based on our level of connection with them. Here’s what our categories looked like:
The VCs in category A are companies that we have already met and have frequently been in touch with for years.
Category B VCs involve people we’ve met or had a call with once — not exactly a cold segment, but at the same time, not our warm acquaintances.
Category C VCs are people who have been referred to us, some of them we met once, and some of these individuals we’ve never met.
Then, create a set of blurbs designed for different VC categories and scenarios. You can think of them as unique templates to use in different situations, being able to repurpose them quickly with minimal personalization.
For Category A, we created a blurb that contained all the best data and statistics of our company with relevant updates to our traction and achievements since our last call.
For Category B, we created a short introduction about 3DLOOK, following it up with some rich traction data.
For Category C, we created a lengthy blurb that contained broad information about the company, the benefits it can offer and the traction.
The blurbs for all categories were sent in personally by the company’s founders. This detail is immensely important to emphasize your validity and help increase conversion.
Sure, there are multiple ways and methodologies you can use for VC segmentation. For instance, some company founders may think it’s best to start with VCs that are less likely to invest in their company, get their feedback, update the pitch and the deck, and then reach out to more relevant investors. However, at 3DLOOK, we focused on the VCs we had a connection with. We figured that if one of them jumps in, we’ll be able to close in the round faster and without a hitch.
Additionally, we received precious feedback which enabled us to optimize our deck and pitch, quickly and accurately, answering all the questions in the best manner possible. The first investor that jumped in was from the top priority group.
It may also be helpful to develop a FAQ document. This allows investors to hop forward to more specific and focused questions. This will grow investor interest in the company and, in turn, help to fast-track things. The entire process could take a lot longer than anticipated without one. This preparation helps you look even more competent and well-versed, giving you a strategic position with the investor community.
Use analytics and be proactive
Another vital pillar in successful fundraising, especially when it’s virtual, is analytics. When all of your communication shifts online, you can easily track and analyze the efficacy of your pitches. Our company monitors our outreach campaigns using DocSend, but you can choose any solution that would fit your needs and budget.
With access to streamlined analytics, it becomes easy to track the VCs that are eyeing your materials. You know what they were looking for and where they spend the most time. Develop a follow-up strategy and ask the VCs if they want to know more about the company or if they have any questions regarding your materials. You can be in a more proactive state instead of being reactive and waiting for a VC’s reply.
You will collect a large amount of relevant data and need to set up data rooms to organize every piece of information, which will help optimize the entire process. This didn’t just help us to organize all of our documents, but it also allowed for smart permission management.
We set up two data rooms. You may choose to use this model.
The first data room gave access to initial due diligence. It was all about information pertaining to client contracts, patents, trademarks, IP rights, financial models, sales deck, sales pipelines, cap table, etc.
The second data room was meant for detailed due diligence and provided access to more information. This includes employee contracts, CVs, stock options, corporate documents, etc. We provided access to this room right after we received the term sheets.
We also thought of a new tactic of customized links. Every VC segment (we had three segments as mentioned above) received a different link, and we could also track the activity of every VC in the list. Once we came to an agreement with the primary investor, we simply disabled the links for every other potential investor without needing to delete the files.
All in all, fundraising is by no means easy, especially now as checks get higher and so does the competition, but with the right approach, you have all the chances of sealing the deal and getting one step closer to building your unicorn company.
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