How do you successfully raise VC money?

When I was working as the VP of Analysis at Library House, a business information and research company focussed on high potential start-ups and specifically on venture capital-backed companies, I worked with dozens of VCs, analyzed well over a 1,000 start-ups, and saw many hundreds of start-ups pitch.

During my five year tenure, I have come to one fundamental conclusion: most companies don’t raise funding, not because their company is not interesting enough, but rather because they don’t actually understand how VCs think and work. They also do not understand the process of how to raise venture capital.

Today, I read an article by Josh Kopelman, in which he mentioned a ‘ Founder’s Manual for Pitching a VC’. I think the notion of some sort of manual is a great idea. I personally think that although the pitch itself is important, it is just one component of many when raising VC funding. Starting with this article, I thought I would write up the ‘VC Fund Raising Manual’. This will include not just the pitch, but effectively the whole process.

VC Fund Raising Manual

Outside of scope: I will not discuss whether find raising from VCs is a good or a bad thing or whether other options are more appropriate or how to compare them or how to choose. Or how to raise angel funding. Or how to bootstrap. I just can’t find the time to explain them all.

This manual is for those that have already made up their mind that they want to raise VC funding. It explains the process of doing that.

In this manual, I will do a great deal of generalization and simplification. Please keep this in mind.

Introduction

Overall, what one needs to understand when raising funding is that there is a highly conserved process of going about this. Most VCs follow this process. It is important that you understand this process and all the drivers that are important at each individual step. The VC fund raising process looks (more or less) as follows:

1. Identify relevant VCs – 8 weeks

2. Prepare documentation – 8 weeks (you select VCs at the same time)

3. Approach relevant VCs – 6 weeks

4. The pitch – 30 minutes

5. Commercial due diligence and further meetings – 10 weeks

6. Full partner pitch and issue of term sheet – 4 weeks

7. Term sheet negotiation – 4 weeks

8. Legal work – 4 to 8 weeks

9. Sign deal and money in the bank – 1 day

Total time for fund raising: 2 months preparation and on average 7 months actually raising the money. Please note that this is a gross generalization, it might be shorter or longer than this, but as a general assumption, this should be fine.

I will explain each step in detail using separate blog posts.

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