The PAINFUL Road from Pitch Deck to Funding

Key Takeaways

this is a timeline of every step needed to raise venture capital from pitching an investor to actually getting cash in your bank account and it absolutely sucks and nobody talks about it and that's a huge problem there are so many videos about Pitch THS but so few videos about what happens next and so many Founders that I get to talk to have no idea of how much work they're going to have to put up after they go through the pitch deck phase and that it's going to take months I've run a venture back company we've actually been through this twice so in this video I want to break down every step of the process and point you to some free tools that you can use to figure each one of those steps let's do [Music] it so I'm going to break this down into this timeline of faces I've seen these faces up close we did it for our own business of course and some of the companies that we've worked with pitching is the process from finding investors to getting your first yes which may or may not come with a term sheet which you negotiate on we'll get to that in a sec diligence is about a month-long process of going through your legal documents your contracts incorporation and legal documents Equity financials cap table the idea is to make sure everything is in order and everything that you pitched is true then there's the legal process that's negotiating the fine print on the deal that's converting this one to two page term sheet into a 10 20 Page stock purchase agreement and it'll be the most expensive part of the whole thing and last but not least getting the which doesn't come in checks anymore it's 2024 so let's start with pitch for every $500,000 you want to raise you'll want to pitch about 100 investors the pitching phase is brutal because you're going to get a lot of nose and that's probably one of the most discouraging parts of a Founder's job but sadly that's just part of the deal you're going to start this process by finding investors that could fund your company but in order to do that you first need to understand what kind of company you are most of our customer customers a good chunk of our audience are looking for Tech investors Venture Capital but not all companies are Venture back tech investors like solutions to very large problems that's hundred million companies companies that can scale really quickly using technology or software or AI Tech investors don't usually want profits they're looking for companies that want to spend very aggressively to grow and the return on investment for them is when the company exits or IPOs in 7 to 10 years that's not to say the company isn't profitable it's just that they're not after those profits we only to raise investor Capital because our core product was a SAS business if we would have tried to raise venture capital for this YouTube channel or our main YouTube channel it wouldn't have worked that's not the type of investor that invests in that but it's also important to understand what your stage is preed companies for example usually have a good form team a good idea and a good vision of what the product is going to be most importantly a preed company can execute and deliver that product on their own if you don't have that then you're probably an idea Stage Company and funding alternatives are going to be much more limited for you now preed can access funding from friends and family investors that's people who know them people who believe in the founders more than they believe in the idea at that point you can do startup accelerators you can occasionally do some super early stage angels and funds like hustle funds so understanding these rounds is not only important because of the type of investor that you want to be targeting but to ensure that the money that you raise is enough to get you to the next one you do not want to be stuck in the middle of two stages cuz raising money there is really hard we made this startup stage cheat sheet which uh you can just browse on our website and consult what you need with a clear idea of your stage now it's time to go and try and find investors and you want to start with your immediate City when we rais money back in in 2017 I think being in the same city as your investors was by all means a requirement but I think post pandemic it's become more of a nice to have I'm going to link our investor finder which can help make this search less painful because again you're going to need to go through hundreds maybe thousands of prospects investors so that you can find the hundreds that you have to pitch and go down that funnel now the most important part is that you want to start with people that you know directly and move to people that you can get a warm intro to do not cold email investors ever it's it's a rookie move it doesn't work and even words do not email blast your deck don't send it before asking the way an ideal investor intruction goes is first you ask a Mutual contact for a warm intro if you want you can send them like a one paragraph blurb of what you do so that you can so that they can forward it to the investor and you make their lives easier here's an example of one that you can use you can screenshot it you can use it then once you're in touch you can ask if you can send your pitch deck the pitch deck that you'll be sending here is is what we call an email deck it needs to be self-explanatory someone needs to be able to read it understand it without your help without your narration in 3 to four or 5 minutes tops you want to include some good teasing information about the business tell them what you do tell them your vision for it nobody will sign an NDA to receive it so don't even bother asking that's also a rookie move then you send it ideally you send it through a platform that lets you track once the investor sees it link to that Below in my experience investors will glance at it and not reply right away if they're interested they're going to see it again over the next few days and then if you've seen them look at the deck and or maybe not look at the deck and you haven't heard back yeah you can send an email reminder after that if they're interested you'll get a meeting meetings are usually 45 minutes you'll small talk for about 5 then you go through an extended version of this email deck that you sent going over more detail and that should last about 15 minutes and then after that there's usually a round of questions and you'll be in your way try to walk out of this meeting with a call to action understand which side of the Court the ball is in if they're not interested you're going to get a nice no nice nos are usually disguised in something like hey we we'd like to see more traction ction first or we'd like to see you accomplish blank for the most part that's usually a no and it's not easy to turn those NOS into yeses but you can try asking what the Milestone is you can make a note to yourself so that you can email them once you hit that Milestone you can ask if you can send them investor updates that's useful one of our biggest investors which we had actually scratched stuff as a no came in after one of those investor updates so it isn't entirely crazy I've seen it happen normally an investor will take maybe one or two meetings and a few emails to make it decision maybe you'll need to jump in calls or meet other partners on the firm and you're going to need to repeat this process dozens of times with different investors so prepare yourself for it brace yourself for it in my case this was absolutely the most painful part of the entire ordeal because it's just tough to get rejected all the time you want to keep a log of your conversations with them our investor finder has a little CRM tool that you can use to take notes and keep logs of what you've talked with each investor cuz I'm terrible with names and I forget and if they're interested they'll let you know and you move on to the next step the hardest investor to find is the first one trust me because it's their job to negotiate these terms how much is your company worth how much Equity are they getting are those shares preferred what exceptions do they have this negotiation is usually done through a term sheet which is this one to two page summary of the terms of the round the investment now if you have many investors lined up waiting to lead around you're going to be in a great position cuz you're going to have them out bidding themselves and if you don't then you really don't have a lot of bargaining power investors know that time is not on your side so they have that going for them and that's going to be a factor in the negotiation but once you negotiate a term sheet with a lead investor and they commit to it things move along a lot easier you can go to other investors you can tell them that you have a lead and they will for the most part follow and adapt to those same terms now leading around has another extra complication which is that they're in charge of the diligence the term sheet is not binding it's not a guaranteed contract you are not guaranteed to get any money it all depends on the diligence diligence is the process where an investor makes sure that everything about your business is in order and again it's usually done by the lead investor so during your diligence process your job is to put together a data room and most people will use a Google drive folder for that now collecting all of these documents is mostly on you if you've been structured about it you might already have a Google folder with a good bunch of them if you're not you're going to have to do a lot of emailing to get and collect them all the lead investors were going to go through all of this and it's going to take them a few weeks you have stuff going from Pitch te to financials like your p&l your balance sheet and your financial projections then on the legal side you have incorporation documents your stock purchase agreements your cap table company bylaws board of directors and the agreements that they've reached before this one if you have previous rounds and funding they'll of course want to check the documentation and the terms of those rounds as well then we go to IP uh they would want to make sure that you have registered trademarks if you have patents or patents are relevant part of your visit evaluation you'll want to check on those two then staff they'll check the organizational chart the contracts that you have with key people making sure that the founders have non-compete agreements and you know the right IP protection for all the code that's been developed so here's a list or rather more like a checklist of everything that you need to include I put that up together a few months ago uh free download I I'll link it in the description in my case this was mostly an async process they work on their own they let you know if you have any questions and again it's going to take them about a month now at the time when we raised money our business was n really too complex so everything was in order there wasn't a lot of document crawling to go through but that obviously changes from company to company and it gets much more complicated in in future rounds of funding if you pass the diligence process the next step is drafting all the legal documents that's mostly converting the one two-page term sheet into a five 10 sometimes 20page document where the company creates all the new shares that they're going to sell to the investor we made a whole video about how the process of issuing new share Works in a company so check that out if you have more questions now what most people underestimate about this part is how expensive it's going to be and it's mostly the company that has to pay for the legal fees our own Equity round racked up around $50,000 worth of legal fees which which we were able to negotiate down to like 30k what we did back then was sort of agree on a max amount that lawyers would charge us for the for the transaction and force them to not overcharges beyond that convertible loes are normally much cheaper around the 10K range in my experience and that's why many companies tend to raise money with convertible notes when the when the rounds are smaller or when they're early stage saves might even be cheaper because the save is working out of an existing template an existing document as expensive as this process is do not cut coiners these documents Define how your company is going to be split in the future and if you get something wrong now it could be really expensive or painful later reviewing this fine print and collecting all the signatures it's probably going to take about a month maybe a little less if it's a safe or a convertible node since it's a pretty standard document template and a much shorter document and now the round is not done not yet now you need to do Capital calls your investors are signed but they only transfer their money once that's done Capital calls means sharing wire instructions and we're going to attach a template below two that you can use and then a few days later finally seeing hundreds of thousands of dollars land on your company's bank account which yeah it's it's pretty cool you should budget a couple of weeks for this process from the moment that round documents are signed until all the money finally comes into the account now your first question here might be can it happen faster and the answer is yes it it can happen faster but that's the Exception by no means the norm if if you are able to raise money faster than this I actually I think everybody would find useful if you drop your story in the comments in a nutshell we're talking about a 4 to 6 months 4 to 6 months of your life spent doing this pitching negotiation and diligence are for the most part a full-time job for the founder usually the CEO so brace for more importantly remember that your business will need to run without you while you do all this stuff and growth needs to keep going so choose the right time when you want to actually begin fundraising now once you have the data room ready things get a little easier for you cuz it's mostly a lot of waiting and a lot of document reviews remember that you raise enough money to get to the next stage so if you're going from preed to seed or from seed to series a remember to raise enough money to get to that stage and a few extra months of cushion you don't want to go through this process again too soon and then remember if you're in a hurry to get to the end you lose a lot of Leverage in that negotiation process I really hope all this sheds some light on this process only about 1% of startup has managed to raise capitals I understand why it's not so well documented make sure you stay on top of the latest news about start with our startup club newsletter which we send twice a week resources in the description and check out our video on how issuing stock works for Founders and for employees catch you on the 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