Mastering Your Fundraising Approach

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Fundraising is both an art and a science. For tech startup founders, understanding the nuances of engaging with venture capitalists (VCs) can distinguish between a successful raise and a prolonged struggle.

Filip Felician Dames , Founding Partner at Cherry Ventures , one of Germany’s leading Seed funds, shared invaluable insights on navigating the fundraising process effectively during this year's Bits & Pretzels .

Based on our?podcast interview with Filip (German Only) , this newsletter?delves deep into his advice, enriched with counterarguments and perspectives from other industry experts, to provide a comprehensive guide for founders aiming to optimize their fundraising efforts.

1. Understanding How VCs Source Deals

Filip Dames' Perspective: Cherry Ventures receives thousands of pitches annually, categorizing their deal flow into three primary channels:

1. Outbound Sourcing: Proactively identifying startups through technology tools that monitor signals like LinkedIn changes or registry updates.
2. Warm Introductions: Referrals from their network, including angels, Limited Partners (LPs), and portfolio founders, while portfolio founders make the strongest introduction.
3. Cold Outreach: Unsolicited pitches received via email.

Actionable Tip:

• Leverage Outbound Opportunities: Make yourself visible if your startup operates in a niche or emerging sector. Publish thought leadership content, participate in industry events, and ensure your online presence reflects your current projects.

Counterargument:

While Filip emphasizes the importance of warm introductions and outbound sourcing, some founders believe in the power of cold outreach. Elizabeth Yin , General Partner at Hustle Fund , says,

"Cold emails can be incredibly effective if they're personalized and demonstrate a clear understanding of how the VC can add value."

Actionable Tip:

• Personalize Your Cold Outreach: If you lack connections for a warm introduction, craft a compelling, personalized email highlighting mutual interests or aligning with the VC's investment thesis.

2. The Power of Warm Introductions

Filip Dames' Perspective: Warm introductions, especially from Cherry's portfolio founders, carry significant weight. Such endorsements signal credibility and can fast-track your pitch within the VC firm.

Actionable Tips:

• Network Strategically: Engage with entrepreneurs, advisors, or investors connected to your target VCs.
• Seek Endorsements: If possible, have someone with a strong relationship with the VC introduce you.

Counterargument:

However, in his blog, Mark Suster, Managing Partner at Upfront Ventures , argues, "Over-reliance on warm intros can perpetuate exclusivity, disadvantaging founders without established networks."

Actionable Tip:

• Build Your Own Network: Attend industry events, join accelerator programs, and participate in online forums to expand your connections organically.

3. Crafting an Effective Cold Outreach

Filip Dames' Perspective: If you must resort to cold outreach:

• Be Original: Stand out among thousands by personalizing your approach.
• Research the VC Firm: Understand their portfolio, investment focus, and team members.
• Target Specific Individuals: Address your email to someone specializing in your sector.

Actionable Tips:

• Highlight Alignment: Clearly state why your startup fits their investment thesis.
• Include Key Information: A concise overview of your business, traction, and team.

Counterargument:

Some experts, like Jason M. Lemkin , Founder of SaaStr , believe that cold emails without substantial traction may not be sufficient.

"Data talks. If you have compelling metrics, lead with them. Otherwise, focus on building relationships first."

Actionable Tip:

• Demonstrate Traction Early: If you have impressive KPIs or growth figures, showcase them upfront to capture attention.

4. The Debate Over Sending Pitch Decks Upfront

Filip Dames' Perspective: Filip advocates for including your pitch deck in the initial outreach. This allows VCs to assess the opportunity quickly and determine if it's worth pursuing.

"If I only have an email that says, 'We're building in the AI space for X, Y, Z,' that's not enough to decide if it's worth a first call."

Actionable Tip:

• Prepare a Compelling Deck: Ensure your pitch deck is clear and concise and highlights the most critical aspects of your business.

Counterargument:

Conversely, former Unicorn Bakery Guest Guy Kawasaki , a renowned tech idol, suggests in his book The Art of the Start 2.0 that founders might withhold the deck initially to encourage a meeting, fostering a dialogue rather than a one-sided review.

Actionable Tip:

• Use an Executive Summary: If hesitant to share the full deck, provide a brief overview that entices the VC to learn more in a meeting.

5. Engaging with Associates and Junior Team Members

Filip Dames' Perspective: It's a misconception that founders should only speak with partners. Building relationships with associates and principals is crucial.

"I think it's completely wrong and a bit unfair to say you shouldn't talk to associates. They are knowledgeable, specialized, and can help guide you through the process."

Actionable Tips:

• Respect Every Interaction: Treat meetings with junior team members as seriously as those with partners.
• Leverage Their Expertise: Associates may have more time to delve into your startup and advocate for you internally.

Counterargument:

Some founders feel that only partners have the decision-making power. Naval Ravikant, co-founder of AngelList , notes,

"While associates can be gatekeepers, they rarely can say 'yes'—only 'no.'"

Actionable Tip:

• Aim High but Engage Widely: While trying to reach partners, don't disregard associates. Use these interactions to refine your pitch and gather valuable feedback.

6. Managing the Fundraising Process

Filip Dames' Perspective:

• Be Prepared: Know exactly how much you're raising and why.
• Control the Narrative: Orchestrate your fundraising process, including who presents and how you handle due diligence.
• Maintain Momentum: Keep the process moving to avoid losing investor interest.

Actionable Tips:

• Set Clear Goals: Outline your fundraising objectives and timeline.
• Organize Your Data Room: Have all necessary documents ready for due diligence.
• Follow Up Promptly: Keep communication lines open and respond swiftly to investor inquiries.

Counterargument:

However, Fred Wilson , Partner at Union Square Ventures , warns against overly aggressive timelines.

"Artificial deadlines can backfire if investors feel rushed."

Actionable Tip:

• Balance Urgency with Flexibility: While maintaining momentum, be prepared to adjust timelines based on investor feedback and due diligence requirements.

7. Handling Rejections and Moving Forward

Filip Dames' Perspective:

Rejections are part of the process. If a VC says no, it is often better to accept it and focus your energy elsewhere.

"I would probably say, save your time. If you get a 'no' with a given reason, I'd spend the energy elsewhere."

Actionable Tips:

• Seek Feedback: Politely ask for the reasoning behind the rejection to improve your pitch.
• Stay Positive: Use rejections as learning opportunities and keep refining your approach.

Counterargument:

On the other hand, Filip suggests,

"A 'no' now doesn't mean 'no' forever. Keep VCs updated on your progress—they might invest later."

Actionable Tip:

• Maintain Relationships: Add interested VCs to a quarterly update list to keep them informed of your progress and milestones.

8. Setting Timelines and Creating Urgency

Filip Dames' Perspective: Setting a fundraising deadline is acceptable and can help maintain momentum.

"Timing is totally important. Momentum is extremely important.""Timing is totally important. Momentum is extremely important."

Actionable Tips:

• Communicate Your Timeline: Clearly state your fundraising schedule to investors.
• Create FOMO (Fear of Missing Out): Sharing interest from other investors can encourage faster decisions.

Counterargument:

However, Filip additionally cautions,

"Artificially imposed deadlines can seem disingenuous if not backed by genuine urgency."

Actionable Tip:

• Ensure Authenticity: Only set deadlines that reflect actual business needs or investor interest.

Conclusion: Navigating the Fundraising Journey

Fundraising requires strategic planning, relationship-building, and resilience. By incorporating Filip Dames' insider tips and considering counterarguments from other industry veterans, founders can:

• Personalize Outreach: Whether cold or warm, make every interaction count.
• Leverage All Relationships: Engage with both partners and associates within VC firms.
• Be Prepared and Transparent: Provide the necessary documents and clarify your fundraising goals.
• Manage the Process: Maintain momentum without pushing unrealistic deadlines.
• Embrace Rejections: Use them as stepping stones to refine your approach and engage with the next opportunity.

Remember, every startup's journey is unique. Stay adaptable, keep learning, and persevere in securing the right investment partners for your venture.

About the Contributor:

• Filip Felician Dames is a Founding Partner at Cherry Ventures , a Berlin-based venture capital firm specializing in seed-stage investments across Europe. With a background in entrepreneurship and investing, Filip brings a wealth of experience.

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PS: Check out our free?Fundraising Cookbook if you are preparing a funding round .

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