Welcome to Chapter 1 of our Founder Tip Series, where we aim to give back some advice, tips and helpful hacks to early stage founders. In this first entry we´ll be sharing some tips on fundraising. Now we know there are many helpful books out there like “The Art of Startup Fundraising” (by Alejandro Cremades) as well as guides such as the ones Y-combinator offers in its YC library. Nonetheless, we have put together several thoughts that we hope you find useful; and have opened our platform in case there’s anything in particular you find interesting or would like us to include in our next H20 founder tip series.
Fundraising is never easy. Whether you´re a first time founder or a serial entrepreneur, hacking VC fundraising will test your patience. The first thing you need to know is understanding the VC process. The full diligence process can vary from fund to fund depending on stage, investment thesis, geographic location as well as style & culture most likely. All these things, and probably some others, influence what each VC fund is looking to invest in. Some prefer to invest in founders, for example, others prefer to invest in solutions with recurrent revenue, others might prefer to invest in unique companies with strong IP, etc. These different investment lenses are an underlying component complementing our public investment thesis and will impact the depth and granularity we will focus a strong part of our diligence in, hence impacting our investment process. The good news is that despite these differences between funds, they all have a beginning, middle and end.
The beginning of the process will usually start with a first call, where you´ll be meeting with a small part of the investment team to pitch your company, give details on the round you´re fundraising and present yourself as founders. Something we like to do at H20 is also give a quick introduction on our thesis and personal backgrounds so the introduction can go both ways. We find this helpful because 1) you get to meet us more personally and 2) both parties can quickly identify if both interests and thesis are aligned. We´ve seen many founders also ask for this quick intro on our side at the beginning of the call, and have never seen this as an offense or as a yellow flag signaling that founders did not do a quick background check. In addition, these quick intros can also let founders know if they’re speaking with the right team within the fund. Some funds have special investment teams for specific verticals or for sourcing pipelines in particular regions and/or countries, it’s important to make sure you’re speaking with the right team to shorten the process as much as possible and not have to schedule a 2nd call and start from scratch.
The middle of the process is what we like to refer to as diligence. This part is the main one that´ll vary across VCs. A helpful tip is to ask the VC you’re speaking with about what their diligence process usually looks like. Make sure you get intel on the type of data or background checks they´ll do, if there´ll be subsequent calls to schedule and what that typical timeline looks like. Some diligence processes have more back and forth than others, it’s also a matter of the stage and traction the company has as well as the style & peculiarities of each VC. Our advice to founders here is 1) keep the conversation going, reach out if you haven’t heard back in a while and 2) ask beforehand what the diligence process looks like, maybe there’s additional information you can send beforehand that can quicken the process.
The end has one of two outcomes. In which case 1) you receive a term sheet or 2) the VC has decided to pass on the opportunity. In the latter, our helpful tip to founders is to always ask for feedback. Feedback is king. The VCs decision might have nothing to do with not being aligned to their thesis or not liking your solution, it might have to do with the size of the check, or fundraising terms or even the stage of the company. Feedback can also be valuable if VCs share insights from other solutions they´ve seen in the space, and can help change their minds when the company circles back in a subsequent round.
The last tip we want to leave you with in this first series for founders is, “match wisely”. Just as VCs have a thesis and know what type of founders & companies they´d like to invest in, founders should always ask themselves what they want from a VC. Venture money should always be smart money. Founders should also make a list and weigh the pros & cons of the VCs you´re reaching out to; for example if you´re expanding to Mexico you may want a local VC that can guide you with softlanding in the country and facilitate intros for strategic partnerships, or maybe you want a VC fund with a strong thesis on crypto or b2b sales. To facilitate this research we leave you with two directories we´ve seen out there that include a large list of Latam investing VCs and categories of their stages, tickets and thesis: 1) one made by Kate Kiewel from Khora , 2) and the other by Enzo Cavalie public on his blog in Startupeable.