A novice’s guide to raising venture capital

Editor’s Note: Each week Maynard Webb, former CEO of LiveOps and the former COO of eBay, will offer candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at dearfounder@fastcompany.com.

Q. We are starting to fundraise and need to know how to do it. What advice do you have? 

Dear Founder, 

Congrats on getting to this point. We fund a lot early-stage companies and first-time founders at the Webb Investment Network, so we’ve previously given this question a lot of thought. We broke our roadmap to fundraising down to steps that I hope any first-time founder will find useful. I’d like to give a hat tip to Jonathan Pines, general partner, who helped me with this answer.

Build a model of how much capital you need and want. The first step is to assess how much money you will need. We suggest at least enough to cover operations (headcount, resources, etc.) for 12 to 18 months—no one wants to be raising money every six-to-nine months. Then, build in a good buffer, for example, six months to cover any uncertainty. 

Assess where you are. Determine overall company strategy and key milestones for the next 12 to 18 months. How strong a value proposition do you have (both in the idea and in the team)? How much traction you already have? Is it still the idea stage? Is there a prototype? Is the product launched? This assessment will determine whether you have a compelling opportunity, which determines if you will have a choice of investors or if you will need to scramble to raise funds. Deals fall into one of two categories: deals that are very hot or deals that you must work very hard to get done.  (It’s kind of like credit—easy to get when you don’t really need it, and hard to get when you need it the most.) The easiest way to get funding is by building a relevant product or service that everyone wants.

Build your materials and story. This would typically be in a 10 to 15-page slide deck, though sometimes it can be a shorter document at earlier stages. It is key to share a narrative and explain why you are doing this company. Keep things simple. Practice before you present! Solicit feedback from friendly parties and listen carefully to their feedback but remember that opinions will differ, so as always, rely on your judgment.

Maintain a list of target investors. Depending on the round size and goals these can be entrepreneurs who started a similar company, angels, small funds, or bigger VCs. Use public data sources (e.g. Crunchbase, AngelList, LinkedIn) to see who appears to be active in your sector and stage but is not involved with direct competitors. As with everything, warm leads are best. At WIN, introductions that come from our affiliates who invest alongside us, portfolio companies, or people with whom we frequently invest, are considered very seriously. Reach out to friends and contacts who may know investors and could have ideas for you.

Prioritize your investor list and plan your outreach. Cull the first “sortie” to 10-15 investors. Then build a list of your outreach channels. Do you have well connected contacts who can look through your list and provide suggestions and possible introductions? Can you identify how your target investors like to be reached? Also come up with a strong cold outreach plan as a backup.

After you reach out, review! It’s necessary to assess and iterate. What worked well and what didn’t? What can you do to try to improve the process? Are you ready for more outreach or do you need to regroup and revisit your strategy?

Think ahead: Build a future fundraising model. What is your expected plan for future fundraises? What will dilution look like in different funding scenarios? What do you want to optimize for?

Choose wisely. Selecting the right people is a critical decision. Each founder has to decide what matters most. The terms? The investor? The investor’s reputation? The investor’s network?  Select investment partners that are committed to helping and have a track record of doing so. I recommend having a few healthy angel stakes in the deal, as opposed to very small stakes from lots of angels—especially if you expect the angels are to provide time and attention to help the company. I’m opposed to the “peanut-butter” approach, where there are a lot of angels with such a small stakes that they aren’t willing to dedicate the necessary time it takes to be meaningfully involved. Finally, there should be a personal rapport and an affinity towards one another. Investors will be with the company for a long time, so choose people you will want with you through both good times and the bad.