In a fundraise, most startups think it’s the startups who pitch and it’s the investors who ask questions and run due diligence. The reality is that startups should be asking as many questions as the investors and should also be running due diligence on the investor. It’s important to research the prospective investors and qualify them for a fit to your deal based on their investment criteria and track record for funding.
In your analysis you should separate them into A, B, and C, investors. With A being the ones that fit best and you want, B are the ones that have some fit, and C’s are the ones that don’t fit.
There are many venture capital funds, accelerator programs, and other forms of fundraising on the market. All claim to be “founder friendly”, have a great program, and talk about how they are the best.
How do you know who to pursue?
The startup should be analyzing the investors for their fit to the startup deal. Do they invest in companies like yours? Do you they have expertise in your area? What exactly can they do to help?
There are tools available to help understand the funding landscape such as Crunchbase, which tracks venture fundings and make the results available to subscribers.
You can track what companies are getting funded, as well as sectors. You can see which venture groups are active and doing deals and which are not.
In your analysis you should keep track of what investors are funding, and what valuations they are providing. This will give you some indication of what valuation you should negotiate for.
The operative word here is “negotiate.”
As the saying goes, “You don’t get what you deserve, you get what you negotiate.” And knowing what to ask for is the first step to a successful negotiation.
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies.