Your Guide to VC Funding

Your Guide to
VC Funding

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 Your Guide to VC Funding

Part 1: What You Should Know About Early- What Is Venture Capital?
Stage Venture Capital Before Pursuing It
Venture capital are the funds invested in a company, generally
Although the economic landscape in which entrepreneurs during pre-IPO process. Typically they are controlled by an
are operating has changed, there are still many financing individual or small group known as venture capitalists (VCs),
options for those looking to build their big ideas. Companies and they seek a high rate of return, secured by an ownership
in particularly resilient industries, such as those in the stake in the business.
technology sector, are still seeking, and receiving, venture
VC is also sometimes referred to as “risk capital,” because
capital (VC) funding. And venture capitalists are still willing to
there’s a risk of VCs losing their money if the early-stage
spend. In a survey of more than 1,000 VC investors, Paul A.
business doesn’t succeed.
Gompers of the Harvard Business School found that, “the
bulk of VC investors are looking to do new deals, they’re VC is funded by institutional and private investors.
just sitting on a ton of money.” Venture capital firms acquire funds from institutional investors
such as pension funds, university endowments and financial
In this section, we’ll cover the basics of VC, provide general
firms or high net worth individuals like former entrepreneurs
tips on how to know if it’s the right funding option for your
or angel investors. VCs then invest these funds in companies
company and give an overview of the process through the
with hopes of achieving a significant return.
lens of the current economic environment. We’ll also explain
the three tiers of VC deals: seed, early stage and later stage. VCs invest in return for equity.
Venture capital investments are typically made in exchange
We will cover the ideas on a general level. However, we’ll
for an equity stake, or part ownership, in a company, as
further explain the most critical lessons one-by-one in
opposed to being structured as loans.
subsequent sections. So read up, do your homework, then
get out there and begin pitching. VC investments include long-term partnerships between
companies and venture capital firms.
Venture capitalists don’t just give you money and walk away.

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 Your Guide to VC Funding

They often want to attend your meetings, help make decisions

and give their input on how to run your company. A VC firm
will stick by your company’s side until it “exits” by going
public in an IPO or getting acquired or bought out by a private
equity firm or larger company...and that can take a while.

Gompers predicts: “the pandemic might also delay initial

public offerings, forcing venture funds to hold investments
longer than planned. To ensure smooth exits, many venture
capitalists have redirected their time from deal-making to
shoring up portfolio companies.” Expect VCs to be more
involved with your success if you receive funding, and don’t be
surprised if it takes longer than planned to reach an ideal exit.

Is My Company Ready for VC?

The right moment to approach VCs for investment is different There are also more intangible assets a company must have,
for each company. It’s possible to attract a VC partner with only which VC Scott Maxwell describes—via questions—in an
an idea, but the majority of deals are closed after a business article for Inc.:
has three concrete items: 1. Is your product uniquely valuable?
• A Founding Team 2. Is your economic model attractive? (i.e. Does your business
• A Minimum Viable Product (MVP) model have a solid way to make money?)

• Customers 3. Is your business scalable? (i.e. Is there a large market for

your business to serve? Is your business model aimed at
generating millions in company revenue?)

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 Your Guide to VC Funding

4. Is your management team capable of growing the company? For more alternatives to VC funding, read “8 Ways to get
Funded Without VC Cash (and Why it Might be a Great Idea).”
5. Do you have any momentum? (i.e. Do you have initial
customers, sales or analytics showing adoption of product The Five Steps to Getting VC Funding
or service?)
So you’ve decided VC is the right financing channel for your
As VCs are shifting their investing strategies in response to company, and you think your company is mature enough
the pandemic, a sixth intangible asset has become vital to to pursue it. Now you need to understand and prepare for
attracting investor interest. Hustle Fund Co-Founder and VC the funding process. As a business founder, you’ll likely go
Investor Eric Bahn labels it as: through five steps on the path to VC funding:

6. "Antifragility" (i.e. Can your company thrive in the face 1. Idea

of economic downturn?) First of all, you need a great business idea. But as we’ve
mentioned, not every business is right for a VC investment.
In the next section, we’ll further explore how to discern if your
Venture capital firms invest in specific kinds of companies:
company is the right type and stage for VC and what VCs look
typically early-stage, highly-scalable businesses that can grow
for when making investments.
fast, dominate a market, go public through an IPO and now,
If your business hasn’t progressed far enough yet to attract demonstrate resilience in tough economic times.
venture capitalists, a business incubator might be a good first
stop. Incubators and early stage VC investors like Amplify LA, If you want VC money, you’ll have to ensure
500 Startups and Hustle Fund offer resources, mentorship your business fits this bill; otherwise, a
and office space, as well as opportunities to get smaller different type of financing is your best bet.
amounts of capital (usually up to $100,000, whereas the
average seed-round VC deal is $2.1million).

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 Your Guide to VC Funding

2. Pitch
A pitch deck is generally the first piece of marketing collateral
you will share with a VC firm and according to Bahn, “no matter
the economic climate, you’re going to need to pitch many
more investors than you hope to work with.”

A pitch deck is a presentation that showcases

your company and its story to VC investors
you meet with. Pitch decks usually take the
form of a slideshow presentation and can be
cold-emailed to a firm. However, the best-
case scenario is to get a warm intro, which is
We’ll explain how to make an epic early-stage pitch deck in the
when someone from your network introduces
next sections.
you to the VC.
3. Meetings
Early-stage pitch decks are often conceptual and idea-based,
To secure financing for your business, you need to meet with
whereas decks for later stages of funding are more complex,
VCs. Cold-emailing your pitch deck to VCs is a potential way
featuring KPIs such as engagement, traffic or revenue.
to score a meeting. However, you’ll be much better off utilizing
(Some entrepreneurs prefer to showcase their product in the your network as explained above.
first meeting in place of a deck. However, if the VC shows
In today’s environment, VCs are now conducting meetings over
interest, the next step is almost always a traditional pitch deck
video conferencing platforms like Zoom and Skype. It’s important
or business plan.)
to understand that while you may be meeting over video the
same principals apply as any in person meeting with a VC.

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 Your Guide to VC Funding

To find the best fit, create a target list of VCs that align with Do ask: “Do you mind sending my company materials to
your business. CB Insights offers an extensive database of just one person in your network who might be a good fit?”
firms that you can search to find financiers in your industry.
Start with a single, pointed ask to the investors you meet with.
Then, use your network for referrals to get in touch with VCs,
It’s easier to digest, and you’re likely to get more introductions
or do cold outreach as a last resort.
than if you ask them to share your idea with multiple investors.
The timeline for getting a meeting is different for everyone. Once you’ve secured support from one angel investor, then
If you have a hot idea and a network of business people with secure support from another, and another to assemble your
direct VC connections, it’s possible to get meetings set up “flywheel” of funding.
within a few weeks.
We’ll provide more tips for targeting and getting in touch with
But if you don’t have contacts, securing a meeting can take VCs and angel investors in the next sections.
a long time. That’s why Bahn suggests prioritizing angel
4. Due diligence
investors especially if you’re pursuing seed round or pre-seed
If your first meeting with a VC goes well, there will be
funding. They may not have as much capital to invest, but
additional meetings—the exact number varies greatly—
they aren’t under the same pressure as VC firms to deliver
and a series of due diligence steps before a VC offers a
returns. A great way to secure meetings with angel investors is
deal. According to MicroVentures, an equity crowdfunding
by creating what Bahn calls the “flywheel” effect. A common
investment platform, most VCs take a phased due diligence
practice for founders seeking funding is to ask angels and
approach. Due diligence includes reviewing the founding
VCs if they can introduce them to additional investors. Bahn’s
team, product, industry, target market, company earnings
“flywheel” method is a simple way to get investors to do this.
power and financial viability of the company. No matter how
He says:
“done” your deal seems, the due diligence phase is necessary
Don’t ask: “Do you mind sending my company materials to for all venture capital firms—and it’s now taking longer. Paul
anyone else who might be a good fit?” Gompers, mentioned above, says startup founders should

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 Your Guide to VC Funding

expect the “due diligence process to take significantly

more time” as firms look to deploy record amounts of capital
without in-person meetings. The firm will take that time
to fact-check all important data and assess current assets
alongside any potential risks, eventually determining whether
the deal is a good fit.

5. Terms sheet and funding

If a VC wants to finance your company, they will send over a terms
sheet that lays out the details of the proposed deal. The terms
sheet is a negotiable document that both parties must agree
upon. After finalizing a terms sheet, the company will receive
funding. We’ll cover the specifics of terms sheets in the next
sections. These five steps are the general process of securing
increased percentage of their capital to their existing portfolio
funding from a VC. It’s not always a straight line to funding, so
of investments.
come prepared and remain persistent during the process.
During the process, investors may also request additional
How Long Will It Take to Get VC Funding?
meetings because they are unable to meet founders in person.
You don’t want to run out of money while building your “It’s important to be patient when selecting VCs and adapt
business. So when approaching the VC funding process, it’s to the funds that are open. Set up meetings with additional
imperative to give yourself plenty of time—especially now. prospects to compensate for VCs who won’t have active funds
when you’re ready to secure funding”, Anuj Goel wrote in an
The economic and technological implications of COVID-19 have
article for Fast Company.
impacted how long it takes for startups to receive funding. Due
diligence will likely take longer and VCs are now deploying an VC fundraising takes time. Be patient and persistent in your pursuit.

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 Your Guide to VC Funding

The Three Tiers of VC Funding

For most businesses, the first interaction with a VC will take The Three Tiers of VC Funding
place in its early-growth stages. Early-stage financing includes
three stages of venture capital investment. Pitchbook defines
all three as:
Seed Stage enlarge
Early Stage Later Stage
“Seed stage: When a venture capitalist provides an early- When a venture capitalist provides an The early stage of venture capital The later stage of venture capital
early-stage company with a relatively funding is intended for companies in the funding is for more mature companies

stage company with a relatively small amout of capital small amount of capital to be used for
product development, market research
development phase. This stage of
�nancing is usually larger in sum than
that may or may not be pro�table yet,
but have proven growth and are
or business plan development, it’s called the seed stage because new businesses generating revenue. Like the early

to be used for product development, market research or a seed round. As its name suggests, a
seed round is often the company’s �rst
o�cial round of funding. Seed round
need more capital to start operations
once they have a viable product or
service. Venture capital is invested in
stage, each round or series is
designated by a le�er.

business plan development, it’s called a seed round. As its

investors are typically given convertible rounds, or series, designated by le�ers:
notes, equity or preferred stock options Series A, Series B, Series C and so on.
in exchange for their investment.

name suggests, a seed round is often the company’s first

official round of funding. Seed round investors are typically
given convertible notes, equity or preferred stock options in
Figure 1: The Three Tiers of VC Funding
exchange for their investment.”

“Early stage: The early stage of venture capital funding is yet, but have proven growth and are generating revenue. Like
intended for companies in the development phase. This the early stage, each round or series is designated by a letter.”
stage of financing is usually larger in sum than the seed
Venture capitalists can be involved in any of these early
stage because new businesses need more capital to start
stages of a company. However, some entrepreneurs get their
operations once they have a viable product or service.
seed or startup money from friends and family, business
Venture capital is invested in rounds, or series, designated by
loans, alternative lending sources or other financing devices
letters: Series A, Series B, Series C and so on.”
before approaching VCs.
“Later stage: The later stage of venture capital funding is for
more mature companies that may or may not be profitable

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 Your Guide to VC Funding

Part 2: How to Tell If Your Company Is Ready goal, however, takes time, potentially even more in periods
To Pursue Venture Capital Funding of uncertainty, which is why it’s crucial for founders to now
showcase resilience.
Venture capital is a useful and powerful financing method,
but it’s not well-suited for every business. Traditionally, VC In a recent study on corporate resilience, George Serafeim of
has been geared toward companies that are designed to the Harvard Business School found that, “during a market
grow quickly and have high startup costs. Add a global health crisis, investors are looking for evidence that a company
crisis to the mix and VCs are now beginning to focus on can be resilient.” Resilience comes in many forms, but
longevity and adaptability. For the best chance of scoring ultimately it is a company’s ability to cope with stress,
venture capital funding, you need a resilient idea ideally in an persevere and ultimately succeed amidst change. Resilient
industry where VCs tend to invest heavily—and an impressive companies in today’s world embrace technology and focus on
management team. sustainability. “Startups focused on the ‘new normal’—remote
work, telehealth, distance learning and fintech—have done
In this section, we’ll help you define if your company has the
well; more than half of the top 25 early stage deals of the first
right elements to be considered for VC funding. By evaluating
quarter were in pharma and biotech startups” Adam Bluestein
your business as well as the industry in which you operate,
said on Marker, a business publication on Medium.
you can determine if VC is the best financing option for you.
Companies with high startup costs
What Kind of Companies Score Venture VC is well-suited for early-stage companies with substantial
Capital Funding Today? startup costs that need funds to grow operations and scale the
Resilient companies business. Many small businesses—mom-and-pop ones, or
Venture capital financing focuses on companies that have the those running out of the proverbial garage with intentions to stay
potential to grow quickly. Growth and returns are what VCs small—can often start with just a few thousand dollars. Venture
are looking for when investing in any company—with an end capital, however, is intended for companies that need hundreds
goal of a successful IPO or acquisition. Getting to that end of thousands or millions of dollars to get off the ground.

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 Your Guide to VC Funding

For reference, the median size of seed-round deals was

$2.5 million in Q3 of 2020, according to the PwC/CB Insights Internet

Healthcare 7,983
12,735

MoneyTree Report. See the full breakdown by deal size and Mobile and telecommunications 4,333

3,762
Software (non-internet/mobile)

stage in the report. Industrial 2,685

Financial 1,015

Computer hardware & services 895

Venture capital is often the ideal financing source for Food and beverages 747

586

companies that are capital-intensive, or have large upfront

Electronics

Consumer products and services 455

operational costs but not the collateral to secure funding from

Automotive and transportation 379

Business products and services 331

enlarge
traditional sources like banks. VC fills a void in the investing Energy and utilities

Agriculture 196
331

market by offering funds for many capital intensive industries Media (traditional)

Risk and security

43

14

such as software, telecommunications, automotive, media or Environmental services and equipment 14

Retail (non-internet/mobile) 5

consumer products. Leisure 0

Metals and mining 0

Which Industries Receive the Most Venture

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Value in million U.S. dollars

Capital Funding?
Figure 2: Statistics on the Value of U.S. Investment
In venture capital, not all industries are equal.

“The myth is that VC invests in good people and good the pandemic has kept investment in the technology sector
ideas,” funding expert Bob Zider wrote in a 1998 article for strong. The entire breakdown of VC funds invested in Q3 of
the Harvard Business Review. “The reality is that they invest in 2020 by industry is depicted later.
good industries.”
A large portion of VC funding is directed at specific industries,
Statistics on the value of U.S. investment in Q3 of 2020 but that doesn’t mean you should abandon ship if your
show that internet business is still the clear leader, followed company doesn’t belong to one of them. You can still get
by health care, then mobile and telecommunications. The venture capital funding. However, it’s important to know what
acceleration of companies adoptng new technology during you’re up against.

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 Your Guide to VC Funding

How Baked Does My Idea or Business Have • Is your management team uniquely positioned to
to Be? understand the customer pinch point and capable of
spurring company growth?
It’s very rare to get a VC excited on a pitch deck alone. In most
cases, the VC wants to see initial progress, such as a founding If you answered “yes” to each of the questions, then it’s likely
team and a minimum viable product (MVP) and the farther your company will be attractive to VCs.
along, the better.
For example, Jordan DeCicco’s company, Super Coffee, fit
Whenever possible, come to the table with a few large the bill described above when it secured VC funding.
customers, testimonials and a working prototype.
As a college freshman in 2015 looking for low sugar
Tangible progress will go a long way in alternatives to bottled coffee and energy drinks, DeCicco
started Super Coffee. By 2018, VCs had taken interest and
establishing trust and interest from the
saw it as a scalable product within an extremely competitive
VC community. industry. DeCiccio’s management team was crucial in securing
You should also evaluate your business idea, model and team a Series A funding round as it demonstrated that leadership
with questions that include: could work with employees to shift quickly when new product
lines weren’t performing. Today, Super Coffee has secured
• Is your product different from any other on the market?
$25 million in Series B funding, and its valuation has risen to
• Does it serve a unique need within a large, untapped more than $200 million in the midst of a pandemic. The key
customer segment? to these wins: a flexible and unified management team that
was able to cut spending in other areas without laying off its
• Can your business model scale, growing larger to support an
employees and a commitment to analyzing the impact on
increase in load, be it customers, transactions or revenue?
cash burn and runway in “what if” cost cutting scenarios. That
• Does your company have enough cash runway to weather gave VCs the confidence that they could weather uncertainty,
uncertainty and an econcomic downturn? and they closed the deal.

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 Your Guide to VC Funding

How Important Are My Company’s Founders?

Very. If you take anything from the story about Jordan
DeCiccio and Super Coffee, it’s that your founders and your
executive team are crucial. VCs look closely at company
management in regards to their skill set, past experiences and
even where they went to school.

The management team

In the research study “How Do Venture Capitalists Make
Decisions?”, researchers from universities including Harvard
and Stanford surveyed over 680 venture capital firms to
better understand their decision-making processes.

They found that a company’s management was the top factor

VCs considered when deciding whether to invest. The question of diversity
“The management team was mentioned most frequently both Lack of founder and investor diversity has been prevalent
as an important factor (by 95% of the VC firms) and as the in the venture capital community for far too long. Managing
most important factor (by 47% of the VCs),” the study states. Director at Jumpstart Foundry, Eller Mallchok had this to say
about diversity in VC in a recent virtual event, “This has
Some elements of the management team seem to be more been a big focus for the entire venture industry—I have been
important than others: The study found that VCs judge pushing other firms we are close with to confront the fact
a management team first on ability, followed closely by there is extreme bias in how we conduct due diligence, how
industry experience. Secondary factors include passion, we deal source and that we need to have active strategies
entrepreneurial experience and teamwork. to combat that.” Investors are recognizing this and exploring

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 Your Guide to VC Funding

strategies for getting outside their networks to invest in

founders with diverse backgrounds and experiences. The Bottom Line
Let’s review: To receive venture capital funding...
During the same event, Phil Boyer Principal at Crosslink
1. Develop a resilient business model in a
Capital added that, “in our minds, it’s about internalizing the
fact that it isn’t just the right thing to do to invest in diverse 2. Hot industry, with
founders and teams, but it’s actually good for business.”
3. A diverse team.
Competition for diverse founders is heating up too. In an
Getting funded is more art than science, and not
article for Bloomberg, VC Sean Mendy of Concrete Rose
everyone who wants venture capital financing gets it.
Capital spoke about the fund he and his team put together
So give yourself an advantage against the competition.
focused solely backing diverse founders. He commented on
Develop scalable, resilient businesses that can grow
similar funds entering the space from corporate investors like
quickly, choose industries that VCs are keen to invest
Softbank Group Corp. and Base10 Partners noting,
in, and build management teams that are diverse, agile
“Competition is good for the space—I want to see as many and inspire investor confidence in the company’s ability
founders as possible raise money.” to succeed.

Adding diversity to your founding team and within your

business isn’t just a good practice for attracting investor
interest, it’s just good business. A collective of different
backgrounds and experiences within your team can give you
an advantage in dealing with unexpected roadblocks and will
make your business stronger in the long run.

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Part 3: Pitch Deck and Presentation: The • Company progress in terms of team, product development,
Perfect Pitch Deck and Presentation Style to major clients and any revenue.
Secure VC Funding • The amount of money you’re asking for, how that money will
For a meeting with a venture capitalist, you need to focus on be used and what milestones you hope to reach.
two things: your pitch deck and presentation style.
• Financials, such as P&L statements, over three to five years.
It’s worthwhile to brief yourself on what VCs are looking for, so you’ll
• A clear, long-term vision for your company.
be in the best position to sell both your business and yourself.
There is some debate about whether an entrepreneur should
What’s a Pitch Deck? send a pitch deck prior to the actual meeting. For this purpose,
A pitch deck is a presentation that provides an overview of Suster recommends having a separate presentation called
your business. The deck can share insights about your product a teaser deck that you can send to VCs via email during the
or service, business model, market opportunity, company introduction phase.
funding needs and your management team. If you’re hoping
A teaser deck is a simplified version of your pitch deck that
to raise money from a VC, a solid pitch deck will be your calling
includes quicker descriptions of the team, market, problem,
card and the starting point of most introductory meetings.
solution and company progress. (A teaser deck does not
Winning pitch decks are brief and clear, and they must cover include the amount of money being raised, P&L statements,
some standard information. In an article for Inc., Mark Suster, use of proceeds or any other confidential information.)
a Managing Partner at Upfront Ventures, says a pitch deck
VC heavyweight Sequoia Capital details a similar list of items
should be visual, compelling and cover the following:
to include in your pitch deck on its website.
• Founding team

• Market pain point, market size and how your product/

services alleviates this problem.

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How Long Should My Presentation Be?

Consider the 10/20/30 Rule. “A pitch should have 10 slides, The 10/20/30 Rule for VC Presentations

last no more than 20 minutes, and contain no font smaller

than 30 points,” entrepreneur and business author Guy
Kawasaki recommends.

10 20 30
enlarge
The rule isn’t an exact science, but as a bona fide business
legend, Kawasaki has crafted and witnessed enough pitches
to know what works. Slides in the deck Minutes of presenting Point font

Kawasaki bases his 10-slide recommendation on the idea

that the human brain can only process 10 concepts at a time.
More concepts will be lost and might even cloud the original Figure 3: The 10/20/30 Rule for VC Presentations
concept, he says. So, focus on what’s most important, and
boil those slides down to 10.
Are There Pitch Deck Examples Out There?
A typical presentation slot is an hour, but with late arrivals
Wouldn’t it be amazing to see the pitch decks that companies
and technical difficulties, it’s best to shorten your pitch to 20
like Airbnb, Square, LinkedIn and YouTube used to get
minutes. This guarantees you’ll be able to cover your entire
funding? Well, you can. Companies like these often publish
deck and leave time for discussion.
their pitch decks as learning tools for other entrepreneurs.
Any font smaller than 30-point leads to information overload
Aaron Lee, Co-founder of online retailer Leneys, compiled 30
on each slide. With too much info, you may feel inclined to
of the best pitch decks in an article for Piktochart. Browsing
read as opposed to present.
these professional pitches, you’ll see that Kawasaki’s 10/20/30
rule is not exact but often comes into play.

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 Your Guide to VC Funding

You’ll also notice the decks each have a distinct style yet also
share many characteristics. Some of the most common deck
tactics are:

• Hook your audience. Describe your business in simple

language that engages your investor. Check out Airbnb’s
pitch for an example of a strong hook.

• Show problem and solution. Paint a picture of the market

pinch point, and how your company can solve it. If you’ve got
a competitive advantage, let the investors know. Mixpanel’s
series-B pitch deck does exactly that.

• Highlight the team. If you’re lucky enough to have a

seasoned management team, like Square, show that.

• Hit em’ with the numbers. If you have key metrics that show • Tell a story. Most of our brains prefer stories to sales pitches.
business growth such as engagement, traffic or revenue, then If you can share your pitch in the form of a story, investors will
put them front and center. Believe it or not, Facebook’s be more engaged. Dwolla’s founder shared his personal
original pitch deck was heavily focused on metrics. pain with credit card fees which resonated with investors.

• Find your tone. Know who you are (tone) and who you’re Note: You don’t need all of the elements above to form a
speaking to (audience), and highlight this in the deck. great deck. Think about your company offering, and utilize
Manpacks pitch deck leaves little to question about the the features that are best for you.
company’s identity.

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 Your Guide to VC Funding

To provide founders with a better understanding of how VCs language and eye contact, often making it more difficult to
are evaluating pitches, Hustle Fund has been critiquing stand out. Understanding the challenges associated with
pitches live on camera. Co-founders Eric Bahn and video meetings and preparing for any potential pitfalls can go
Elizabeth Yin offer feedback on 5-minute virtual pitches from a long way in differentiating yourself.
real founders. While the companies pitching are extremely
2. Unexpected Questions
early stage, you can see why core principals of brevity, clarity
Weiss also tries to derail the flow of each founder he meets
and resiliency are necessary for convincing a VC to invest in
with. He often asks unexpected questions during the call that
your company.
the founder didn’t address to get to the bottom of what he
The Presentation cares about, but more importantly to, “see how the founder is
dealing with the changes.”
A pitch deck helps you prepare for your VC meeting. But once
there, you’ve got to verbally sell yourself. Even if your idea is 3. Team Dynamic
a winner on paper, a VC team must also have faith in your In the case that a founding team is giving their pitch, Weiss
ability to carry out the plan. makes a point to ask questions to each of the team members.
He says he pays particularly close attention to “the team
Virtual meetings have greatly impacted the way founders are
dynamic when hard questions are asked.” How your team
selling themselves. With almost all VC meetings being conducted
manages stress during the presentation is crucial, and Weiss
over video platforms like Zoom, NFX General Partner Gigi Levy
says it “is very visible over video.”
Weiss offers five tells he looks for in video calls:
4. Meeting with Nontraditional Team Members
1. Preparation
To make up for a lack of intimate in-person discussions,
Weiss says that he checks “how well they prepared for the
Weiss also makes a point to set up follow up meetings with
video meeting and look at the quality of preparation as a tell
additional team members. “Even if it’s for five minutes each.”
sign—including video and audio quality, backup slides, etc.”
He noted, “I’m going wider (meeting more people) where it’s
Virtual meetings lack traditional in-person cues like body-
tougher to go deeper.”

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 Your Guide to VC Funding

5. Small Talk
Don’t overlook the importance of small talk at any stage of
your meeting with a VC. Especially now, small talk can be
crucial to a VC understanding your personality that can be
lost in video sessions. Weiss points out, “Many founders are
surprised that I don’t just jump into the discussion—but the
small talk tells me as much as the actual discussion does.”

The Bottom Line

To secure VC funding, both your business and you must
be attractive to investors. The success of any business
depends on not only its model but also its founding
team. Knowing this truth, VCs will investigate every deal
with these two factors in mind.

So, build a concise, engaging deck to get your foot

in the door. Then, portray yourself in the best light
possible and close it out!

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Part 4: Finding the Right VC: How to Find the 1. Find venture capital firms that invest in companies
Right VC to Fund Your Business like yours.
Create a roster of VCs that are likely to be interested in the
Getting an offer from the perfect VC partner must begin
kind of deal you’re offering, both in terms of industry and
with research. You can only score meetings with VCs by first
product. Look for firms that have a track record of investing
creating a targeted outreach list of firms that are aligned with
in your industry and have funded companies similar to yours
your business.
in terms of revenue growth and product focus. You can start
The first phase of this process is understanding which VCs your search for specific firm names on CB Insights, a highly-
are a good fit for your company’s goals. The second phase is regarded resource that offers data on active VC firms and
securing the meeting. This section will give you the tools to associated industries. Additionally, check out the CB Insights
accomplish both of these tasks. data-driven top 100 ranking to familiarize yourself with the
heavy hitters of the VC world.
Phase I: Create a Target List of VCs That Are
a Good Fit for Your Company 2. Ensure the firm invests in the stage of funding that
you seek.
All venture capital firms have a specific focus regarding the
Which stage of financing are you in? Before adding a VC
kinds of companies they fund: They might invest mainly in
firm to your target list, be sure it’s actively pursuing deals in
software, consumer products, fintech, green technologies,
your stage. Most venture capital firms share their investment
AI or any other number of categories. And each firm focuses
ethos or criteria on their company website. For example, the
on different stages of investment (seed, early-stage, series A,
investment criteria for Sway Ventures identifies a focus on early
series B and series C). Thus, the first step in reaching out to
to mid-stage technology companies. If you have an early-stage
VCs is research. Here’s how to start.
company developing a software or technology product, Sway
Ventures could be the right investment partner, and you should
add it to your target list. If not, you should leave it off.

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 Your Guide to VC Funding

3. Check out the firm’s past deals. company is a fit. You can also work backward: Locate a
Another way to determine if your company fits within a business similar to yours that has gotten funded, and find out
VC’s investment ethos is to review the firm’s recent deals, which firm invested.
which you can usually find online. Even top ranked venture
4. Consider location.
capital firms like OpenView Venture Partners openly list
Some firms only invest locally, while others are open to
their portfolio of investments. Reviewing them will help you
investing beyond their city and state. If you’re based in Denver
determine if your company fits the firm’s prototype.
and one of your target venture capital firms is based in San
For example, OpenView offers details on the type of Francisco, be sure it makes out-of-state investments before
businesses it seeks—and specific names of companies sending an email.
they’ve funded—in a blog post about their investment in
It’s worth noting that some regions receive more VC funding
SaaS companies:
than others. In 2019, more than 50% of the country’s VC deals
“OpenView is differentiated on three key criteria: sector, occurred on the West Coast, while only 4.6% occurred in the
stage and pace. OpenView invests exclusively in business Southeast region of the United States according to Axios. If
(enterprise) software companies that have entered the you’re operating a company in the Southeast region, you might
expansion stage, and we’ll only execute five investments as well be competing for the 4.6%.
per year on average,” the post reads. “We’re thought leaders
However, because of the drastic shift to virtual meetings and
around the concept of product-led growth (PLG) and invest
reduced travel caused by COVID-19, VC firms are becoming
behind this thesis. PLG businesses are those companies
more willing to invest outside their regions. In a recent
whose product acts as the primary driver of customer
NetSuite virtual event, Managing Partner John Cambier of
acquisition, retention and expansion. (Think Datadog,
IDEA Fund Partners, noted that the firm operates under the
Calendly or Expensify.)”
assumption that “companies can be developed anywhere
VC firms are transparent about the types of investments in the country outside of the traditional investing hubs.”
they make, so do your research upfront to find out if your During the same event, Eller Mallchok, Managing Director of

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 Your Guide to VC Funding

Jumpstart Foundry, pointed out that the pandemic’s impact

will increase “competition between funds who are able to U.S. VC deal activity by region, 2019

say ‘we’re willing to invest and put capital into this company REGION DEAL VALUE SHARE OF U.S. TOTAL

West Coast $68.5m 50.2%

(without meeting them in person)’ versus a fund taking a
Mid-Atlantic 33.0m 24.2
more traditional approach of ‘no we want to fly out and see New England 11.7m 8.6
you’ or ‘we want you to fly out and see us.’ Southeast 6.3m enlarge 4.6

Great Lakes 5.7m 4.2

Generally, it will be easiest to get attention from a local firm. Mountain 5.4m 3.9
However, if your business is truly attractive to VCs, location will South 5.0m 3.7

not be a hindrance. Cleversafe founder Chris Gladwin raised Midwest 800k 0.6

funds for his Chicago-based startup from a variety of VC Adapted from Pitchbook; Chart; Axios Visuals

partners outside his local market: NEA in Menlo Park, Calif.,

In-Q-Tel in Arlington, Va. and San Francisco’s Alsop Louie
Figure 4: U.S. VC Deal Activity by Region, 2019
Partners. The firms likely chose to invest because Gladwin was
an experienced tech entrepreneur with three successful exits
under his belt. Their out-of-market deals paid off big-time Phase II: Reach out to Your Target VCs
when IBM purchased Cleversafe for $1.3 billion in 2015.
Once you’ve got a target list, it’s time to set up meetings. You
5. Organize your list. have two opportunities to make connections: an intro from
VC expert Joshua Henderson recommends including 20- someone in your network or a cold email to a VC partner.
30 investors and/or firms on your target list. You might
The “warm intro”
consider tracking your communications in a spreadsheet
An introduction to a firm via a mutual connection from your
as well.
business or personal network is called a warm intro. This is the
best-case scenario, as VCs are more open to deals that come
from a trusted source.

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 Your Guide to VC Funding

To find warm intros for your target list, ask yourself:

• Do you or your company’s team members have any direct

contacts at VCs?

• Are there people in your extended network (i.e. parents,

mentors, past employers, friends, professors) who have enlarge
VC relationships?

• Does your company have board members with VC connections?

• Can you utilize LinkedIn or business networking groups to

connect with VCs in your area?

• Have you worked with a business incubator or angel

investors (see Bahn’s tip on angel investors here) that can not impossible. Eric Bahn has a few tips for nailing the cold
help open up the next phase of introductions? email approach:

Also, don’t be afraid to ask investors for recommendations • Email Structure

either. Remember Bahn’s “flywheel” strategy? Ask for Start with an outline and be sure to include the basics: “who
pointed introductions from VCs that you meet with. As we you are, the need that your business serves or the problem
said before, VCs are more open to deals within their networks. it fixes, and why the business has been and will continue to
be successful.” These components make up the structure of
The “cold email”
your email. Bahn also says, “In the current climate, you’ll also
You may not have mutual connections to some VCs on your
need to mention COVID-19’s effect on your business.”
target list. In that case, it’s time to start cold emailing your
targets. This is the more difficult way to get a meeting, but it’s

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 Your Guide to VC Funding

• Differentiate Yourself
Don’t forget, VCs receive hundreds of cold emails so you’ll
need to capture their attention. Bahn offers a few creative
ideas including name-dropping current investors to make
them feel like they are missing out on an opportunity. He
also suggests including a link to an abbreviated pitch deck
for additional context.

• Be direct and persistent

Get to the point quickly. Everything from your email subject
line to the layout of the text should be clear, concisely
explaining why your company is relevant to the particular VC.

Despite your best efforts to craft the perfect cold email,

it’s very likely you won’t receive a response. In this case
Bahn recommends following up consisitently. During one
of his own attempts at fundraising he followed up with a
firm 13 times before he ever heard back. The VC ended up
The Bottom Line
investing in Bahn and his venture.
Getting connected to the right VC to fund your business
takes a thoughtful and targeted approach, which always
begins with research. Once you’ve nailed a meeting,
though, it’ll be well worth it.

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 Your Guide to VC Funding

Part 5: Anatomy of a Term Sheet: Everything

You Need to Know About a VC Term Sheet A Note on Lawyers
A lawyer is absolutely crucial in the term sheet process.
Rubber, meet road. You’ve built a business on a shoestring,
Your company likely already has one if it’s mature
borrowing from friends, family, savings and your good name.
enough to pursue VC funding, said Mark Mullen,
The business is ripe for an infusion of capital, and you’ve been
Co-founder of L.A.-based Bonfire Ventures. “A good
lucky enough to get some VCs to not only listen but also get
lawyer will help you set up the company properly so
interested. You’ve pitched and re-pitched, you’ve run and re-
it’s prepared to take investment now and in the future,”
run the numbers, and now you can see a finish line in the form
Mullen said. “Then, you and the VC negotiate the
of a term sheet—that precursor to receiving an investment. Its
deal [i.e. get a term sheet]. Then, the two lawyers—
purpose is to lay out the basic elements of a proposed deal.
yours and the VC’s—put the paperwork together with
Although it doesn’t guarantee investment, a term sheet is a feedback from you and the VC. A good lawyer should
very positive step in a company’s VC funding journey. Let’s also be able to guide you through the documentation
take a closer look at the elements of a term sheet and how phase after a term sheet is signed.”
they might impact future business operations so that you
If you don’t have a lawyer, Mullen recommends finding
can decide whether to accept an investment offer. We’ll also
one through your network or discussion boards on Y
provide some practical advice, courtesy of a serial founder
Combinator, a well-known source of startup advice. VC-
who has been through dozens of funding rounds.
heavy cities like San Francisco and L.A. have firms that
What is a Term Sheet? specialize in early-stage company formation, he added.
This type of legal counsel is relatively inexpensive
A term sheet is a non-binding listing of preliminary terms
compared to the payoff for your company.
for venture capital financing. CB Insights refers to it as “the
first real piece of paper a founder sees from a VC when they
decide that they’re interested in investing.”

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 Your Guide to VC Funding

A term sheet might also be called a “letter of intent,”

“memorandum of understanding” or “agreement in principle.”

The term sheet is the first real step toward a successful The 3 Main Sections of a Term Sheet

financing transaction (aka “getting funded”), and it outlines the 1. Funding 2. Corporate Governance

proposed investment at a high level. If the deal moves forward,

1.
lawyers will use the term sheet to draft transaction documents. 2. enlarge
3. Liquidation and Exit
3.
The Three Main Sections of a Term Sheet Term Sheet

A term sheet has three main sections: funding, corporate

governance, and liquidation and exit preferences.

1. Funding
Figure 5: The 3 Main Section of a Term Sheet
The funding section lays out the financial guidelines of the
proposed investment. It outlines how much money the VC
Convertible notes were popular in VC circles for the past few
firm is offering to invest and what it wants from your company
years, Mullen said, but they’re falling out of favor. For seed
in return, specifically some type of security and protection of
rounds below $1.25 million, he recommends pursuing security
that security. A security can be any proof of ownership or debt
in the form of a safe agreement.
that has been assigned a value and may be sold.
A good lawyer will understand the market value of
In typical seed rounds, companies are often not yet “priced,”
companies in your space, as well as conventional deal
or given a valuation. Thus, in these deals, the security type is
structures, according to Chris Gladwin, a five-time founder.
generally a convertible note or a safe (simple agreement for
Y Combinator’s “Guide to Seed Fundraising” is a good
future equity, a term pegged by Y Combinator). Later down
resource, as it further details options for the funding section.
the line, in Series A deals, securities often take the form of
equity, more specifically preferred stock.

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 Your Guide to VC Funding

2. Corporate governance
The corporate governance section of a term sheet outlines A Note on Negotiations
the governing structure for the organization. Its main purpose
You may be wondering what terms look like in a “typical” seed-
is to define the distribution of power between founders and
round deal and how much room they leave for negotiation.
investors as it relates to company decisions.
“While there are standard parts to a term sheet, there is
For early-stage companies, the corporate governance section
no one answer as to the appropriate terms in regard to
typically outlines decision-making abilities, voting rights,
round size, ownership levels, preferences or what type
and board composition. It also covers management and
of security is right for a company at a given time in its
information rights and conditions that give investors access to
in growth,” said Diane Fraiman, a software and digital
the business premises, operations and financial data.
media VC with Voyager Capital. She recommends relying
Corporate governance terms are important to investors, as on your company counsel—lawyers as well as other
they serve as protections around an investment. But they mentors—to determine the best terms for you.
should also add value to founders by setting up a supportive
Both Y Combinator and the National Venture Capital
relationship with VC partners. When you’re assessing
Association offer templates of what a “neutral” term
corporate governance terms, ensure they both satisfy the
sheet should look like, for reference.
security demands of investors and allow you to maintain
some level of control over company operations. You should Fraiman and Mullen agree that negotiation between
shoot for an equal number of “founder-friendly” and “VC- founders and VCs is common in the term sheet process.
friendly” board members, according to Startups.com, an
“Like any negotiation, it all depends on what type of leverage
educational resource for founders.
you have and what the situation is,” Mullen said. “... Naturally,
Corporate governance is a balancing act. Like in any good a VC will offer X, and you naturally come back at Y. You
partnership, the goal is to find a way to satisfy both parties and might figure it out there, but it might take more discussion.”

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 Your Guide to VC Funding

develop the best structure for future success. The “Anatomy

of a Term Sheet” guide from Katten Muchin Rosenman will be
helpful in navigating this part of the document.

3. Liquidation and exit

The liquidation and exit section of a term sheet describes what
will happen to investors and shareholders if your company is
liquidated, dissolved or sold. It defines who gets paid first and
highlights any particular preferences given to investors.

When your company is liquidated or sold, preferred

shareholders will always be paid before common
shareholders. (In Series A rounds, VCs usually angle to
become those preferred shareholders.) Investors may also
push for redemption rights, which require the company
to buy back its stock at a specific time or when certain terms for an exit. (This is when having a good relationship
conditions are met. Redemption rights give investors an with your VC is handy.)
additional level of security by allowing them to potentially While the term sheet aims to lay out terms that benefit both
recoup their investment. parties, this can be a challenge when entrepreneurs and
Founder Desires vs. VC Desires investors have different desires.

A term sheet is like a tug-of-war between company founders When negotiating a term sheet, you should consider the
and VC investors, in which founders are looking to “get the investor’s wants alongside your own, according to MaRS, a
best deal” and maintain control of their company while VCs Toronto-based incubator. MaRS’ full list of motivations and
seek to “buy in at the best price” and set favorable investment recommendations is paraphrased below.

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 Your Guide to VC Funding

Common founder desires might include Employee Stock Option Plans (ESOPs) tied
• Finance the business toward growth and revenue goals while to critical milestones or vesting schedules that guarantee
keeping a substantial portion of equity, which they’ll cash out commitment. Veto rights against early sales can ensure the
in the event of an exit. company isn’t sold before reaching its full value, and non-
compete agreements and intellectual property rights can give
• Structure financing so that investors are protected but long-
investors additional layers of security.
term profit potential isn’t given away.
Advice From a CEO Who’s Been Through 40 Rounds of Funding
• Develop investor relationships and get financing within a
Chris Gladwin is an engineer, entrepreneur and CEO who
structure that lets the founder keep control of the business.
has founded five technology companies. His last company,
Common investor desires Cleversafe, was sold to IBM for more than $1.3 billion in 2015.
• Get the best return for their investment. Today, Gladwin is the CEO of Ocient, a company developing
new ways to manage and analyze large datasets. Gladwin
• Protect their investment through liquidation preferences
has negotiated more than 40 rounds of funding, making him
and special clauses that give them favorable options if the
uniquely suited to discuss term sheets from a
company doesn’t achieve the intended result (i.e. exit
founder’s perspective.
via sale).
Gladwin identified three things a new founder should
• Maintain corporate governance protections, such as board
understand about the process.
seats and voting rights, to stay involved in major decisions.
1. A “hot” company will review multiple term sheets at once.
• Include clauses that keep founders and key members of the
If your company appeals to one VC, it will appeal to many,
management team onboard for as long as they continue to
Gladwin said. (This is especially true for technology growth
add value to the organization.
companies, he added.) As professional investors, VCs know
Investors can do their part to align the term sheet with which kinds of deals they’re looking for. They also know which
entrepreneur desires in many ways, according to MaRS. They kinds of deals don’t appeal to them.

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 Your Guide to VC Funding

“If you really have a great opportunity, most qualified

investors will be interested,” said Gladwin. “Either no one Want to dive deeper into VC term sheets?
wants to invest or everyone wants to invest.” “Preparing A Venture Capital Term Sheet,” from
law firm Morgan Lewis & Bockius, offers a more
If your company is getting interest from one VC, Gladwin said
thorough review.
chances are you’ll be reviewing multiple term sheets. Much
like having two job offers at once, multiple term sheets give
you leverage when negotiating with VCs for the terms you The “right” investor is one who comes with benefits above
want. They also give insight into your company’s true value. and beyond the terms of the deal, Gladwin said. For example,
an investor’s expertise and credibility might stand to benefit
“Getting two independent term sheets at the same time
your business by helping with crucial decisions, offering access
is an excellent way of processing your value,” according
to a broader network, and opening up high-level sales and
to TechCrunch contributor Jonathan Friedman. “You can
development opportunities.
compare the two in isolation and get a more rounded view of
how investors are appraising you.” “Who you have as an investor early on can really make a
difference,” said Gladwin. “Just like hiring an employee, you
2. Choosing the right VC is as crucial as selecting the
want the best person.”
deal terms.
In addition to terms, Gladwin suggests founders carefully 3. Get advice from experienced professionals.
assess the VC deal from a partnership standpoint. For new or less experienced entrepreneurs, access to solid
mentors and advisors beyond your lawyer is critical during
“Of course you should focus on the getting the best deal
the term sheet review process. Gladwin recommends
possible, but another important consideration, which is
building a network of mentors or former investors who are
sometimes more important, is choosing the right partner,”
experienced in similar deal structures, so you can call on
he said.
them for advice. Then, get ready to sign.

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 Your Guide to VC Funding

Part 6: How to Close the Deal With a

Venture Capitalist
Receiving a term sheet from a VC investor means you are
one step closer to securing financing. But there are still steps
a VC must take before transferring funds: These include
performing due diligence, which leads to drafting formal
investment agreements.

Deals can fall apart in their later stages. As a founder, you can
increase your chances of closing the deal by preparing well for
due diligence, becoming familiar with the reasons that deals
often go awry and taking proactive steps to encourage a close.

What Is Due Diligence?

Brainyard defines due diligence as “the investigation There is no standard length of time for the legal due diligence
performed by an interested party, including venture capital and phase. It can range from “a couple of weeks if the deal is simple
private equity firms, into a merger or acquisition target or to vet and if all parties are quickly aligned, to months for a complex
companies for potential investments.” deal,” VC Clement Vouillon wrote on Medium.

In the context of venture capital, this means the VC’s legal

team will request information about the company’s financials,
outstanding contracts and agreements, employees and
management, capitalization table and intellectual property.

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 Your Guide to VC Funding

How to Prepare for Due Diligence from the start of your talks with a VC, as discrepancies will be
brought to light during legal due diligence.
Startup launchpad MaRS recommends choosing a team member
to prepare due diligence paperwork using a checklist of the Failure to hit projections
information that VCs commonly want to see. (You can find plenty A VC may reconsider a deal if a company falls drastically short
of these checklists online.) “Having due diligence binders ready of projections between the initial deal review and the legal
will demonstrate to the potential investor that you are prepared. It due diligence phase. “As ‘growth’ investors, we are looking
will also speed up the review process,” the MaRS blog states. for sustained growth, and a significantly ‘down’ quarter would
certainly give us pause,” wrote Hammerschlag. When dealing
Reasons VC Deals Fall Apart with investors, strive to be realistic in your projections. If
As an entrepreneur, it’s wise to learn about common mistakes metrics like revenue, total sales, customers, users or site traffic
that can jeopardize a deal’s progress during due diligence. fluctuate by season, share this with investors so you don’t
catch them off-guard.
Nick Hammerschlag of OpenView Partners identifies reasons
why a VC might pull out at the last minute in an article for Legal issues
Scale Finance, some of which are summarized below. Investors do not enjoy discovering legal issues such as
copyright, patent or intellectual property infringement claims.
Inaccurate information
A pending legal issue won’t automatically stop a deal from
If VCs discover inaccurate data while performing due diligence,
going through—a founder should always tell the VC about
it could cause them to pull out of the deal. Founders should
it before the term sheet is drafted. The phase before due
avoid overpromising on product development, exaggerating
diligence “is an important time to get all of the negatives out
the company’s customer base or breadth of partnerships and
there to ensure that there are no surprises that will adversely
misrepresenting revenue, growth rates or other financials.
impact the relationship or your internal [VC firm] champion,” Ed
Of course, most business owners don’t purposely misrepresent Zimmerman, a VC with Lowenstein Sandler LLP, wrote in Forbes.
data. In any case, it’s best to be honest about company details

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 Your Guide to VC Funding

Poor product release

A VC may lose interest if a company fails to release a product
on time or the product flops on the market. This is most often
a risk in complex VC deals, where the due diligence phase
can span months. Poor product releases tend to trouble VCs
because they’re often “factored into the company’s financial
projections and our assessment/interest in the business,”
wrote Hammerschlag.

Negative references
Receiving negative references, especially in regards to a
company’s CEO, serves as a red flag to interested investors.

Kirill Sheynkman of RTP Ventures is a softwar entrepreneur-

turned-VC. During due diligence, he often asks references
about a founder’s management style, attitude, intelligence, Address investor doubts up-front
openness to new ideas, strengths and weaknesses, he wrote Asking investors about their concerns is a smart way to
on Medium. If references don’t respond positively, it gives speed up the close process, Covestor CEO Asheesh Advani
him pause. wrote in Entrepreneur. Advani recommends asking them
Strategies to Help Deals Close Quickly directly about any doubts regarding the proposed deal
structure, management team, business model or intended
Besides avoiding items that could compromise a VC deal, use of proceeds.
founders should actively pursue strategies that lead to a quick
and successful close.

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 Your Guide to VC Funding

“The response to this question will usually indicate whether accountable for closing the deal quickly. One important
you’ll be able to address those concerns or not,” wrote Advani. deadline is the closing date, which founders should include
in financing documentation given to the VC. Advani notes
The VC’s response may also offer insight into what your
that while this deadline isn’t generally enforceable, “investors
references should address as they vouch for you. Notifying
like to see a closing date because they like to feel that other
your references of investor concerns can help them prepare
investors are interested in your business and investing at the
for tough questions.
same time.”
Participate in the final push
Resting on your laurels is not advised during due diligence.
CircleUp Founder Ryan Caldbeck recommends staying The Bottom Line
“hyper-involved” in the deal at later stages, to ensure The final stage of a VC funding deal is the time to find
your team accomplishes the necessary tasks. During the alignment across your internal teams, the VC firm and
closing phase, a founder should overcommunicate with key your legal advisors. During this time, founders should
stakeholders and remain the VC’s primary contact. Caldbeck follow through on commitments to investors and
also suggests assigning tasks from the closing checklist provide accurate information about the company.
closing checklist to your team members. Stay engaged with the process until the very end, and
Set deadlines you’ll soon see money in the bank.
Founders should work with their legal counsel to propose
deadlines for all documents that require signatures during
the closing process. Agree upon these deadlines with both
your internal team and the interested VC, to hold both parties

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info@netsuite.com
877-638-7848

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