Fundraising from a VC? Here's how, when, and how much to raise

Fundraising is far from easy, especially for first-time founders raising pre-seed and seed rounds. 

We’ve observed that founders often have many doubts while fundraising, such as how much to raise, when to raise, what is the right valuation to demand, which investors to talk to (angels, micro VCs, VCs, platforms like Lets Venture), and how to approach investors. 

But fundraising shouldn’t be just about getting money in the bank. It should be about bringing on board the right investors – those you can truly trust and who will be valuable long-term partners.

Here’s a step-by-step guide on how to approach fundraising for your startup, especially if you're in the early stages of your journey.

‍when should you raise funds?

There’s no one-size-fits-all answer for timing your fundraise. The general rule for early-stage fundraising is that you should have validated your idea and built a strong conviction in it. Depending on your conviction, you can either choose to approach investors with just an idea or work towards building some initial traction to make your story more compelling.

‍should I be worried about valuation at this stage?

Founders often assume a small pilot or early traction will lead to a better valuation, but this isn’t always true. Initial traction doesn’t guarantee higher valuation, as scale remains limited. Without substantial month-on-month growth and meaningful scale, valuation gains may be minimal compared to the idea stage.

‍how do I know if raising funds at the idea stage is right for me?

If you’re solving a large, relevant problem with a unique approach and can sell your vision effectively, you should raise at the idea stage. It gives you the firepower to experiment, hire the right talent, and the ability to make mistakes and learn as you execute.

The general rule for early-stage fundraising is that you should have validated your idea and built a strong conviction in it. If you’re not fully convinced about the idea or the problem you’re solving, it is better to bootstrap and build that conviction before raising funds.

tips on how you can build conviction:

• Conduct in-depth market research to assess the opportunity
• Gain a deeper understanding of the customer problem and gather insights through customers interviews 
• Seek feedback on your thesis and insights from people operating in the same space – other founders, senior employees of other companies, investors, and experts

Before you start fundraising, you need to get your pitch deck and story right. One effective way to build confidence in your pitch is to present it to founder friends or industry experts. Their feedback can help you refine your pitch and potentially convert them into angel investors.

figuring out how much to raise

Get clarity on the following questions to arrive at the amount you should raise.

• How much capital do you need to move to the next stage or prove parts of your idea?
• How much capital can you raise based on your profile, track record, your ability to effectively sell your vision, and the market's perception of your thesis?
• How much are interested investors willing to invest at this stage, considering the risk of your business and the potential returns?

Unless you have a proven track record of building or scaling a successful, relevant business in the past, seed rounds in India typically range from $1M to $2.5M when led by VC funds. Pre-seed rounds, often led by angels and micro VC funds, usually amount to less than $1M.

While there are examples of successful repeat founders raising significantly higher amounts right at the outset, these cases are exceptions rather than the norm.

whom to reach out to

Should I just reach out to all the investors I like at once? This is one of the common mistakes we’ve seen founders make. While it may work for some, it is always better to have a plan on who you reach out to first, and how you move ahead if the first set of outreaches do not materialise.

• Create a master list of investors relevant to early-stage and your sector, including a mix of micro VCs, accelerators and seed-stage investors. Categorise these investors by priority based on your interest in partnering with them
• Initially, engage with 5-8 investors at a time to gauge interest levels. Typically, interested investors will respond within 3-7 days for a follow-up meeting; quicker responses usually indicate higher interest.
• If multiple investors show interest (at least 3 meetings including a partner meeting), expand your outreach funnel to include more relevant investors and keep up the momentum.
• If most targeted investors do not show enough interest beyond the second meeting, consider refining your pitch and addressing the key questions raised. Take a brief pause before restarting outreach.
• You might also want to adjust your fundraising amount and target the next set of funds (including micro VCs, or angels) to quickly close the round and validate critical aspects of your business.

how to approach investors

• It’s generally better to avoid cold reach-outs via LinkedIn or email as it's tough to stand out among the flood of messages investors receive. Instead, request mutual contacts or fellow founders to introduce you. It not only helps cut through the clutter, but also shows you're willing to hustle.
• Reach out to investors you already know in the startup ecosystem through direct connections or warm second degree connections.
• If you don’t have any direct connections with any of the investors, try building a rapport with relevant founders. Securing a warm introduction within the ecosystem can significantly enhance your chances of getting noticed.

what if you get an offer?

Your decision to partner with an investor has long term implications for your startup journey. Therefore, your decision-making framework should prioritise choosing the right partner over focusing solely on the amount or valuation you receive. 

At the early-stage, the valuation often has little impact on the success or failure of the company. As your company grows or during an exit, the initial valuation typically does not significantly impact the outcome. The important thing is for you to improve your odds of success by securing the right partner.

Remember that a term sheet comes with a timeline - excessive delays and shopping around may create bad faith and cause investors to lose interest. Once you receive an offer, focus on conducting thorough reference checks on the investors. Seek feedback from other founders or portfolio companies associated with the fund. This feedback should cover the investor’s conduct on board, their long-term orientation, their level of involvement in the company, and their ability to add value.

For more clarity on your Term Sheet, check out our term-sheet breakdown.