Pimp your pitch deck and watch out for ‘predatory’ VCs: 2022’s best fundraising advice

Fundraising is a gruelling task for many founders — and one that current market conditions has made even harder. 

Amid a downturn in public stock prices and a rise in interest rates, VCs are more cautious about investing. Founders have had to adapt — with some choosing to abandon raising altogether until a more favourable economic climate returns.

Our Startup Life newsletter has heard from founders, venture capitalists and angels over the course of this bumpy year, and here we’ve wrapped up a few interesting pieces of fundraising advice from them. Read on for practical tips and, hopefully, encouraging messages.  

Don’t listen when investors say to ‘raise less’

This piece of advice comes from Cristina Vila, founder of SaaS subscription management platform Cledara, who decided to stop the fundraising process for her company’s Series A round in February as tech stocks collapsed, and restart it later in the year.

When it was time to look around for funding again, investors kept telling her over and over again to raise less due to unfavourable market conditions — but Vila advises founders not to be swayed by such counsel.

More often that not, investors put pressure on founders to raise less cash because their fund size doesn’t allow them to lead the round, or because they can’t get the chunk of ownership they want, among other things — which is why Vila advocates for sticking to your guns and doing what’s right for your company.

“We understand our business, we know what we want to build and we have a strategy to do it,” she says. “If you are certain of what you need, keep looking for the right investor.”

Do investor due diligence

Helery Pops, cofounder of Estonian VC firm Honey Badger Capital, says that founders should think about fundraising as building a long-term relationship with an investor — one who will help you with all aspects of running a business, and will be supportive when the going gets tough.

She advises startups to spend some time investigating the investors they’re negotiating with, or thinking of approaching.

“You should go and find the other companies they have invested in and ask are these funds helpful,” she says. “Everyone can talk and say they are super helpful. But at the end of the day if the investor just gives you money and disappears, that is not what you want.”

Be aware of ‘predatory terms’ 

During the tech boom, investment terms tended to be more favourable to founders. Not only did they get eye-watering valuations, but more control and incentives.

Things have changed pretty drastically in the last six months, with term sheets becoming decidedly more “predatory,” said Mike Labriola, a partner at law firm Wilson Sonsini.

In other words, investors are looking for more protection from a downside scenario. And that means negotiating for deals that give founders less control and put more guardrails in place. 

One of those practices is what’s known as an exclusivity clause — which means founders can’t shop around for other term sheets while negotiating with a specific investor. Lawyers say they’re seeing more of these — and founders should beware. 

So how can founders be sure they’re not able to sign a bum deal?

Michiel Kotting, partner at Northzone, advises founders to talk to people they trust to get a second opinion on a deal. He also says that a downround — or raising a round at a lower valuation than a previous round — is often the better option than another solution that involves keeping the valuation but handing a big chunk of control to a new investor. 

“It’s better to work with your existing investors […] creating incentives for everyone to share the pain,” he says.

Budget for your fundraising 

With legal fees, admin costs and other hidden expenses, raising money for a startup doesn’t come cheap. That’s where budgeting comes in. 

June Angelides, investor at Samos Investors, says startups should be smart about setting money aside for fundraising fees — and definitiely not spend money on some things. 

“Check when negotiating deal terms with investors whether you are required to pay for the cost of their legal fees (as well as your own!),” she says. 

And ask the following questions before fundraising: 

• Who pays the investors’ legal fees?
• When do fees have to be paid? Before or after the round is completed?
• What is the maximum this could cost?
• Do I need a law firm or can I use a legaltech platform like SeedLegals in the UK? 

She encourages founders to “splash some cash on your pitch deck” as it’s “often the first contact you have with an investor”. But, she adds that founders shouldn’t waste money on pitch training. 

Don’t be afraid to send cold emails to angels

There are more angels in Europe than ever who, despite the current downturn, are willing to splash their cash. One French startup, for instance, raised from 100 angels in October. 

While getting a warm introduction to an angel is still the best-case scenario for founders, they also shouldn’t be dissuaded from sending a hopeful LinkedIn message. It worked for Karoli Hindriks, cofounder and CEO of immigration startup Jobbatical, which raised from angels earlier this year.

When coldly reaching out to an investor, Hindriks advises founders do the following:

“Don’t send them your pitch deck straight away. Introduce yourself and your company briefly, and then tell them that you’ve been following their work and believe their expertise is exactly what you need. Show them that you have thought through why they are specifically interesting to you.

“The way you approach angels is a lot more personal than VCs; you have to get under their skin a little bit before you can move into sales mode and pitch your company to them.”

Miriam Partington is Sifted’s DACH correspondent. She also covers future of work, coauthors Sifted’s Startup Life newsletter and tweets from @mparts_