Startup: Preparation for Round A investment

If you are a startup founder who is looking to raise your first round of funding, you might be wondering how to prepare for this crucial milestone. Raising money from investors is not easy, but it can be done with proper planning and execution. Here are some tips on how to get ready for your RoundA investment.

Understand your funding needs and goals

Before you start looking for investors, you need to have a clear idea of how much money you need to raise, what valuation you are aiming for, and what milestones you want to achieve with the funding. You should also have a realistic projection of your revenue and expenses for the next three years, showing that you have a scalable and profitable business model. You can use tools like revenue forecasting template or Float to help you with your financial planning.

Research your potential investors

Not all investors are created equal. You want to find investors who share your vision, understand your market, and can add value to your startup beyond money. You should do some research on the investors’ backgrounds, portfolios, preferences, and criteria before reaching out to them. You can use platforms like Crunchbase, AngelList, or PitchBook to find relevant information about investors.

Create a compelling pitch deck

Your pitch deck is your first impression on the investors. It should tell a clear and concise story about your startup: what problem are you solving, how are you solving it, who are your customers, what is your traction so far, what is your competitive advantage, how big is your market opportunity, who are your team members, and how much money are you raising. Your pitch deck should be no more than 10 to 15 slides long and should include visuals and data that support your claims. You can use templates like Sequoia’s Pitch Deck Template or Y Combinator’s Pitch Deck Template to guide you.

Practice your pitch

Once you have your pitch deck ready, you need to practice delivering it with confidence and clarity. You should rehearse your pitch in front of different audiences: friends, family members, mentors, advisors, or other founders. You should also anticipate common questions that investors might ask you and prepare answers for them. You can use tools like Pitcherific or Pitch Genius to help you improve your pitch skills.

Attend investor meetings and follow up

When you have a list of potential investors that match your criteria and goals, you can start reaching out to them via email or LinkedIn. You should craft a personalized message that introduces yourself and your startup briefly and asks for an introduction or a meeting. You should also attach or link to your pitch deck in the message. If an investor responds positively, you should schedule a meeting as soon as possible and confirm the details beforehand. During the meeting, you should present your pitch deck clearly and concisely, answer any questions the investor might have, and ask questions about their interest, expectations, and process. You should also try to build rapport and trust with the investor by being honest, enthusiastic, and respectful. After the meeting, you should follow up with a thank-you note that summarizes the main points of the conversation and expresses your interest in moving forward.
You should also keep the investor updated on any progress or news that might increase their interest.

Negotiate term sheets and close the deal

If an investor decides to make an offer to invest in your startup, they will send you a term sheet that outlines the key terms of the deal, such as valuation, equity stake, voting rights, liquidation preferences.

A term sheet is a document that summarizes the main terms and conditions of an investment deal. It’s usually non-binding, meaning that it’s not legally enforceable until you sign a final contract. However, it’s still an important step in the fundraising process because it shows that you and your investors have reached an agreement on the key aspects of the deal.

A term sheet typically covers these topics:

  • Valuation: This is how much your startup is worth before and after the investment. The pre-money valuation is based on your current traction, market size, growth potential, and other factors. The post-money valuation is simply the pre-money valuation plus the amount invested.
  • Option pool: This is a percentage of shares reserved for future employees or advisors. Investors usually want you to create or expand an option pool before they invest so that they can attract talent to your startup. However, this dilutes your ownership as a founder, so you should negotiate how big the option pool should be and who should bear the dilution.
  • Liquidation preference: This is a clause that gives investors priority over founders and employees in case your startup gets acquired or goes bankrupt. It means that investors get their money back (or more) before anyone else gets anything. The standard liquidation preference is 1x, which means that investors get back exactly what they invested. Anything higher than 1x can be unfavorable for founders because it reduces their upside potential.
  • Other terms: There are many other terms that can affect your deal such as voting rights, board seats, anti-dilution protection, dividends, drag-along rights, etc. These terms can vary depending on the type of investor (angel vs VC), the stage of your startup (seed vs Series A), and the market conditions (bullish vs bearish). You should do your research and consult with a lawyer before agreeing to any terms.

Negotiating a term sheet can be challenging because there are many trade-offs involved. You want to get a fair valuation for your startup but also leave some room for growth. You want to give some control to your investors but also retain some autonomy over your vision. You want to protect yourself from downside risks but also share some upside rewards.

The best way to negotiate a term sheet is to understand what both parties want and why they want it. Then you can find common ground and create win-win scenarios. For example:

  • If investors want a higher valuation than you think your startup deserves, you can offer them more equity or better terms in exchange.
  • If investors want a larger option pool than you think is necessary, you can ask them to share some of the dilution or reduce their liquidation preference accordingly.
  • If investors want more liquidation preference than you think is fair, you can ask them to cap their returns or convert their preferred shares into common shares after a certain threshold.

Remember that a term sheet is not final until you sign a contract. So don’t be afraid to walk away from a bad deal or look for other options if you’re not happy with what’s on offer. Also remember that fundraising is not just about money but also about finding partners who share your vision and values.

I hope this post has given you some insights into what a term sheet is and how to negotiate one with your investors. If you have any questions or comments, feel free to leave them below or contact me directly.

Happy fundraising!

Scroll to Top