We’ve seen over 400 startups trying to raise money through our initial incubatory efforts and the numerous pitch competitions we’ve conducted with the largest funds. This means that we’ve had floor seats to view the fundraising journey of founders. This piece is written to give founders an idea about:

• When to raise funds
• How to go about choosing the right investor
• Which sectors the top VCs are investing in or have an active thesis on
• A short checklist on what founders need when they are out to raise money

When to raise money?

In the non-crypto, non-web3 venture world, projects that have a product, have a proof-of-concept combined with some initial traction are appreciated. Only marquee founders with a spectacular track record would get funded at the idea stage of their startup. Up until the 3rd quarter of last year, in the Web3 VC world, ideas would get funded with the hope that the founders would execute. The market has changed and the investors have matured.

When we ran a pitch competition in April 2022, we saw that about only 20% of the applicants we saw had a product ready to show on pitch day. We ran another demo day last week and saw that a whopping 92% of the applicants had a product ready to show. This is a clear signal that the investors are giving and the founders are taking, i.e. proof of execution.

So learning number 1 would be, to have at least an MVP ready with some market validation for the investors to show interest in what you are buidling.

Another logical explanation to raise funds is that a founder has run out of money. This is a valid reason, but it puts a founder on the back foot while raising funds. A founder must always raise money from a point of leverage rather than out of dire need.

Learning number 2 It is always wiser to keep track of the burn (a founder’s money or money from a previous raise) and time the fundraising journey and back it up with some traction. 

Now that the timing of the fundraising is clear, let’s look at how to choose the right investors for the project.

Choosing the Right Investors

If founders are not able to put their own money or bootstrap the project, they will need to raise a “Party Round”. A party round is when some people (a “party”) write small checks to fund the project. These are your early believers. This party round could comprise people ranging from angels to your uncles. The good part about Web3 is that many marquee angels are very accessible. It is also good PR when founders raise from angels like Balaji Srinivasan, Sandeep Nailwal, or Tushar Agarwal. Earlier party rounds were frowned upon and Sam Altman of Y-Combinator also expressed his non-liking toward party rounds, but hey, some money is better than no money. Party rounds have over time been re-named “Angel Rounds” and suddenly the world seems okay with it.

Learning number 3, try and convince marquee angels to invest in the project. It’s good PR at least.

The venture rounds come after the party round. VCs are looking to add “fuel to the fire” where the “fire” is the metaphor for a project’s traction. The ideal case for a founder is when VC investing brings a lot more than money to the table. That “more than money” could be expertise in a particular sector, a portfolio of potential partners that could boost business, or any other value add.

The best way to evaluate these VCs would be by mapping the project’s vision to the thesis/ theses of the VCs. Most of these can be found right on their website or their blogs. Reading a VC’s investment notes shows the founders how the VC might be evaluating the project in the first place and also how much conviction the VC has in the space. Thesis-driven VCs historically have been more valuable to founders.

To make things easier, here a VCs grouped by sector where they have invested or have an active thesis in:

The First Fundraise Checklist

There are 3 things founders must have ready before they set out to raise their first round of funding:

1. A pitch deck
2. An incorporated company
3. A multi-sig or MPC wallet

A Good Pitch Deck

This might be an eye-rolling moment, but the key word here is “Good”. All good pitch decks are short and sweet. VCs, in general,l listen to several pitches in a week and founders need to have something that catches their attention. A tight fit to their thesis, keeping the pitch concise and showing why the particular founder is the best person to be solving this problem will be a memorable pitch. Having just a good pitch deck isn’t enough. A founder must know how to pitch.

We also recommend keeping pitches under 7 minutes, and for more information on how to pitch to VCs watch at least the first 18 minutes of this video 

Incorporation

If founders are raising using SAFE notes, they must have an incorporated company to be compliant. It is best to leave all the legal and regulatory details out of this piece since every incorporation strategy is tailored to the needs and operationality of the individual project. BuidlersTribe’s partners, Jars and  Ascent Advisors are experts in this field and have helped numerous Indian buidlers navigate their way through incorporation.

Multi-Sig/ MPC

After speaking with an expert in fund security, if a founder wants to follow the 100% compliance route, he/she must have a multi-sig or MPC wallet ready to receive the raised funds. To help founders secure their funds, we’ve written a short actionable guide which you can refer to here

Closing Words

While this does not do a deep dive into the entire fundraising process for a founder, it is a high-level guide to help founders through the process of gearing up for their first round of fundraising.

Hoping to write a follow-on piece on what a founder could expect during the process. Until then, keep #buidling! 

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