Startup Funding Strategy: How to Raise Your First Institutional Round

Being a startup founder is arguably one of the most challenging jobs in the world. The statistics are daunting—only about 29% of seed-funded startups manage to raise a Series A round. This leaves the majority, a staggering 71%, in a precarious position. While a small fraction of these companies go on to become profitable or get acquired, most face the harsh reality of closing down. The journey of entrepreneurship, especially in its early stages, is fraught with uncertainties, and even after raising initial capital, the risk of failure remains high.

The Capital Dilemma: Why Raising Money Is Harder Than Ever

Securing funding is one of the most critical milestones for any startup. However, it is also one of the most difficult. The demand for capital far exceeds the supply, with many startups vying for the attention of Venture Capitalists (VCs). Smart founders often find themselves unable to raise funds due to the fierce competition, not because their ideas lack potential but because the pool of available resources is limited.

For first-time founders, the challenge is even greater. They often lack the know-how, the network, and the strategic insight needed to secure institutional capital. Raising capital, especially your first institutional round, can seem like an insurmountable task. However, with the right approach, it's possible to navigate this landscape and come out ahead.

Startup Funding 101: A Guide for First-Time Founders

So, how can a first-time founder successfully raise capital from a VC firm? Here are some steps to guide you through the process:

• Build a Data Room Before you begin reaching out to potential investors, it's crucial to have your Data Room in order. This is essentially a digital folder that contains all the important documents investors may need to evaluate your startup. It includes financial statements, legal documents, market research, business plans, and any other relevant information. A well-organised Data Room demonstrates professionalism and preparation, making it easier for investors to conduct due diligence.
• Curate a List of Relevant Funds Not all venture capital firms are the right fit for your startup. When you're planning your outreach, be strategic. Create a list of funds that align with your startup's stage, sector, and required cheque size. Research VCs that have invested in businesses similar to yours and tailor your pitch to their investment criteria. This targeted approach increases your chances of securing a meeting.
• Approach VCs Directly—No Middlemen Early-stage VCs prefer founders who take the initiative to approach them directly. For your first round, avoid hiring a banker or advisor. Instead, rely on warm introductions from other founders. Networking is key in the startup ecosystem, and founders who have been through the process can introduce you to potential investors. This approach carries more weight than a cold email or formal introduction from an intermediary.
• Delegate Fundraising Tasks Fundraising can be an exhaustive process, and as a founder, your time is better spent on strategy and product development. Appoint a smart teammate to take charge of the operational side of the fundraising process. This person can handle scheduling calls, managing queries, and organizing data for investors.VCs often request a lot of information, and keeping track of these requests can be a full-time job. Delegating these tasks allows you to focus on building relationships with investors.
• Close the Deal Quickly Once you've received a term sheet from an investor, don't get bogged down in lengthy negotiations. While it's important to understand the valuation and terms being offered, founders often lose momentum by over-negotiating. As long as there are no red flags or unusual clauses in the term sheet, it's best to close the deal promptly. Speed is critical in the fundraising process, and the longer negotiations drag on, the more likely it is that the deal could fall through.

Explore More Funding Options: Beyond the Pitch Deck: The Investor Mindset

Embracing the Challenges Ahead

Raising institutional capital as a Startup Founder is a tough, competitive, and often frustrating process. However, by being prepared, strategic, and proactive, you can increase your chances of success. Founders who build strong networks, delegate effectively, and move swiftly when opportunities arise are better positioned to secure the capital they need to scale their businesses.

Despite the high risk of failure, those who navigate this landscape successfully often emerge stronger and more resilient, armed with the knowledge and experience to take their startups to the next level.

Disclaimer: This article draws inspiration from various LinkedIn posts by Pushkar Singh, Co-Founder of Tremis Capital. Pushkar is renowned for his workshops that guide founders in the process of raising capital.