There are a number of well-documented do’s and dont’s when it comes to raising investment for your startup, but communication is an area that doesn’t get much airtime. Given that it's not as clear-cut as doing your research or understanding your numbers, it can often feel a little too nuanced or even hard-to-grasp. However, when used effectively communication can be an incredible force multiplier for your fundraising process.
Effective communication respects the time of the VC’s that you’re approaching, acts as a signal about the kind of founder you’ll become, and can be the basis of critical relationships that will set the tone of future fundraises.
As I’ll go onto explain, good communication comes down to three key things: preparation, flexibility, and managing the flow of information. But first - more on how it can set you apart.
The way that you communicate is a window into your character
VC’s see dozens of companies a week, so when a founder effectively and efficiently communicates throughout the fundraising process, it doesn’t go unnoticed. Strong communication skills are important for three main reasons:
Being a strong founder is the key driver of a deal
Most (if not all) VC's will say that a strong founder is what they first look for in a deal. We may spend days, weeks, or months on due diligence, digging into your market size, customers, financials and every detail of your business. In the end, a bet is made on the founders and team. Communicating well with prospective investors sends a strong signal that you’re a competent founder. On the flip side, poor communication can signal a lack of general awareness and professionalism.
Communication is a fundamental skill for an early-stage founder
Being able to deliver a high-quality pitch and manage an efficient fundraising process gives investors a window into your ability to execute on three crucial aspects of starting and scaling a successful business:
a) Your ability to sell your product or service to customers
b) Your ability to attract investors at future fundraises; and
c) Your ability to attract top talent to join your team.
You can increase your likelihood of referrals
Lastly, if you ran a smooth fundraising process and left a positive lasting impression as a great founder and a good communicator, investors will be more inclined to open doors and make references to other VC's. This is especially useful if you’re a first-time or early-stage founder who lacks a VC network. Venture capital is a small world and we're are always looking for deal referrals or reaching out to other investors for their take on a deal that they’ve previously looked at. So, good (and bad) impressions can go a long way.
The key to great communication is preparation and flexibility
Communicating with investors is part art and part science. There are nuances that exist when communicating with any audience that can only be picked up with practice, so I’d recommend seeking feedback and building relationships with investors as early as possible. Still, there are some specific tactics you can use to help your fundraising process run more smoothly.
Keep it simple. Be prepared, but stay nimble.
You should be able to explain what your company does, why it matters and why you’re positioned to win in a clear, succinct way. Avoid over-explaining or over-complicating your problem and solution. However, absolutely know your numbers and be prepared to dive into the details. Effective messaging is a skill that cuts throughout all of your responsibilities as a founder - fundraising, sales, customer service, board meetings, hiring and beyond.
A practical tip: Go through your key messages, and continually ask yourself “So what?”. If you’re in the earlier stages of your business, a lot of the information in your deck will be speculative as you probably won't have any revenue or customer data yet. So as you go through each slide, think about why it matters and why investors should care about it. Cut the fluff, emphasize the compelling points and be prepared to expand on them.
"The biggest thing for me is founders being concise and to the point [in pitch meetings]. A founder who can answer any question you have within a minute, while suggesting areas to dive deeper on if you’d like, makes you feel like they are in total control of their market and product without having to cover every angle at that moment.
Henrik Wetter Sanchez (Associate, Playfair Capital)
Some founders prefer to follow an agenda or deck while others prefer to have an informal conversation. Some want to lead the meeting while others prefer the VC to lead. There is no right answer here. Whatever your preference, have some flexibility. Be comfortable veering off of the agenda. If the VC wants to skip forward in the deck or dive into an off-topic area, have the flexibility to do so.
A practical tip: The more confident you are with going off-topic and addressing our immediate concerns, the more meaningful the meeting will be, as investors will be able to dig deeper past the surface of your deck within the hour. Learn your pitch by topic (market, USP, traction etc) instead of relying too heavily on a chronological narrative. This way, you can comfortably answer different questions without breaking your flow. When founders are comfortable jumping from topic to topic, it typically indicates that they know it well, and from many angles.
"The strongest founders we see can communicate their business KPI's off the top of their head, as crucially, these are metrics the founders should be tracking regardless of fundraising and gives us a clear insight into how well they know their own business. There is nothing more worrying than a CEO who can’t recall the basic KPIs of their company, including how much cash they have left and their runway…
Mark Shepherd (Associate, Beringea)
Understand what information investors want and when they want it.
After an initial meeting with an investor, make sure to follow up with any materials that were asked of you. Sharing additional detail and supporting documents on areas where they spent the most time asking questions, such as market reports or customer case studies, will further communicate your rigour and attention to detail.
A practical tip: If you’ve been asked to share your deck, financials, model, or any other materials after the meeting, try to send them by the next day if they’re readily available and within a few days if not. Many VCs discuss deals in their pipeline on a weekly basis. Providing these supporting materials with enough time for the lead investor to digest before the next deal team meeting will give them more information to bring to the wider team.
Keep investors engaged with positive updates as your business progresses throughout the fundraising process. Any updates around metrics, fundraising, and significant deals closed will keep the momentum of the deal going. Show us that your company’s growth isn’t being jeopardized by time spent on fundraising. However, be mindful that you’re not the only company a VC is considering at any given point. Know the difference between a gentle nudge and passive-aggressive pings. VC’s should be transparent with you on their process and what next steps to expect but don’t hinder your chances because of a lack of professionalism in communication.
A practical tip: If the investors don’t let you know upfront, ask what their process is. This way, you can know what to expect and ensure your updates are timely without being overwhelming. We will definitely want to know if you’ve received any term sheets or closed any significant deals or partnerships.
"I really appreciate founders being straightforward about where we are compared to other funds in a process. If we’ve engaged a little later, this information allows me to decide whether to allocate resources to catch up. If we’re one of the earliest conversations, I’ll factor that in when evaluating the pitch and answers to our questions.
Chris Smith (Managing Partner, Playfair Capital)
"In the same way that VCs are keen to really get a feel for the founders and the business they're building during the initial calls, it's always great when a founder takes a similar interest beyond just ticket size, in order to really understand the actual value-add that [the investor] could potentially bring.
Alex Wilson (Associate, White Star Capital)
Specific behaviours to avoid
Sidestep ‘off-topic’ queries. Be prepared to answer questions out of order. Be prepared to have your agenda derailed. Spending time where the investor has questions will benefit you. Telling a good story is important for the flow of a pitch but postponing questions or telling VCs to wait for answers can also significantly disrupt the flow.
Show any confusion about your numbers. You must know your numbers when you’re asking for an investment. At the very least, early-stage founders should know metrics related to revenues, customers, KPIs and cash position. Knowing your numbers lets us know that you understand your business, are detail-oriented and are likely a good steward of capital.
Send an investor your entire data room in response to a specific question. Open up your data room when you’re asked of it or when the timing in the process is appropriate. Data rooms can be information overload and are certainly not necessary after the first meeting. Again, be succinct in your follow up emails, it will help you get your point across. Being selective in the materials you share and directly attaching or hyperlinking them into the email is also much more effective.
Rush investors on their process. We have processes for a reason and we set the investment bar high. Please also be mindful that we are looking at other deals as well as managing our portfolio companies. For perspective, Forward Partners looks at roughly 4000 deals per year, and only makes ten investments.
Not mention that you’ve recently met another member of the investment team pre-meeting. Investors that are part of the same firm sync up on deals in their pipeline. Unfortunately, it’s not clever to get passed on by one member of the team and then schedule to meet another member shortly after.
Get investors to revisit a decision. We’re always in favour of providing feedback when we pass on an opportunity. And by all means, ask for a quick follow-up call to further understand our decision. However, not respecting that decision makes it hard for investors to consider any future investments. We would love to see you take our feedback, put it into practice, and circle back when you’ve achieved the necessary milestones. In the case where you disagree with us and see early successes, we would be happy to revisit the opportunity and learn from our mistakes.