Seeking Investment. What founders should be prepared for?
Whether you’re a founder or an investor, raising capital is one of the hardest things any founder will experience. Especially when you’re on the heels of a recession.
Not only is it stressful, but it more often than not becomes a full-time job taking founders away from running their companies.
Not only is it stressful, but it more often than not becomes a full-time job taking founders away from running their companies.
Ben Stokes
Founding Partner at Chasing Rainbows
This article was written by Ben Stokes. Prepared for publishing by Max Pog.
One of the biggest lessons any founder should consider whilst fundraising is to really understand who they’re bringing on to their cap tables. In particular, this means researching potential investors to understand their criteria for investment.
Now, this differs from investor to investor, but ultimately all investors would agree that there are 4 things that make any startup successful. That’s Team, Timing, Product, and Execution. But I believe overarching all of this is luck - because let’s face it - we all need a little bit of luck on our side when it comes to being a successful founder!
When it comes to what factors are more important when making a decision to invest, every investor will have a slightly different diligence process – as this is what is part of their secret sauce. However, they will agree that depending on which stage the founders are at, their decision will be weighted slightly differently depending on what attributes the founders can display.
As an early-stage fund that invests anywhere from Pre-Seed to Series A, we at Chasing Rainbows, have built a robust diligence process that includes 4+ meetings with founders before we would be willing to make an investment. On top of this, we place the following importance when considering an investment, which can be attributed to the stage a founder is raising.
This importance looks like the following:
Pre-Seed - Team
Seed - Product
Series A - Execution
Obviously, timing affects all of these, but in order to get past the first meeting with us, you really need to be able to answer the following questions:
Now, this differs from investor to investor, but ultimately all investors would agree that there are 4 things that make any startup successful. That’s Team, Timing, Product, and Execution. But I believe overarching all of this is luck - because let’s face it - we all need a little bit of luck on our side when it comes to being a successful founder!
When it comes to what factors are more important when making a decision to invest, every investor will have a slightly different diligence process – as this is what is part of their secret sauce. However, they will agree that depending on which stage the founders are at, their decision will be weighted slightly differently depending on what attributes the founders can display.
As an early-stage fund that invests anywhere from Pre-Seed to Series A, we at Chasing Rainbows, have built a robust diligence process that includes 4+ meetings with founders before we would be willing to make an investment. On top of this, we place the following importance when considering an investment, which can be attributed to the stage a founder is raising.
This importance looks like the following:
Pre-Seed - Team
Seed - Product
Series A - Execution
Obviously, timing affects all of these, but in order to get past the first meeting with us, you really need to be able to answer the following questions:
1
Why do you believe you and the rest of the team are uniquely positioned to not only understand but solve the problem you’re going after?
Now, this isn’t just about your academic background either. We really want to understand your lived experience, as this helps show us how committed you are to solving this problem.
2
What is the size of the market you’re going after?
Are there any potential ways you might be able to expand this TAM by unlocking additional customer segments or revenue streams?
3
What does your traction to date look like?
Early revenue is a really strong indicator of finding product market fit, but if you don’t have that, can you talk to us about how you got your first customers? If you’re a B2B company, do you have LOI’s? If you’re a B2C company, do you have beta users? Talk to me about how they found you, why they’re using your product, and are they willing to pay for it when you have a revenue model in place.
If you can win us on each of these, then you’ll move on to a second meeting, where we’ll do a deep dive into your pitch deck and GTM strategy.
Author: Ben Stokes, Founding Partner at Chasing Rainbows
Author: Ben Stokes, Founding Partner at Chasing Rainbows
Hi, this is Max Pog, we've recorded a podcast with Ben about Chasing Rainbows fund. Watch it:
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