In this three-part series, we’ll share tips and insights from founders, investors, and the Mercury Raise team on the entire process of pitching your startup. First up, we’ll run through a checklist to nail down before the real show starts, that'll make your process smoother and company story shine. Head to Part II when you’re ready to craft your pitch deck; and Part III when you’re ready to start engaging investors.
You’ve started your company, filed for incorporation, and opened a business bank account. The logistics of establishing your entity are out of the way, and you’re ready to start building.
But first, you might need some capital to get things off the ground. Enter: the fundraising process, where you’ll pitch investors, accept their capital if all goes according to plan, and use it on the resources you need to build and scale your company.
Your pitch is a critical part of the fundraising journey — it’s how you’ll convince investors to buy into your vision and trust in you to tackle the challenge.
Preparing to pitch
A successful fundraising process begins well before you’re sitting across the table from a prospective investor. Preparation is everything.
Investors are constantly inundated with pitch requests — many field hundreds of pitches every month. You’ll want to stand out from the crowd by crafting a compelling narrative, organizing your data room, and nailing your ask. Let’s explain.
Defining your core narrative
Your core narrative is the way you describe your company to investors — the story you tell when face-to-face with an investor and they say, “Tell me about [your company],” or the copy sprinkled throughout your pitch deck. It should explain why you’re the right person to solve the problem and why today is the right time.
It’s not only the story of your company — it’s your story, because founding a company is deeply personal. Out of all of the challenges or business opportunities to dedicate your work towards, why this one? Your core narrative should include why addressing a specific problem is meaningful to you. After all, investors understand that building a startup is hard, and they want to know that you’ll be motivated to push through because of a larger purpose than money. If investors sense you’re embarking on this journey just for financial gain, that can be an immediate red flag.
You’ll also want to articulate how your company is differentiated from the competition. That should include current and short-term market viability and potential for disruption, as well as a long-term vision of how the product category may evolve and your company’s role in that process.
Check in:
- Why did you pick this specific problem to solve?
- What makes your past experience create “founder-market fit?”
- Why does your solution deeply impact your customers?
Food for thought: This doesn’t have to be dry — you might use this opportunity to bring personality, emotional appeal, and other strong “human” factors into your pitch. Read insights from Runway founder Siqi Chen about leveraging emotion in your fundraising.
Prepare your financials and projections
In the earliest stages, experienced investors generally don’t expect to receive robust financial projections, nor do they intend to hold you strictly to the projections you provide. But they do want to see that you have a well-considered expected pricing strategy — and therefore an understanding of your revenue — as well as costs, growth, and cash flow projections over the next three years or so.
Investors in early-stage companies typically want to know that with your current investment ask, you can either become profitable or, more likely, reach the traction milestones that you need to raise the next round of funding.
These assumptions should be carefully reasoned, potentially addressing various scenarios, as investors are likely to ask about your thought process.
Your projections can also include a sensitivity analysis given changes in the macroeconomic environment, customer demand, and competitive products.
Check in:
- How much does it cost to acquire a customer today, and how much revenue is generated by them over their customer life?
- Can you maintain a sustainable growth rate while preserving cash burn?
- Which economic or customer behavioral factors may change that would affect your financial projections?
Setting up a data room
In order to make an investor’s due diligence as frictionless as possible, you’ll want to set up a data room that will enable them to quickly sort through your company documents.
What is a data room?
Your data room will be a single location for investors to access and review company documents, typically hosted on an accessible, secure cloud platform.
Key components of a data room
A data room will include different types of documents based on factors like your company size, industry, and infrastructure.
As an early-stage company, it’s common to include documents such as:
- Pitch deck
- Founding team biographies
- A company product and customer acquisition roadmap
- Incorporation documents
- Capitalization table
Every investor will weigh the importance of certain company information differently. Although performance metrics are important, many investors are looking for a clear understanding of the business, rather than the metrics being perfect.
Why prepare a data room before pitching?
If your pitch entices investors, they’ll typically want to see your data room as the next step to begin due diligence.
But preparing your data room can take longer than you’d expect — particularly the further along you are as a company — so it’s important to get started early to ensure that the investor’s due diligence process isn’t delayed.
Another benefit of having a buttoned-up data room is the ability to quickly follow up on specific questions that come up during the pitch with supporting documentation.
Check in:
- Have you chosen a secure cloud platform for your data room?
- Are your incorporation, financial, and supporting documents imported into your data room and organized by folders?
- Do you have an easily accessible share link to provide to investors?
Determining your investment ask
Raising capital is a means to, well, not quite an end, but different milestones for your growing company.
Therefore, as you’re fundraising, your investment ask should be directly tied to specific uses of the capital and goals that you aim to reach with the new funds. Your investment ask will have two primary components: the amount of capital you’re raising and corresponding valuation.
Defining your goals
Many investors will appreciate a granular breakdown of how the capital is being put to use, whether that means investments in infrastructure, talent, marketing, or other areas.
You’ll want to outline how much you plan to raise and your expected capital uses. To supplement this information, it’s best to explain the goals that your company plans to reach after executing your planned investments.
Justify your perspective
Investors will likely probe on your asking valuation. When investors model their portfolio returns, they expect their most successful companies to return a high multiple on the initial investment. For example, if an investor wants to see a 100x return on their winning investments, they have to pay close attention to the entry valuation at which they invest. Naturally, they’d like to invest at the lowest valuation possible.
At the earliest stages, you may likely be raising on SAFE, where it isn't necessary to set a valuation. Instead, you’ll set a valuation cap — when your company has achieved that valuation, your early investor’s funds will convert to equity when raising a priced round.
Regardless of which instrument you plan to raise on, you should be able to defend your asking valuation with reasoning about your team, your domain expertise, the market, and your GTM approach.
Check in:
- Have you identified your planned uses of the raised capital?
- How have you set goals for the uses of capital, and how will you measure progress against your goals?
- How did you arrive at your asking valuation and which assumptions are you making to justify your ask?
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Running an effective fundraising campaign starts with your preparation. By taking time to complete your pre-pitch fundamentals, you’ll not only give a strong first impression, but you’ll meet new investors with the confidence and clarity you need to make a compelling pitch.
Next up in our series, we’ll go through the essential elements of your pitch deck itself.
Tucker McKay