I have never heard an entrepreneur say, "Wow, raising that round of capital was FUN! Can’t wait to do that again." Raising money is not normally fun. It is a time-consuming distraction from building your business. However, it does not have to be the bane of your existence. There are certainly some tried and true best practices for every process that can make your life easier while most times ensuring success. Here are a few essential steps:
It takes more than just your product or big idea
Regardless of your stage and the amount you are raising, most investors, at a minimum, want to see the following three things before they even consider investing: (1) a proven and curated team; (2) a large total addressable market; and (3) an interesting product and vision that is aligned with their thesis. There is a lot of dissent regarding which one of these is most important — in my experience, the larger the market, the better. (You can have the best product in the world and a team of superstars, but if the market is not big enough, everyone will be banging their heads against the wall to build a large business.)
Create the perception of traction
A successful raise requires creating an underlying fear of missing out (good old "FOMO"). This process needs to be completed with the perception of traction within the investor community; adoption and validation in some way, shape, or form (perhaps through other businesses); and curation through the correct introductions, combined with an exciting pitch and storyline.
You are not panhandling
Change your general mentality from "begging for money" to "letting people invest" and "choosing a partner." For instance, if an investor asks you, “how much are you trying to raise?”— the answer is: “We are going to raise about $5 million and it looks like we are going to choose our next financial partner in about three weeks.”
Investors will move as quickly as you make them
The common denominator with investors is that nobody likes to miss out on a deal, and they will move as quickly as you make them. Your job is to move the pack along by providing a good sense of timing. Those who are least interested will fall away to the back of the pack, while the most interested investors will break away and get to a term sheet.
Timing will always be out of your control
Even the investment decisions at some of the largest VCs are run by small groups, and sometimes they get caught up in other things that make them unavailable (IPOs, sales, and dispositions of their portfolios). Do not fret it or take it personally – these things happen and you cannot control it.
Investors are in the “no” business
The average VC will see no less than 50 potential opportunities a month, but will only be investing in six to ten companies a year. As a result, they say "no" a lot and stick to a specific thesis in order to filter their decisions. You need understand what an investor is looking for and spoon-feed it to them so they are not hooking onto slivers of information in order to get to "no."
Get your ducks in a row and run an organized process
It shows the business itself will be well managed. No matter what stage your business is in, every process should have a start date and an end date (Hint: you can always move end dates); have an organized data room ready before you go out to raise; maintain a list of people you want to speak to; and have an amazing pitch deck and story line. Your advisors and board can certainly help with the latter two, but you need to own your message, and it needs to be amazing and exciting. If you are not getting traction, it is your fault — not your board or you advisors’ fault.
Do not have coffee
Never have an "informal cup of coffee" when you are out raising — figure out how to elbow the meeting into their conference room so you can provide a well-constructed pitch.
Do not offend sensibilities
You can argue for valuation once you get a term sheet, which is the point of the process. If you get pushed down from a partner introduction to pitch a principal or associate, do not get discouraged — give the best pitch ever and get more sponsors internally.
Do not get introduced by someone who is not investing but should be
The worst introduction is from another investor they know who is not investing, but should be ("It’s not good enough for me, but maybe you will like it?"). The best introduction is from someone they have made money with before whom they trust for curation.
Always be delightful and positive
Never get defensive or respond negatively to stupid questions. Sometimes investors ask these questions as a test to see how you will respond — remember, they are hunting for "no" and checking boxes.
Raise the right amount of money for where you are in the process
If you have a SaaS business with a product for enterprises, have only recently established product/market fit, and have not yet generated real revenues, do not go to market looking to raise a $10 million Series A. It is not going to happen (unless you have made a lot of people a lot of money before, or your parents are Limited Partners in the fund.)
All in all, fundraising is hard for any business, but it can also be a positive experience where you meet and speak with some of the most interesting and bright people in your space, while also building a network for the future. Take it as a learning experience, accept all of the great feedback you will receive, and use it as a catalyst to refine your strategy and general approach. Most of all, be patient, deal with the constant rejection, and do not give up!