9 Ways to De-Risk Your Startup's Fundraise (Without Traction)
It's tough out there... here's what to do
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Lately I’ve been getting a lot of questions about fundraising. The climate is tough right now and the outlook for the fall is mixed.
VCs are seeing a mix of new startups trying to compete with all of the AI hype and existing portcos who raised at high valuations in 2020-2021 who now need more capital.
To get funding, startups need to stand out by providing as low-risk an opportunity for investors as possible. What founders are hearing is that they need strong traction…
But what else can they do?
This week I’m sharing 9 things (other than traction) that founders can do to make their deal more attractive to investors 👇
Read Time: 05 minutes
9 Ways to De-risk Your Startup to Investors
Revenue is the best way to de-risk a deal. User growth is the next best. Here’s what you can do to de-risk your startup outside of traction.
Let’s be honest — credentials don’t make you a good founder, but they do serve as a signal to investors.
Having good credentials either from past companies you worked for or top tier universities implies you have a strong network and that it will be easier for you to:
Hire good employees in the early days
Raise additional capital
Find early customers and form partnerships
Even if you don’t have credentials that will move the needle you can still leverage credentials in three ways:
Form an advisory board with high-signal individuals in your space. I wrote about how to do this here.
Even better, get those domain experts to invest at a reduced valuation before you go out and raise the rest of your round. I wrote more about that here.
Join a reputable accelerator. Y Combinator is, of course, the best but others can be beneficial too if they have expertise in your specific space.
Don’t Plan Too Much
Mike Tyson once said that everyone has a plan until they get punched in the mouth. In startups this means that everything you project for the future is probably wrong (likely by a decent amount).
Good investors know this. What they don’t know is if YOU know that.
Providing them with detailed growth projections and financial forecasts is a counterintuitive red flag (here are 5 more).
It’s worth calling out that this is more true for US-based investors than investors in other parts of the world. And if investors are asking you for financial projections, etc. you should be able to provide them quickly.
Just don’t present them as though your ideal-case spreadsheet de-risks the future of the company.
Get a Warm Intro
A study in 2020 found that startups that get a warm intro to an investor were more than 10x more likely to get funded. It’s common knowledge that venture runs on intros.
Why? Because startups are incredibly risky things to invest in and investors value recommendations from people they trust and respect. And most people simply don’t make a ton of warm intros, so when they do the intro goes a long way.
The common narrative is that getting a warm intro to VCs can be nearly impossible if you don’t have an extensive network in Silicon Valley, but there’s one method I’ve found to be fairly reliable.
Look at the investor’s portfolio on Crunchbase
Find the founders of startups they’ve invested in (bonus points if they’re in a similar niche to your startup)
Find those founders on social media and reach out
Have the founder hype you up to the investor and connect you once they’re interested
It’s important to start building your relationships with those founders months ahead of your fundraise. Messaging them for the first time when you’re trying to raise will come off as transactional. Instead, build an authentic relationship with them first and then eventually make the ask.
The best part of this is that it communicates to the investor that you’re scrappy and capable of getting things done.
There’s also an interesting new startup in this space called Pollen Round that’s trying to make warm intros more accessible. I haven’t used it yet but it looks promising.
If you don’t have strong traction numbers yet then it’s essential that the early users or customers you do have are willing to speak up on your behalf and can clearly articulate why they like your product.
Include at least one of these in your deck and have more memorized that you can easily bring up on calls.
I use Senja to capture testimonials about all my offerings. It’s pretty versatile.