As a host of my own podcast where I interview SaaS founders, I have had the privilege of tapping into the wealth of knowledge and experience founders possess when it comes to SaaS fundraising.
I ask each founder what they learned from their recent fundraise. There is always a smile on their face when I ask that question. There is no hesitation in their answer.
In this post, I distilled the critical lessons from their responses and focus on the top three most common insights shared by these SaaS founders who have raised millions of dollars.
Founder/Investor Fit is Critical
Founder/investor fit was one of the top responses from founders. It was very clear that founders felt strongly about this lesson learned. Founders want investors who believe in their market and what they are trying to accomplish.
It’s not enough for investors to understand the SaaS business model. They must understand your specific niche, your competitors, and so on. Founders often wished they had been more selective with introductions. You may have conversations with one hundred investors. Founders wish they had ended conversations earlier when there was no founder/investor fit. However, with experience founders felt they could filter out investors faster.
You are getting into bed with your lead investor.
Paul Archer, founder of Duel.tech
Fundraising is about relationships and networking. Successful funding rounds were built on a foundation of strong communication. Communicating not only with your investors but with potential investors. If founders have been communicating with their investors and investor community, they will know what to expect from your company.
- Pick Your Investors Wisely
- They know SaaS, but do they know HealthTech, PropTech, GovTech, FinTech, etc.
- What are the investors value adds? What strengths and network do they bring?
- Make sure your problem is aligned with the investor’s vision.
- Vet Your Investors
- You are getting into bed with the lead investor. It’s almost impossible to get out.
- Do reference checks with other founders.
- It’s a dating process. How do they show up? How do they treat your management team?
- Be Courteous and Reciprocate
- Fundraising is about relationships.
- Get close to your investors. Understand their value prop and what they want to achieve. It’s not just about you.
- Be authentic. Investors value painful/sharp authenticity.
Check out this lesson from Oded Zehavi, co-founder and CEO at Mesh Payments, on investor relationships. Mesh has raised over $100M. Catch his episode here.
Know Your Milestones
Founders should be aligned with investors on value creation and milestones. This is relevant during funding discussions and post-funding discussions.
With the fresh round of founding, be clear with your team and investors about your milestones. Be very specific about what you will achieve. This could be the initial product build, building your first go-to-market team, X number of users, and so on.
Next, make sure you understand expectations around value creation. Your investor may be thinking enterprise value while you see value creation in tactical achievements such as team build out.
Finally, be authentic and consistent in your communication with investors. Communication was a common theme that mixed in with each high-level theme.
- Pick Your Targets Wisely
- What targets will you achieve with the funding?
- Be specific with your milestones: product build, find product market fit, build your first GTM team, X users, X revenue, and so on.
- Founders had concrete answers on what triggers led them to the raise.
- Align Your Notion of Value Creation
- Is your definition of value creation the same as your investors?
- Make sure you understand the investors goals with the investment.
- Rolling targets are great but lock in specific targets that you will achieve with the funding.
- Communicate with Investors
- Be authentic and transparent.
- Be upfront with challenges. Avoid surprises with investors.
- Offer frequent investor updates and updates to potential investors.
Check out this clip from Barrie Hadfield, co-founder and CEO of Mindset AI, on value alignment with your investors. Catch his episode here.
Founder Storytelling
The founder is the number one storyteller. Period. To nail your story, it comes with a lot of repetitions and practice. You need to be good at storytelling to communicate your vision effectively to investors. Formulate your vision and how money will solve it.
Founders should be confident in their story and be coachable. However, you must stay true to yourself. You’ll receive a lot of advice during your journey. Some good, some bad.
Your founder superpower is breaking the complicated into simple, compelling stories. To be effective, your story must invoke an emotional response from the investor. Do they want to be part of your vision? Do they want to be part of your story.
Finally, you must know your numbers as founder. In the seed stage, it is more about the story and vision. But when you hit series A and beyond, your numbers will support your story to make it even more compelling.
- Pitch Deck Snafus
- Avoid pitch deck snafus; answer common questions in your pitch deck.
- Formulate your vision and how money will solve it.
- Set up a slide for a slam dunk answer to boost your presence.
- Get reps and be coachable!
- Make It Simple
- Your superpower is breaking the complicated into simple stories.
- Your story must invoke an emotional response from the investor.
- Know Your Numbers
- Stage 1 – vision/story – could be no product, wireframe, or MVP.
- Stage 2 – data; eventually anecdotes must be supported with numbers and metrics. Metrics support your vision and enhance your compelling story. Series A
Check out this clip from Kathy Zhu, co-founder and CEO at Streamline AI, on setting up your pitch deck for success. Catch her episode here.
Takeaways
The fundraising experiences shared by SaaS founders serve as valuable lessons for your fundraising journey. Remember these important lessons for your next fundraise.
- Founder/investor fit is a critical aspect to consider when sizing up investors.
- Know your milestones. Why are your raising now and what do you want to achieve with the funding.
- The founder’s number one job is to weave the vision and story during the raise. Hook your investors emotionally.
I have worked in finance and accounting for 25+ years. I’ve been a SaaS CFO for 8+ years and began my career in the FP&A function. I hold an active Tennessee CPA license and earned my undergraduate degree from the University of Colorado at Boulder and MBA from the University of Iowa. I offer coaching, fractional CFO services, and SaaS finance courses.