How to Find VCs: A Proven Guide for Startups

Are you a founder who's relatively new to fundraising? Well, you've come to the right place! I've founded two angel investor and VC-backed startups in two different countries and even built a product (no longer active) for startups looking to match with the right investors for their business, so I have lots of experience.

This guide provides a primer on raising money for your startup. It includes information on the different types and stages of venture capital (VC) and angel investment, how to prepare for investment, and how to connect with angels and venture capitalists.

We also manage a database of over 1500 VCs and angels, with email addresses, your mutual LinkedIn connections, and everything you need to know. Once you've gone through our guide, check it out.

Is my startup ready for venture capital?

Before diving into fundraising, determine whether your company is right for raising VC money. It's not for every type of company or at every stage, so there are several things to ask yourself before trying to raise money from venture capitalists and angel investors:

Is my company venture-backable?

Venture capital firms and angel investors make bets on potential unicorns. That means only highly scalable businesses with large addressable markets, like many software or consumer companies, are interesting. This is because their model is all about making several bets on companies that might hit a billion-dollar valuation at some stage, which then pays for all the failures and more. Your company needs to have the potential to be a unicorn.

You also need to provide a product, not a service. VCs and angels don't invest in agencies, consultancies, or anything else that grows its revenue by adding more human capital.

Several other technical factors will also be required, such as being a C-corporation headquartered in Delaware, but primarily, you need to be highly scalable.

If your company isn't right for VC, you have other business funding options, such as bank loans and small business loans, investing your own money, raising money from friends and family, or growing off your revenues.

Are we at the right stage?

Unless you're a serial founder with several successful exits, angel investors and venture capitalists don't invest in an exciting business concept or a good business plan. You'll need validation for your product or idea, which can take many shapes. It could be traction with a minimum viable product (MVP). It could be revenues from selling adjacent services that you can productize. Anything that shows there's a need for your product to exist in the world.

Do we have a good pitch?

Don't worry about a thorough business plan - prospective angel investors and VCs won't read them. The currency of a fundraise is your pitch deck - 10-20 slides in a PowerPoint that is roughly structured as follows:

1. Title Slide: Introduce your company name and logo and set the tone for the presentation.
2. Problem Slide: Identify the problem your startup is trying to solve.
3. Solution Slide: Present your product or service as the solution to the stated problem.
4. Market Slide: Describe your target market, market size, and opportunity.
5. Product Slide: Provide details about your product or service.
6. Business Model Slide: Explain how your company will make money.
7. Competition Slide: Highlight your competitive advantage and unique selling points.
8. Team Slide: Introduce key team members and their qualifications.
9. Traction Slide: Showcase your company's progress and key metrics.
10. Financial Model Slide: Present your revenue model and financial projections.
11. Funding Ask: Specify how much financing you seek and how you plan to use it.

But even more important than the deck itself is how you, as a founder, pitch your startup to attract investors. Can you share a vision with prospective investors about what can be and how you're uniquely positioned to achieve it? Fundraising is like sales. You must convince prospective investors that you represent a huge opportunity and that they need to hop on board.

Do we want to go the VC route?

Many founders fundraise because they think that's what you should do. But it's important to consider what path you're going down when you raise capital fr

om an angel investor or venture capital firm. You're putting yourself on a treadmill that only ends when your company hits a grand slam or flies out to first (there is some in between, but not much).

The biggest mistake we made with my last startup, Taskable, was getting on the VC treadmill. If I could go back in time, I would have never raised a venture for that startup and just bootstrapped it. We had a great idea and product but weren't going to be venture scale.

I respect founders who raise venture capital investment a lot, but you need to know you're taking a moonshot, and if you miss, your company probably dies. With Taskable, we managed to sell the company and return money to investors, but we had to give up our baby because investors weren't backing us to build a "lifestyle" business.

Am I ready to make fundraising my full-time job?

For one of the founders, going out to fundraise essentially becomes their full-time job. Sourcing, connecting, meeting, and negotiating with VCs is tons of work. Ensure your company is at a stage where you can (or must) turn your attention to fundraising.

How much do we need to raise?

If you are a venture-scale company, ensure you're raising the right amount. Raise enough to reach meaningful milestones, but avoid chasing an unnecessarily large round. Focus on progress and hitting key inflection points that will allow you to raise your next round on better terms.

A common approach is to:

1. Determine how much cash you need to reach your next major milestone
2. Add a 25-50% buffer
3. Target raising enough to give you 18-24 months of runway

To fully determine how much, consider the following factors:

1. Calculate your cash flow needs and runway:

Map out your cumulative cash flow requirements for the next 18-24 months. This should include your monthly burn rate (operating expenses) and any planned investments in growth. Add a substantial buffer to account for unexpected costs or delays. Aim to raise enough to give yourself 18-24 months of runway before needing to raise again.

A good approach to follow:

1. Identify key milestones:

Determine the major milestones or inflection points you need to hit before your next round of funding. These could include product launches, revenue targets, user growth metrics, etc. Estimate the costs associated with reaching these milestones.

2. Consider your valuation and dilution:

The amount you raise will impact your valuation and how much equity you give up. Generally, expect to sell 20% of the company each round. Avoid raising so much that you over-dilute yourself early on.

3. Balance between too little and too much:

Raising too little can leave you cash-strapped while raising too much can lead to undisciplined spending and unrealistic expectations. Find the right balance for your specific situation. Sometimes, having a tight budget is good - it helps you focus on the right things.

4. Factor in the funding climate:

Consider current market conditions and investor sentiment in your industry. These can impact valuations and your ability to raise money. At Taskable, we raised a small round during the ZIRP era, but when we needed to raise again, the music had already stopped.

5. Create multiple scenarios:

Develop financial projections for necessary, realistic, and optimal funding levels.

6. Get input from advisors:

Consult with experienced entrepreneurs, investors, or advisors in your industry to gut-check your numbers.

Types of Investors

The type of investor you go after largely depends on your stage. Here are the common types of startup investors, based on how early they tend to invest in a startup.

Your own money

The first investor in your business is likely you. Even if you're not putting in actual capital, you'll probably start by putting all your cloud, software, freelancer costs, etc, on your credit card. Investing in yourself is a strong message when going out and raising future rounds. Every company I've ever started was with my credit card. Then, a day comes when you get a company credit card, and you can finally move all your subscriptions and costs to that, which always feels like a nice milestone.

Friends and Family

Friends and family are your next option for fundraising. Again, this also sends a signal to future investors. If you can't convince your friends, business partners, and family to invest in your startup, what chance do you have of building a billion-dollar business?

Incubators and Accelerators

Business incubators and accelerators are another great way to raise capital and get early support for your business.

Accelerators and incubators work by investing a set amount in startups - starting as low as $10k up to around $500k at Y Combinator.

At Taskable, we went through Jason Calacanis's LAUNCH Accelerator. LAUNCH invests $100k per startup and provides support for future fundraising efforts.

Here are some of the top startup accelerators and incubators globally, known for their significant impact on early-stage companies:

Top Startup Accelerators

1. Y Combinator

• Location: Mountain View, California, USA
• Focus: High-growth and tech startups
• Details: Y Combinator is one of the most renowned accelerators. It offers $500,000 for 7% equity and has funded over 5,000 startups, including Airbnb, Dropbox, and Stripe.

Check out our Y Combinator application template if you're thinking of applying

2. Techstars

• Location: Multiple locations worldwide
• Focus: Tech startups and first-time entrepreneurs
• Details: Techstars provides capital, mentorship, and networking opportunities. It hosts events like Startup Week and Startup Weekend to foster community growth.

3. 500 Startups

• Location: San Francisco, California, USA
• Focus: Diverse industries
• Details: Known for its global reach, 500 Startups offers a four-month accelerator program with $150,000 in funding for 6% equity. It has invested in over 2,400 companies.

4. Plug and Play Tech Center

• Location: Multiple locations globally
• Focus: Various industries, including fintech, health, and smart cities
• Details: Plug and Play partners with corporations and universities to run unique accelerator programs. It has funded over 1,400 startups, including Dropbox and PayPal.

5. MassChallenge

• Location: Global
• Focus: Innovation and entrepreneurship
• Details: MassChallenge is a non-profit accelerator that supports startups through collaboration and development without taking equity.

6. AngelPad

• Location: New York and San Francisco, USA
• Focus: High-growth and tech startups
• Details: Consistently ranked as a top accelerator, AngelPad offers seed-stage funding and has a strong track record of high valuations for its startups.

7. Alchemist Accelerator

• Location: San Francisco, California, USA
• Focus: Enterprise startups
• Details: Alchemist specializes in startups that monetize from enterprises, offering $36,000 in funding for 5% equity. It has a strong network of mentors and investors.

Angel Investors

Angel investors are private investors who invest their own money in startups. The business concept of angel investing dates back to the early days of American capitalism. The term "angel investor" originated from Broadway theater in the late 19th and early 20th centuries, where wealthy individuals provided money to finance theatrical productions.

Angels often invest in companies they source through their networks or are involved in angel groups that pool deals.

Venture Capital Firms

Venture capital firms are a form of private equity that pools money from institutional investors, high-net-worth individuals, and other entities to invest in startups. The investors, generally partners in the firm, make investing decisions, and they invest typically after the earliest stages of startup formation—i.e., after friends and family, accelerators, and the first angels.

Some of the top VC firms:

1. Andreessen Horowitz (a16z): Founded in 2009, a16z has $35 billion in assets under management and invests in startups across all stages.
2. Sequoia Capital: One of the oldest and most well-known VC firms, Sequoia has backed companies like Google, Apple, and Oracle.
3. Accel: A global firm that invests in startups from seed to growth stages, with notable investments in Facebook, Dropbox, and Slack.
4. New Enterprise Associates (NEA): With $25 billion in assets under management, NEA focuses on early-stage companies in tech and healthcare.
5. Kleiner Perkins: Known for investments in Amazon, Spotify, and DocuSign, Kleiner Perkins aims to fund startups that will make history.
6. Bessemer Venture Partners: One of the oldest VC firms, with nearly $20 billion in assets under management and investments in companies like Pinterest, Shopify, and LinkedIn.
7. Tiger Global Management: A prominent firm focusing on the internet, software, consumer, and fintech sectors, with over 140 successful exits.
8. Lightspeed Venture Partners: Known for Snapchat, Affirm, and Mulesoft investments.
9. Founders Fund: Founded by Peter Thiel, known for early investments in Facebook, SpaceX, and Palantir.

Private Equity Firms

A more traditional private equity firm might get involved at the latest stages, before an IPO, or in more significant deals.

Funding Rounds

Startup funding rounds are defined by stage, starting with pre-seed and ending with IPO (hopefully). Here's more information on the various stages.

Pre-Seed

• Purpose: In the initial phase, the founders develop their idea, create a minimum viable product (MVP), and assemble a team.
• Funding Sources: Personal savings, family, friends, and sometimes angel investors.
• Funding Amount: Typically ranges from $10,000 to $1,000,000.
• Activities: Market research, business plan development, and initial product development.

Seed

• Purpose: To validate the product-market fit, conduct more detailed market research, and build a customer base.
• Funding Sources: Angel investors and early-stage VCs.
• Funding Amount: Usually ranges from $100,000 to $2,000,000.
• Activities: Product development, initial marketing efforts, and hiring key team members.

Series A

• Purpose: To optimize the product, scale the user base, and generate consistent revenue.
• Funding Sources: Venture capital firms.
• Funding Amount: Typically ranges from $2,000,000 to $15,000,000.
• Activities: Enhancing the product, expanding the team, and implementing a go-to-market strategy.

Series B

• Purpose: To expand market reach, scale operations, and increase market share.
• Funding Sources: Venture capital firms and sometimes private equity firms.
• Funding Amount: Generally ranges from $15,000,000 to $50,000,000.
• Activities: Scaling the business, expanding into new markets, and further product development.

Series C

• Purpose: To continue scaling, enter new markets, and potentially prepare for an acquisition or IPO.
• Funding Sources: Venture capital firms, private equity firms, hedge funds, and investment banks.
• Funding Amount: Can exceed $50,000,000.
• Activities: Large-scale expansion, acquisitions, and significant market penetration.

Series D

• Purpose: To address specific needs such as further expansion, new product lines, or bridging to an IPO.
• Funding Sources: Similar to Series C, including venture capital, private equity, and institutional investors.
• Funding Amount: Varies widely based on company needs and market conditions.
• Activities: Continued growth, market expansion, and public offering or acquisition preparation.

Initial Public Offering (IPO)

• Purpose: To raise capital from public investors and provide liquidity for early investors and employees.
• Funding Sources: Public investors through stock exchanges.
• Activities: Compliance with regulatory requirements, extensive marketing, and transitioning to a public company structure.

Steps to Find Investors

As mentioned, finding angel investors and venture capitalists to invest in your startup is a full-time job. Here are some steps to make it easier.

Step 1: Research VC firms and angel investors and their focus areas

VCs and angel investors generally have specific focuses on what they invest in based on things like:

• Stage: They might come in at the earliest stages along with friends and family or invest at late stages
• Industry: Some investors will only invest in SaaS, consumer, or products serving specific industries
• Geography: There are firms and angel groups that focus on particular geographies

Do your homework and avoid reaching out to investors whose criteria you don't fit. In particular, look at what they say they'll invest in and what they've actually invested in previously. You'll see many venture capitalists claiming to invest at the earliest stages, but then you look at their track record, and they only invest in rounds above $10mn.

This can be a bit trickier if you want to find angel investors. The reason is that angels don't always advertise that they're angels. Of course, there are angel investor networks, but these can have long processes and charge fees for pitching or helping you raise money. Be wary of them.

A better way to approach looking for angels is searching LinkedIn for people who call themselves angels and work in your industry. Or look for other successful business executives in your industry who might have enough personal funds and want to invest in startups in a space they know a lot about.

During this research phase, put together a list of potential investors, considering relevance, likelihood, and how much you'd like to work with them.

Some great resources for this phase:

• Our VC and Angel Database: We maintain a database of over 1500 angels and VCs, including email addresses.
• Crunchbase: A database of funding rounds, including the startup, who invested in them, and at what amount. This is a great way to see who's invested in similar startups to yours and to fact-check what stages and industries VCs are investing in compared to what they say.
• Your Network: Reach out to everyone you can think of who is familiar with the startup funding space. Let them know you're thinking of fundraising and if they know of any prospective investors you might talk to when the time comes.
• LinkedIn: I would only recommend hopping on LinkedIn if necessary. But it's an excellent way to research investors and their networks.

Step 2: Find mutual connections

Potential investors—both VCs and angels—give more weight to founders they source through their network over cold outreach. Take your list of prospective investors and search out mutual connections via LinkedIn, or ask your network if they have connections with the individual or firm.

Not every mutual connection shares the same weight. The best person to get an intro from is another founder the investor has invested in. This is because the investor trusts that founder, or else they wouldn't have invested in them.

Don't ever use a "finder" or someone who claims to connect you with investors for a fee, as VCs and angels will hold that against you.

Of course, if you can't find a mutual connection, then cold emailing is fine.

Step 3a (if time allows): Reach out before the funding round

Ideally, with this target list of investors, you can start having your mutual connections connect you well ahead of your official fundraising to meet with the investor, get to know them, and get their advice about something. This is a good idea because it takes the pressure off the meeting - you're not in pitch mode but are just getting to know the person and sharing more about your business. Secondly, asking them for advice shows you're curious and willing to listen to experts or people who've done it before. And then, when you do, go into fundraising mode.

Step 3b: Arranging pitch meetings

If time doesn't allow or you're already in fundraising mode, reach out to investors with a short pitch deck and a quick, enticing blurb that leaves them wanting more. Then, start filling your calendar with as many meetings as you can.

Most investors will have an initial meeting, and if they like, you will arrange a follow-up with another partner.

Step 4: Meet with investors

Ideally, you'll fill your calendar over a few weeks with only investor meetings, which helps build momentum and finish the raise as quickly as possible. Generally, you want to take as many meetings as possible unless someone isn't a good fit.

Try to arrange a few of your less desirable investors first so you can practice with them and be prepared for the crucial meetings.

Make sure to follow up after meetings and provide them with information in a timely fashion.

Conclusion

Raising venture capital is a reality for most startups that want to hit unicorn status. It requires preparation and planning. Start by assessing if your startup is a good fit for VC funding—high scalability and a large addressable market are crucial. Ensure you have a well-crafted pitch deck and be ready to dedicate significant time to fundraising efforts. Research potential investors thoroughly and leverage your network for introductions to increase your chances of success. While VC funding can accelerate your growth, it comes with high expectations and pressure to scale rapidly. Consider all your options and choose the path that aligns best with your vision for your startup.

Fundraising FAQs

What is venture capital?

Venture capital (VC) is a type of private equity financing provided by investors to startups and small businesses with high growth potential. These investors, often venture capital firms, provide capital in exchange for equity, or ownership, in the company. The goal is for the company to grow rapidly, increasing the value of the investment, which can be realized when the company goes public or is acquired.

What is an angel investor?

An angel investor is a wealthy individual who provides capital to startups, often in the early stages, in exchange for equity or convertible debt. Angel investors usually invest their own funds and may also offer mentorship and advice to the startups they invest in.

What is an equity investment? How does an investor make money from an equity investment?

An equity investment involves buying shares of a company, giving the investor ownership in the company. An investor makes money from an equity investment through the appreciation of the company's value and the eventual sale of their shares at a higher price than they paid. This can happen through an acquisition of the company or an Initial Public Offering (IPO)..

What is a venture capital firm?

A venture capital firm is an investment company that pools funds from various investors to provide capital to startups and small businesses with high growth potential. These firms typically invest in exchange for equity in the companies and aim to make a profit through the growth and eventual exit of these investments.

How do I find angel investors?

To find angel investors, start by researching and networking within your industry. Use platforms like LinkedIn to identify potential angels, join startup incubators and accelerators, and attend industry events and pitch competitions. You can also leverage angel investor networks and online platforms that connect startups with investors.

Useful Fundraising Terms

Accredited Investors

Accredited investors are individuals or entities that meet certain financial criteria set by regulatory bodies, allowing them to invest in private securities not available to the general public. Typically, an accredited investor must have a net worth of over $1 million (excluding their primary residence) or an annual income exceeding $200,000 (or $300,000 combined with a spouse) for the past two years.

Angel Investor Networks

Angel investor networks are groups of wealthy individuals who pool their resources to invest in early-stage startups. These networks provide startups with capital, mentorship, and valuable connections. By joining forces, angel investors can spread their risk across multiple investments and leverage their collective expertise.

Business Model

A business model outlines how a company creates, delivers, and captures value. It describes the company's strategy for generating revenue and making a profit. Key components include the target market, value proposition, revenue streams, cost structure, and key partnerships.

Business Plan

A business plan is a detailed document that outlines a company's goals, strategies, market analysis, financial projections, and operational plans. It's used to guide the business's growth and secure investment by providing a clear roadmap for achieving success.

Equity Crowdfunding

Equity crowdfunding allows startups to raise capital from a large number of investors, typically via online platforms, in exchange for equity in the company. This method democratizes investment opportunities and enables businesses to access funds from a broader pool of potential investors.

Financial Statements

Financial statements are formal records of a company's financial activities and performance. They include the balance sheet, income statement, and cash flow statement, providing a comprehensive overview of the company's financial health and helping stakeholders make informed decisions.

Operating Costs

Operating costs are the expenses incurred in the day-to-day running of a business. These include costs like rent, utilities, salaries, marketing, and maintenance. Keeping operating costs under control is crucial for maintaining profitability.

Pitch Deck

A pitch deck is a brief presentation used by startups to provide potential investors with an overview of their business. Typically consisting of 10-20 slides, it covers the company's value proposition, market opportunity, business model, financial projections, and team.

Private Equity Firm

A private equity firm is an investment company that raises funds from institutional and accredited investors to invest in private companies. These firms typically buy significant stakes in businesses, aiming to improve their value through strategic guidance and eventually sell them for a profit.

Small Business Loans

Small business loans are a form of financing provided by banks, credit unions, or other financial institutions to small businesses. These loans can be used for various purposes, such as starting a new venture, expanding operations, or covering operational expenses. They usually require repayment with interest over a set period.