A lot has changed in the world of venture capital (VC) in the past year.
In today’s tough market, Investors are seeing around 500 pitches from startup founders every month. They typically invest in a few. And, if that didn’t make things competitive enough, early-stage funding is at its lowest level in five years..
As a result, I see many founders who are coming my way with an old school perception that they must present a big market opportunity and an amazing product in order to cut through the threshold.
They are so focused on being “investment worthy” that they forget that in early stage funding, especially in a seed stage to A round, you need to cover the fundamentals first.
You need the Fundraising Fit Triangle.
What’s the Fundraising Fit Triangle?
In every pitch there are three fundamental pillars: the founder, the investor, and the market.
Together, these pillars form three relationships that without achieving them your chances of raising funds are slim to none.
- Founder-market fit
- Investor-market fit
- Investor-founder fit
The fundraising fit triangle is so critical that it can even shadow an amazing product and a company with great traction.
Why am I so confident in that statement? It’s because I interviewed endless VC partners on my podcast “How to Sell Your Vision” and they all said the same thing: If the opportunity is great but the founder is horrible, we won’t get into business.
And that’s just one example of why the three pillars are critical to achieve.
Over the next few minutes, I’ll unpack each of these relationships in more detail and explain why they’re so important.
Founder-market fit — show that you’ve lived the pains your product solves
In your early fundraising rounds, investors won’t be expecting you to have product-market fit. So what they’re looking for instead is founder-market fit.
What makes you right for the market problem you want to transform? What lived experiences do you have that will give you an unfair advantage against your competitors?
Investors invest in people, not technology. And the reason they invest in people is because people have history and relationships with a market.
If you’ve lived the pains your early adopters will be facing, that’s a big green tick for investors. So demonstrating founder-market fit should be your first goal when preparing your fundraising pitch.
Investor-market fit — focus on investors who are active in your market
I constantly hear from founders who say they’re pitching, and pitching, and pitching but investors just aren’t getting their product or industry.
If you’re having this issue too, it’s probably because your pitch is off or the investor in front of you is not knowledgeable about your market.
Don’t get me wrong, every presentation should be designed so the listener doesn’t need to have any pre-existing knowledge to understand it.
But, to reduce frustration and increase your chances of completing a fundraising round, you need to source investors that are active in your market. In other words, you need investor-market fit.
Here are two reasons why it’s dangerous to fundraise without investor-market fit:
- You’ll get negative feedback that isn’t grounded in any market knowledge. As a result, you may change your approach based on the words of an investor who doesn’t understand your market, doesn’t understand you, and doesn’t understand why your solution is so important. It’s a bad fit all round.
- You’ll get deflated and start to lose hope in your ideas and abilities
So instead of pitching to anyone and everyone who will listen, refine your investor list to focus on investors that fit your market.
After all, you can’t expect B2B tech investors to get excited about CPG products — and vice versa.
Investor-founder fit — create a meaningful connection with the investor in front of you
I’ve interviewed dozens of leading VC partners, angel investors, and successful CEOs. And I know I’ve said it before, but I’ll say it again: investors don’t invest in technology, they invest in people.
So here it is, the third and final part of the Fundraising Fit Triangle. And, in my view, it’s also the most important.
If you want to raise money, you need to have some kind of connection and chemistry with your investor. Your product may be perfect. And your business may have great traction. But if you aren’t able to spark a meaningful connection with the investor in front of you, your chances of getting funded are slim.
This is where the power of the pitch, your story really kicks in. And it’s also the reason I developed the Pitch Cycle method of pitching. It’s all about connecting the investor to you and your ability to execute in the market you operate in.
Final thoughts
Most founders think fundraising is a big numbers game, the more they pitch, the bigger the chances they’ll successfully raise. But they’re wrong.
At the end of the day, fundraising is all about fit. If you can demonstrate why you — the founder — and your investor are perfect for your market and each other, you’re onto a winner.