9 Ways to De-Risk Your Startup's Fundraise (Without Traction)

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 👇

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.

Leverage Credentials

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:

1. Form an advisory board with high-signal individuals in your space. I wrote about how to do this here.

2. 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.

3. 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.

1. Look at the investor’s portfolio on Crunchbase

2. Find the founders of startups they’ve invested in (bonus points if they’re in a similar niche to your startup)

3. Find those founders on social media and reach out

4. 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.

Testimonials

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.

Proactively Acknowledge Risks

Every startup has a huge amount of risks. You should already know what the major risks are for your startup by the time you go to raise.

Investors see enough deals where they can likely also quickly grasp what those risks could potentially be.

So there’s no point in trying to downplay (or worse, hide) the risks from them. If you do this, investors will think you don’t have a plan to counteract them or feel like they’re actually likely risks that will sink the business.

And if they think that YOU think so, they’ll be out of the deal.

Your best path here is to calmly acknowledge what they are as part of your pitch or even in your deck. Ideally you have reasons for why they’re less likely to sink the company than outsiders may think at first glance.

Reference Well

VCs will do reference checks on you. They probably won’t tell you about these, and they won’t be from a list you provide. They’re called “blind” reference checks.

Their goal is to see what people think about working with you. Good references from blind checks can be what clinches the deal.

You can’t control what people say in these calls, but you can pre-empt them.

Provide an extensive (20+ people) reference list of references to VCs after your first call with them. They won’t be expecting this and will likely be impressed that you have this many people in your network you who’d volunteer as character references.

(Of course you actually need to get that many people to go to bat for you in order for this to work.)

A Clear & Concise Plan

This one should be obvious but it always surprises me how many emails, decks, and pitches I see that are either verbose or genuinely unclear.

Both are big red flags for investors.

I met a founder at my happy hour in LA this week who described his startup in 4 words, and it made complete sense. His brevity actually gave me confidence that he had a deep grasp on what his users actually wanted.

Being able to concisely say what your product is will give investors that same confidence. They’ll dig in and ask questions, of course, but you’ll have already focused the conversation on exactly what you do from the start.

If you can continue that in other parts of your pitch like your go-to-market strategy, place in the competitive landscape, and business model then investors will start to get excited, you’ll have demonstrated you have an actual plan that’s easy to understand.

Build As Little As Possible

Investors want to see that you’re relentlessly resourceful. Doing more with less tells them you’ll be a good steward of the capital they give you and that you’ll be able to learn and solve problems quickly along the way.

Since speed is the biggest advantage startups have

Do you really need to build a full product in order to learn what your users will want? In many cases the answer is no.

Publish Content

Should founders take time to post on X or LinkedIn?

Honestly, yes.

Investors want to see how you think. If they trust your thought process, they’ll consider your deal to be less risky.

Typically they only get exposure to the way you think before they have to make an investment decision over a few short calls and through emails.

Putting out a consistent stream of thoughtful content that resonates with people in your niche is a signal that you know what you’re talking about and should be able to command their trust.

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