Who should Startups approach for Funding?

Kartikeyan Khator
5 days ago
3 min read

Updated: 2 days ago

Today’s ecosystem is getting crowded - angels, angel networks, micro-VCs, sector VCs, family offices, corporates, venture debt, grants, incubators - and almost all of them say they “fund startups.” That’s why many founders burn months chasing the wrong investors: the cheque size doesn’t fit, the stage is off, the sector thesis isn’t aligned, or the geography/ownership targets don’t match. The real work is matching your company to the right capital for your stage and story - seed vs. Series A, B2B vs. consumer, hardware vs. SaaS, India-first vs. global, so that you don't ultimately have to "settle" for an investor that demands a lot of compromises. So, here’s a practical guide to who should you approach to raise funds depending on the stage of your round:

3 factors that should also be considered for deciding who to approach:

Investor Trade-offs – Strategic vs Financial, Specialist vs Generalist, Foreign vs Domestic, Individual vs Institutional and Owners vs Managers of Capital. Some factors that can assist them to decide are the nature of the sector (more complex sectors require specialist investors), target market (ventures targeting foreign markets shall inevitably look out for foreign investors), business model and depth of the founder’s network.
- Every investor is different, do your homework - So, before you write a cold email introducing your venture to a database of investors you got off LinkedIn, do your homework - know who you're writing to, their thesis, their focus sectors, the stage they invest in, their ticket size and also some bit about their portfolio companies. Reach out only to the ones who are relevant to avoid piling up a lot of rejections and the fatigue that follows.
- Chase the lead, rest will follow - For rounds where you are certain that you will be raising from institutional investors, do further research on who leads the round and who doesn't. For example, most micro-VCs that have cropped up in India recently, do not usually lead the round. Instead, they simply co-invest, once you have a lead investor. Therefore, if during your initial conversation with an investor, try to find out their preference, and if they only co-invest, postpone detailed conversations with such investors until you find your lead investor. Moreover, even lead investors will help you find co-investors once they are convinced, to close the round faster.
Round Structure – Founders should be aware about the investors’ preference when it comes to the instrument of fundraise – Convertible Notes (iSAFE)/CCPS/CCD/Pure Equity. Most VCs prefer a priced round, while angels are usually comfortable with a convertible structure in early stages. To learn more about which instrument best suits you for your fundraise based on your stage and the investor you are raising from, here's a detailed guide.
How many angel investors are too much – While there is no straight answer to this, founders should try to limit the number of investors on their cap table to the extent possible. That said, there are many ventures (e.g. Rapido- 34 and Cult.fit- 37) that have gone on to raise huge amounts of capital from VCs despite having 25+ angels on their cap table. So, if you decide to rope in multiple angels, avoid giving them too many rights to prevent complexities in stakeholder management and decision paralysis. For your reference, we did an in-depth research on 92 Indian Unicorns - the median number of angel investors on their cap table was 15.

Startup Indian can support founders and ventures in the following ways:

Fundraise Preparation - Pitch Deck, Financial Model, When-How Much-Whom to Raise From, Deal Documentation and more. Know more here.
Business Valuation - Adopt multiple methods attuned to startup stage, to negotiate better with investors. Know more here.
Fundraising (as Investment Bankers) - Leverage our network to reach out to investors, lead conversations on your behalf, deal negotiation and closure. Know more here.
Shared CFO - Finance function handholding, top notch governance, internal controls, ongoing financial planning and more. Know more here.

This article featured in our Founder's Playbook which answers questions around startup fundraising - when, how much, at what price, and more. You can access the Playbook here.