All Things Fundraising

Stephanie Rieben, a former banker turned startup expert, co-founded Diadem Capital by merging her Wall Street expertise with a passion for tech innovation. At Diadem, she has established the world’s largest warm introduction network, connecting promising startups with over 900 vetted VCs and 100 lenders to secure timely, appropriate funding. With her deep understanding of investment banking and the venture capital landscape, Stephanie is a guiding force for founders, helping them navigate from the seed stage to success.

What are the main investment criteria across stages and sectors at Diadem Capital?

At the Seed stage, Series A, we have different metrics that we're looking for. Typically, we're sector agnostic for a class like verticals, but B2B SaaS obviously is the biggest one. So of our 900 VCs, I would say the biggest round brunt are generalist funds in the B2B SaaS space. Then we have about 150 that are fintech. We're headquartered in New York. So a lot of funds are East Coast and they focus a lot on fintech and financial services. We have a lot of funds in Florida and Georgia too. The biggest number of VCs that we have are also more price-sensitive. So what we typically look for is a B2B SaaS company at the seed stage that is getting up to 1 million in ARR. At series A, we like to see between 3 and 5 million ARR. And then we look at companies that are venture-backed already. We want them to have growth, right? Year-over-year growth, at least one time, two, three times the best. And then there's B2B. On the CPG (consumer packaged foods) side, the numbers are much higher. So CPG or direct-to-consumer, the VCs that we have require a lot more traction. So you're looking more at the seed stage, even hitting 5 million in revenue.

"I think in this environment where it's really not hard to build a product, you cannot raise on an idea anymore."

Can early-stage companies raise funds without having revenue?

If you don't have the network, you don't have 4 exits prior and your name is known and VCs like Andreessen or Sequoia back you, it's going to be very hard to raise based on an idea. So what we're looking for, even at pre-seeds, is 100k in revenue. You can do your most rudimentary MVP very easily, using tools like Bubble or so to have something to show. It doesn't have to be pretty UI or UX, just to prove, okay, we have a platform and already have one or two clients trying it out.

Typically at pre-seed, we're seeing a lot of companies that have done that. We get a lot of applications - we've had almost 2000 companies in the past two years that came through our platform with a portal they can apply to. After applying, they go through a scorecard, and depending on the scorecard, they get a first call. But the very first thing I need to hit is, is there a product? So there needs to be an MVP and some kind of revenue for us to take a look and see if it's a fit for our pre-seed investors.

"Approach the actual deal sources - analysts, and associates. They're the ones that conduct the first calls anyway."

What is the best strategy for getting to investors?

Try cold email, try LinkedIn. But the most important thing is to try to find somebody who knows somebody who knows the VC you're trying to get in front of. I think a big mistake that many founders make is to try to go straight to partners and GPs. Instead, approach the actual deal sources - analysts, and associates. They're the ones that conduct the first calls anyway.

Some funds we heard about like ff VC have this application link they use where founders just have to apply. Many funds have a website where you can apply and then something might happen or you end up in a CRM to never hear back again. That’s where we come in also because we circumvent that. You don't have to apply on a website when you come through us. We will send you straight to the right people who will decide if they want to do a call with you.

At Diadem we also help you determine what VCs are deploying capital to. Because I do quarterly calls, so I know they are between funds. Are they deploying capital? How much do they have left? Or are they only keeping the last bit that they have left?

Then events are helpful. There are a lot of VC events happening and there are a lot of tech weeks. Whatever your sector is, try and figure out where the events are happening wherever you are. And if you can afford it, send at least one person from your team and talk people up. All these events that I go to are full of pre-seed companies. I don’t see a lot of seed or series A companies there. At the early stage, that’s apparently what others do as well.

How should one approach a VC for networking at a venue?

You will see many people hovering around a VC hoping to get five minutes in or a 15-second elevator pitch. Have your elevator pitch ready. You should be able to do an elevator pitch in the time it takes to ride an elevator. Make it very clear. If you have revenue, get that traction number in there. They think, 'Oh, they have revenue.' At these conferences, most startups have yet to gain traction. Make sure that you clearly say, 'Okay, we have an MVP.' Even if you have just a little, try to prove that you have something. Good conferences to go to are TechCrunch or Money2020 if you're in the FinTech space, but go to conferences that have an app. These apps allow you set up meetings, and get to talk to people in network areas. After that, you just write to these people - in the app and on LinkedIn as well. Try to get three or four people per fund; hopefully, one of them will answer so that you get a meeting. It's a hustle game, but it's the game you gotta play.

What should be on your deck?

If you've never raised before and you've never done a deck before, start with a few VCs and get some feedback. Never start with your top choice of VCs. Start with tier two, and tier three VCs to get that first feedback. But you also have to be careful. There's feedback whiplash, as I call it - one person says X, another says Y, and then you're on version 55 of your deck because you received so many different points of view. If you have co-founders and all pitch at the same time, you'll all end up with different feedback. So at one point, you just need to decide, 'Okay, this is our deck,' and go out. And then you move to stronger VCs and see what they say. And you can still iterate.

So, what should be on your deck? Problem, solution, traction, TAM, what your product is, competitive advantage, and if you have customers, include some customer reviews. That's seven slides you should have. When we get decks, there are 30 slides and we think, 'Oh, you fell asleep reading through that.' It needs to be a teaser, right? It's to tease investors so they want to learn more and do a call with you. Don't have too many words, use more graphics, and be as clear as possible. VCs spend 30 seconds on average on a deck. And that's clicking through the slides. They just look at the header. They look for numbers. They look for traction. They look for any kind of venture backing. If you have logos to put on there, do it. But if you're very early on, go for angel groups with recognizable names. Almost every city has an angel group. Every region has an angel group. Universities have angel groups. There are things you can tap into. And then they'll help you get more investors as well.

They're going to do a lot of checks. Nobody wants Theranos to happen again.

What common mistakes do founders make while fundraising?

That's one thing we always advise in the beginning - your valuation is not important. You should not be focused on valuation and negotiating valuation. You should focus on who's the best investor to help you grow and scale. It should be way more important. How can they help you with channel partnerships as a more strategic approach, even if it's their portfolio companies where there are synergies? That's more important than your valuation.

All these companies that two years ago had these crazy valuations in Silicon Valley, they're doing down rounds now. And then what VC wants to come in on a down round? Okay, maybe they'll come in hoping that it was just overpriced two years ago, but it's a bad signal.

Also, when you're fundraising early stage or later stage don’t discount when you're talking to juniors at a VC fund. When you're talking to an investor, bring everything across that you think is valuable. So that's one. And then the attitude - we have some founders that we've passed on, we couldn't work with them where they're like, oh, well, I don't want to jump through a lot of hoops and have to do like five, six calls until I get a term sheet. Well, that's the game, I'm sorry. You're gonna do like three, four, five, six calls before you might even possibly talk to a partner because you're going through analyst, associate, VP, et cetera. They'll take apart your tech. If it's a lead investor, they do everything right. They do customer reference checks. They're going to do background checks on you. They're going to do a lot of checks. Nobody wants Theranos to happen again.

Why are down rounds seen as negative by VCs?

I think one reason is that it proves the founders mismanaged capital. You most likely got a lot of capital if you did a proper valuation. How did you burn through that in two years without growing your revenue enough? So it sends a signal that they just mismanaged funds. It also indicates they didn't grow enough. It signals to current investors that they may have made a bad investment and it sends a bad signal to new investors. So down rounds are generally bad, primarily because of mismanagement, and just the current investors; there's no way they would continue if they're getting a lower valuation all of a sudden than before. They always wanted it to go up over time.

What’s considered good practice for founders when planning their financial runway?

Whenever you raise, it should last you like 18 months. Some companies at pre-seed last only a year. I see it lasting two years in series A because they're much bigger rounds as well. Unless it's like a gen AI business. If you're trying to compete with Chat GPT, you have to raise a ton and deploy a ton because talent is now so expensive. Data scientists like open AI data scientists are now asking for a 2 million annual salary. So if you want to compete with that as an early-stage startup, you have to fund at least half a million to even compete in this game to get a good candidate. So those are things to take into consideration. How much do I have to raise so I can keep that kind of salary and that kind of staff on the payroll?

If these handpicked highlights have sparked your curiosity, you won't want to miss the full conversation with Stephanie Rieben on our YouTube channel or your favorite platform.

You can also contact Stephanie via [email protected] or go to diademcapital.com and sign up.