Navigating Pre-Revenue Fundraising


Securing funding for a pre-revenue company can be a tricky process to navigate, especially for first-time founders or operators who can’t point to a splashy exit in their past. Pre-revenue founders often need to be scrappy in their fundraising processes, leveraging friends and advisors to piece together a problem statement, forecast their business’ impact, provide a logical – even if not entirely feasible – TAM, and outline the competitive landscape. Sometimes this is enough to secure funding for a pre-seed or seed round from early-stage investment vehicles. Unfortunately, these decks will often sit with investors who will take a “wait and see” approach, eventually leaving founders scrambling to repackage their deals for oxygen money - the hardest type of money to raise.  

Our take is that one of the main reasons these situations occur is that at the pre-revenue stage, “typical” investor questions that companies are prepared to answer don’t provide VCs with the information - and conviction - needed to move forward.  There are a few types of funds that focus on pre-revenue companies: large funds with impact arms that prioritize mission, organizations or accelerators that write smaller checks based on meeting specific criteria, and specialist funds that pride themselves on filtering signal from noise to provide the first institutional capital invested into disruptive businesses. Here, we discuss what these specialty funds tend to look for when building confidence in a founder’s ability to navigate and persevere through the earliest days of a business’ lifecycle. Given the significant degree of risk these investors take on in the absence of quantitative indicators of success, strong conviction in a founding team is essential. Once you’ve checked off boxes like your problem statement, competitive analysis, and TAM calculation, here are some of the learnings we derived as founders navigating our first fundraising round:

Be specific in the short term. At the pre-revenue stage, your plan for the next 12 to 24 months should be as focused as possible.  You should know exactly what you’re trying to achieve in run rate revenue and ARR for the next 12 to 18 months. Once you’ve landed on this projection, think through the tactical steps needed to achieve it. How many accounts will you need to close? How many accounts does that mean you’ll need to chase? How closely does your pipeline map to those expectations?  If you don’t yet have a map, be honest – but be ready to explain the actions you’ll be taking in the next 60 days to bridge that gap.  The more specific you are about how you’ll achieve major milestones, the more confidence an investor will have in you.  If your business is not one that will generate revenue in the first 1 to 2 years, explain how value will be achieved not just in the long term, but also in the short term. Investors are ultimately accountable to their LPs, and they need measurable attributes to show how their investments are performing. A lack of any quantitative measurement can sometimes scare investors away.

Don’t be overly confident about downplaying risk. It’s virtually impossible to anticipate every roadblock your business will encounter, what pivots you’ll need to make, and how you’ll navigate macro- or micro-environments that could negatively impact your prospects. Positioning your business as low risk at an early stage is almost always unrealistic, and if an investor perceives a lack of self-awareness on this front, they will likely shy away. Having a strong grasp of risks and their potential business impact is crucial at the pre-revenue stage, as investors will need to know you have the ability and willingness to pivot if needed. Show potential investors that you’ve thought through risk factors comprehensively and bring up these discussion items up in your early conversations. They’ll know there are risks in any business and given the nature of early-stage startups, these risks are usually pretty big. Being aligned with investors about risk mitigation strategies from the beginning can help tremendously with credibility and long-term success.  

Make sure your differentiators are strong and well displayed. Whether it’s unique technology, a first-to-market position, or a more functional product than competitors are offering – and even better if it’s all three – understand what sets you apart and be prepared to speak to it in the context of the competitive landscape. If you’re addressing a vertical that’s seeing significant innovation already, you’ll need to build conviction in your differentiated go-to-market approach or your unique appeal to specific customer segments. In the absence of revenue or clear signs of market traction, it’s especially important to build a compelling narrative around your unique advantages and opportunities.

- Ritesh Sharma, Managing Partner

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