Guide To Early-Stage Funding

In difficult financial times, VCs focus more on shoring-up portfolio companies than investing in new business opportunities. It’s possible to raise money if you refine your strategy.

Authors are experts in their field and only write about topics where they have experience. Toptal experts who are also in the field review and validate our content. 

By Erik Stettler

Verified Expert In Finance

Erik is the co-founder and CEO of a global fund for venture capital. The fund has invested in more than 50 startups, which have collectively raised over $500 million. Erik has also achieved six exits. He has led global restructurings worth $3 billion and M&A transactions worth over $10 billion. He is also Toptal’s Chief Economist.


M&A Fintech Investment Strategy



In a bull market, founders of startups have many things working in their favor. This includes an investor outlook which is both optimistic and risk-tolerant. When financial conditions become more difficult, such as in 2022, these tailwinds turn into headwinds and raising money is harder. Investors focus on securing their Portfolios, which is usually done by investing more money in their existing companies. To get investors’ attention in a slow market, startups seeking funding must adapt their strategies.

The volatility that we experienced in 2022 is likely to continue into 2023 and possibly beyond. Although capital raising and startup investing have been resilient, the rules for successfully closing a financing round are changing.

Despite the doom-and-gloom, US VCs have plenty of dry powder. The most recent data shows that by the end of 2022, the funds will have nearly surpassed the year-end 2021 total.

Over the past decade, I have helped hundreds of entrepreneurs with their early-stage financing, including those that my fund works with who face extra challenges. In the process, I have learned a great deal about how to raise venture funding even when it is not forthcoming.

Many of the tips I offer in this article are also applicable during times of favorable markets. However, during uncertain market conditions, my steps become even more crucial as the emphasis shifts. Understanding these nuances can help you secure the funding that you need, no matter the economy.

Investors who are active, not perfect, should be the focus

Before making an approach, I have seen many new CEOs waste time and money identifying the investor they believe is their ideal. This person’s interests and priorities should match their own. While it is wonderful to find a match of this kind, the strategy can lead to analysis paralysis. This is something that a startup cannot afford to do in a slow market.

Your search should instead be a continuous process of active discovery as you begin to build a pipeline of 100 or more high-quality prospects and start having exploratory conversations. Only by talking to many potential investors can you find the right investor.

If the market is not flush, you shouldn’t ask, “Who’s the perfect match to my vision?” Instead, ask, “Who’s a good fit and is still actively deploying their capital?”

Keep up with investor news. Find out who the most active investors are in your area or sector by using sources such as AngelList. Look at the new funds that have recently closed to identify potential investors. These funds must start investing their capital. Smart investors will realize that down markets can offer better deals and terms, as other investors are less willing to invest in new businesses. Stay informed by paying attention to the news, LinkedIn, and Twitter. You can also set up Google Alerts.

Search for recent liquidity events. Also, check sources like PitchBook and consulting and banking companies, as well as independent research firms, for recent payouts within your market, region, sector or type of technology. These investors should soon have dry powder (and be in a great mood).

VC investment is slowing after the boom of 2021, but it does not seem to have crashed yet. By June 2022, the pace of investment was back to levels seen in late 2020, and deal values were still high.

Focus your attention on local investors as you begin to identify them. Early-stage investors are often biased towards companies in the same region or city. When investors are more cautious, they may not be as willing to look far. This can lead founders to waste time. It is possible to create a geographical proximity in some cases. For example, if you’re an international founder who wants to raise capital in the United States, which is the biggest provider of startup capital and usually at better terms, it is possible to establish a geographic proximity in places like New York City and San Francisco, where VC hotbeds are. You may be introduced to influential business leaders and investors who will facilitate introductions or invest themselves.

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