The Next Google. The venture capital model is built on finding the one company that will return the fund. Paul Graham asks each startup at some point how they will become The Next Google in their industry. This vision part is often difficult for product guys that are focused on bugs, user support, the next feature, etc. Investors are not interested in what you've built, they're interested in what this company will become in the next 5-7 years. Mike Maples calls this being a thunder lizard
In your investment deck, you need to tell the story about how you become a multi-billion dollar company. For the practical entrepreneur this will be tough. Just try this: Write down the 5 biggest challenges you have. Now assume you rock it on each. The result should be billions of dollars. If it's not, you're either in too small of a market for venture capital type returns or your ambition is too small. YC companies are successful at raising money before they have significant traction or much a product built because they know how to sell an ambitious vision.
You want it. Deals don't close without it. Your leverage is based on your best alternative (known as a BATNA). For YC companies, PG urges us to maintain a low burnrate so that we never need to raise money. As he says, be like a cockroach, impossible to kill. The best way to enter into the fundraising process is when you don't immediately need the money.
Once you decide to raise capital, the best way to generate leverage is to make the deal competitive. When you have several term sheets available, you become a hot deal and investors will suddenly perform amazing feats to avoid losing the deal. The reality is that most deals don't close at all without competitive terms sheets. As multiple investors become interested, you should work to keep everyone on the same schedule. Term sheets magically breed term sheets, so once you get one bite, others are certain to follow. The impertive for you is to make sure you don't stop pitching once an investor becomes interested.
If you get product, ambition, and leverage right. You're in great shape. It also helps to know how to play the game. A few more random tips:
Research each firm's process: Each firm has a process and key items they're looking for in their investment thesis. Do your homework. Often, VCs will spell out exactly how it works in their blogs. Portfolio companies are also usually more than happy to help you out if you ask nicely.
Always use a warm introduction: If you can't build up your network enough to provide you with quality warm introductions, than you're not ready to fundraise.
Stack your meetings: At the outset, you should be pitching 10-20 times per week. Not only does this help you get good numbers, it also helps create buzz. Investors talk to each other and it's good if they've heard of you before they meet you.
Only meet with partners: I know of no startups that were funded by a firm when their entrance point was through an associate. Do everything you can to only meet with partners.
Iterate quickly: If you are doing it right, you should be changing your pitch on a daily basis.
Never, ever lie to an investor: It's a very small community with a very good memory.
Communicate urgency: You should communicate how quickly the process is moving. Investors want to know if you're about to sign. If you're not in a hurry, it's because not enough investors are interested in you, and that's a bad signal.
Create buzz: investors need to hear about you at least 3 times before they get interested. That means you should prepare some big announcements to hit one after another.
Work the back-channel: As you're working to build excitement, use other entrepreneurs, investors and advisors to tell your story and communicate urgency.
Synchronize your progress: You want all your term sheets arriving on the same day. You actually have a lot of control over this process based on how you communicate urgency.
Don't become a shopped plan: You have 8 weeks from the point at which you start pitching to close your round. Any longer and investors assume there must be something wrong since you've been shopped around and no one else has committed.
Understand what a non-yes means: In most cases, VCs will never tell you 'no'. So how do you know if investors are interested? As PG tells us: look down at your hands. If you see term sheets, they're interested.