Fundraising in Data:

Raising funding in data has never been easy - much less so in 2024. Having just come off a $10M Series A+ round (bringing total funding to $30M in under 2 years) Christina Qi, CEO of Databento, recently chaired a roundtable attended by 14  World of DaaS #daas-exec members.  With the battle scars still fresh, Christina sat down to share her frustrations, tips and thoughts.

The Current Fundraising Climate

"The markets have dried up quite a lot," Qi observes, painting a stark picture of the current landscape. Even after positive market movements, many venture capital firms are making only one or two investments per year. This scarcity of capital has made fundraising more challenging than it was a decade ago, let alone during the boom of 2021.

Many VCs are nearing the end of funds closed in 2021, limiting available capital. Additionally, investors are applying stricter valuation criteria, making it difficult for companies to maintain the high valuations seen in previous years. Qi notes, "VCs are stricter on valuations now. So meaning that you're not going to be able to get away, it's harder to get away I guess with a 2021 valuation."

This shift has profound implications for founders. Companies that raised large rounds during the pandemic peak often did so with fewer restrictions and more favorable terms. Now, founders face a more scrutinizing environment, where every aspect of their business is under the microscope.

Strategies for Successful Fundraising

Despite the challenges, Qi's experience offers several key strategies for successful fundraising in this new environment:

1. Leverage Warm Introductions

2. Cold calling or emailing VCs is largely ineffective. Instead, Qi emphasizes the importance of warm introductions from industry connections. "We never called a single VC," she states, advising founders to ensure introductions are "double opted," meaning the VC has expressed interest before the introduction is made.

3. Optimize Your Online Presence

4. Maintaining a strong online presence is crucial. Besides activity on LinkedIn and Twitter and speaking enegagments, Qi's team increased their Crunchbase ranking, which proved to be a valuable tool for getting noticed by VC analysts. "Every single VC, pretty much they have an analyst on the team and the analyst job is scour Crunchbase and look through, they'll export the top 10,000 companies," Qi explains.

5. To improve your Crunchbase ranking, Qi advises filling out your profile completely, listing articles, commentary, and news mentions. This visibility can lead to inbound interest from VCs actively seeking investments in your sector.

6. Leverage Technology in the Fundraising Process

7. Qi strongly advocates for using technology throughout the fundraising process. "Use DocSend to send out your decks," she advises, noting that this allows you to track engagement with your pitch deck. For closing the round, she recommends using DocuSign to speed up the signing process and eliminate delays.

8. Be Prepared for Last-Minute Changes

9. One of the most challenging aspects of fundraising in the current environment is the unpredictability. Qi shares a harrowing experience: "We had an investor who pulled out at the 11th hour. It was awful... Turns out they never had the dry powder to begin with to even make an investment." This underscores the importance of being prepared for last-minute changes and having contingency plans in place.

10. Choose the Right Legal Counsel

11. Having competent legal counsel can make a significant difference in the fundraising process. Qi recommends working with a tech-forward law firm familiar with startup fundraising. They can manage document distribution, signatures, and even chase investors when necessary.

12. Navigating Investor Behavior and Expectations

Understanding investor behavior is crucial in this new landscape. Qi notes that serious investors will come to you if they're genuinely interested, rather than expecting founders to travel for meetings. "When they're serious, actually they will fly out to see you," she observes.

However, founders should also be aware of potential biases. Qi mentions DocSend data showing that female founders' pitch decks are scrutinized for longer periods, highlighting the additional challenges faced by women in the fundraising process.

Valuation Considerations

Maintaining 2021 valuations is challenging in the current environment. Qi's experience with Databento involved trying to maintain a flat round off a high 2021 valuation, which proved to be a significant challenge. For companies doing their first round, there may be more flexibility on terms and valuation, but established companies may need to justify high valuations with significant progress and traction.

Closing Thoughts

Fundraising in the data industry in 2024 requires a strategic approach, leveraging technology, and being prepared for a challenging process. While the environment is tougher than in recent years, companies with strong traction, clear value propositions, and strategic networking can still successfully raise capital.

Qi's experience underscores the importance of resilience and adaptability in the fundraising process. "Don't trust anything until all the money's in the bank," she advises, highlighting the need for founders to remain vigilant throughout the process.

As the landscape continues to evolve, founders must stay informed, leverage their networks, and be prepared to adapt their strategies. While the days of easy money may be over, opportunities still exist for data companies that can demonstrate real value and potential for growth.