Raising Your Institutional Round: Chapter 9
This is the 9th chapter of my upcoming book, “Move the Needle Anyway(s): Raising Your Institutional Round.” There are a total of 16 chapters. The book is currently with the publishers, however, I wanted to start sharing the content in a form of a series of blog posts so the startup ecosystem can benefit immediately. I hope you enjoy :)
Chapter 9: Proper Fundraising Stance
Fundraising is a full-time venture—I have yet to see the process go perfectly for anyone regardless of how high-performing their businesses are. As such, things will happen in your life and business that can’t be controlled—key people leaving, product downtime, milestones missed, car accidents, injuries from working out at the gym, children getting sick, other family emergencies—I have seen these all happen so frequently it is almost a pattern. In this chapter, I talk about the business choreography and mindset required to go from launch to funding even though you might face multiple headwinds and shock events along the way.
First, don’t stall the process too much because of fears of dilution. I believe it is helpful to be dilution sensitive. However, more often than not, founders over index on dilution out of the fear that it will kill their startup. However, if you need to raise money urgently, then the primary fear should be survival/continuity over dilution. More recently, this fear manifested during the 2022/2023 market correction—valuations dropped off a cliff and the new normal meant that if you were raising money, you either had to take a flat-round, downround, or no round at all. This took founders a while to adjust to. However, the ones who adjusted quickly raised the money they needed and got back to building their business.
Second, remove the thought that this might be the last round of funding you ever need. Don’t waste energy thinking of engineering an outcome where you never need funding again. While we think hitting profitability and growing efficiently is great practice, in practice, unexpected things happen that will require you to raise more capital. This is the nature of startup company-building:
Every 7 to 10 years, there is a market correction and you will need more capital to survive these market downturns, for example. You also can’t time the market. So, if you need the money to continue company-building, you have to run a process that can take anywhere from 3–6 months. That doesn't mean you start fundraising the day before Thanksgiving. Just don’t try to predict or calculate the “perfect” time to raise—there isn’t one.
New breakthrough technologies (e.g., LLM-based AI) that open the floodgates for competitors to steal your market share can force you to pivot, invest more into product, and hire new talent. Or, a competitor gets a large amount of funds by a legendary VC, and you will need more capital to maintain your advantage.
Third, clear your schedule as much as possible. You will have to let some fires in your business burn even if it feels like you are needed for many things across the board (big deals, product initiatives, for example). However, that doesn't mean you drop the ball on everything—it means only taking on things that are existential and have huge consequences (positive or negative). Here are some examples:
Focus on deals of consequence: Deals of consequence shouldn’t be delayed any longer than they need to. Furthermore, if you secure a big customer (or a big partnership) during your fundraising process—this serves as a great talk track to update investors with. It validates that you are growing and also gives you an excuse to move investors to the next steps.
Prioritize critical hires not key hires: Founders who are experiencing growth in their business can spend up to 50% of their time on recruiting key players. However, this commitment can stall during the fundraise. More often than not, a critical hire isn’t actually as critical as you think. I have seen founders spend more than 6–12 months hiring key leaders, but during that time, their business continued to grow anyway. If your business isn’t going to buckle in 3 months without that hire, then it probably isn’t a critical hire.
Trust your team to level up: Leveraging your time doesn’t mean you need everyone to do your job as well as or better than you. Even if someone can do something half as good as you, it is still helpful. For example, can someone like your VP of People help run or co-facilitate your regular leadership team meetings? Can you make them every other week instead of weekly? Or, can you task your VP of Finance to help report on company progress and drive accountability across the board?
Fourth, don’t fundraise in isolation. While many of your key leaders will be supporting your fundraise, it is helpful to have external help in the form of an existing investor advisor, for example. This individual helps provide perspective, helps you zoom out when necessary, and manages the many highs and lows you will experience along the way. The fundraising process can be bewildering at times—some of your most promising investor candidates can pass for reasons that don’t make sense, or, some of the most unexpected investors can come out of the woods wanting to write a term sheet.
Fifth, don’t overthink rejections or passes. When you are fundraising, you will receive many rejections. Most of the time, the VC isn’t going to share the real reason they can’t invest—it could be internal conflict, lack of funds (timing of closing their next fund for example), or simply the lack in their belief to win the deal. As such, you will receive template emails with ill-thought-out rationale, such as:
Excited about your company’s progress but 3X YoY growth is at best modest.
Don’t believe your market opportunity is big enough with no data or reason behind this claim.
They would like to see more data points of growth over the next 6 months even though you have shown 2X growth YoY for the past two years.
And they will often close the statement with “We really liked you and unfortunately couldn’t get there with the opportunity at this time. We would like to stay in touch as there might be an opportunity to work together in the future—as you know, our fund invests at multiple stages of growth.” Don’t stew over the feedback no matter how insulting or confusing it may seem; go back to basics and move on with your process. It truly is a numbers game.
Lastly, never give up. This sounds trite, but it is often the secret sauce to success. I have seen founders’ fundraising processes come to a screaming halt even after 3 promising partnership meetings—term sheets pulled or another startup becomes the more attractive deal. It is disheartening and can often tempt you to postpone the fundraise to a later date. However, I have also seen term sheets drop by another party just a week or two after the prospective investors bow out of the process.