Just Start Raising

Founders are often hesitant to speak with investors until they feel 100% ready to raise. That’s a mistake. With the right intention and time allocation, a founder can start making valuable connections and adjust to market conditions without being distracted from mission-critical priorities. In the end, this will make their fundraising process more efficient and effective.

Start Before You Feel Ready

Reid Hoffman is known for one of my favorite expressions: “If you’re not embarrassed by the first version of your product, you launched too late.” This is true of venture capital pitches too — and it applies to each round of financing (not just at the idea stage).

I’m often asked by founders when I think they should start raising their next round. I get why they ask: they want to know if their metrics are good enough, and if the capital markets are currently favorable enough for fundraising to be worth the effort. But the answer to “when” is almost always “right now”, even though fundraising might seem like a distraction or the product doesn’t feel polished enough.

That’s not to say all founders should hit the road with the expectation of immediately securing huge checks. I give this advice because a proactive approach to fundraising increases the opportunity for necessary networking, learning, and serendipity with minimal downside.

Allocate Time Appropriate for Your Fundraising Cycle

Think of the fundraising process as a cycle having three phases: Network Building (the focus of this post), Interest Gathering (meeting as many relevant investors as possible, soft circling commitments, setting terms with a lead investor), and Closing (securing commitments). A founder’s allocation of time should change based on the phase of their cycle. 

The Interest Gathering and Closing phases are what most founders imagine as their fundraising process, but Network Building sets the whole process up for success, and it doesn’t have to be a time and energy sink. While the latter phases may demand more than 50% of a CEO’s attention for a few intense months, I suggest thinking of Network Building as needing just a 10% time allocation — 1 or 2 conversations per week.

Being Proactive Pays Huge Dividends

If you’re not ready to raise this instant, why talk to investors now? While conversations may seem too speculative, there are benefits that you can gain only at the earliest stages of the fundraising cycle:

Honing the Fundraising Narrative: Meeting investors in a lower-pressure conversation allows you to experiment and receive feedback on what is most enticing about your opportunity.

Gaining Market Insights: Because VCs spend so much time networking with other founders, they can give you valuable information about peers and trends when you still have time to react to them.

Improving Operations: Some of the insights you gain may even lead to changes to your business. The sooner you learn of an actionable improvement, the better.

Nurturing Relationships: Warmer prospects are easier to formally pitch later. Thoughtfully adding just two investors a month over the course of a year results in two-dozen prospects to pick-up the conversation with when you are seeking commitments. The effort to nurture these connections along-the-way is scalable.

Creating Serendipity: Early conversations increase your surface area for good fortune, such as generating strategic introductions to other investors or potential talent, and creating the possibility for an investor to “preempt” a more formal fundraising process (which my startup experienced when Softbank led our Series A).

Teeing Up a Successful Fund Raise

Meeting investors, even very early, does come with some time and organizational overhead. Here are some tips I recommend to get the most out of conversations at this stage:

Have a deck

While it might seem early to create pitch materials, some investors will expect it prior to a meeting (even if you’re not officially raising yet), it gives you something to leave behind, and being in a pitch-ready state allows you to seize opportunities that may arise. A one pager or just a few slides on the problem, solution, and market opportunity would be sufficient at this stage.

Defend your calendar

Don’t go crazy packing in as many meetings as possible – this will backfire. Try to stick to just two meetings per week. This will keep pitching from becoming a harmful distraction, it will force you to prioritize the best prospects, and it may intrigue investors when you make them wait a few weeks for a meeting.

Track and Nurture Your Pipeline

You’ll want to ensure that you don’t forget about anyone you’ve met. A simple spreadsheet with contact details, and a note on what was discussed is sufficient. It’s essential to touch base periodically, so the next time a prospective investor hears from you is not 6-12 months later when you intend to close the round. I recommend a monthly (or at least a quarterly) email update on company developments as a way to keep your pipeline warm until you’re ready to formally gather interest in the round.

When to Dial-Up the Intensity

When to increase the intensity of your fundraising efforts is a triangulation of a few factors.

Headline KPI Milestone

Some investors will say things like “let’s chat again when you have $100k MRR,” and enough feedback like that can be a good barometer for market expectations. While it is indeed important to have some stage-appropriate level of business activity given your industry and innovation category, having encountered this feedback thousands of times, I’m confident that it usually means the investors want to see repeatable product and sales growth at some reasonable level of scale. Once the business is on a solid trajectory towards a market-informed revenue figure, customer count, or usage milestone, pick the appropriate target dollar-amount and dial-it-up!

Growth Hypothesis Validation

Having recently validated a growth hypothesis is an excellent catalyst to jumpstart the next phase in a fundraising campaign. By this I mean having demonstrated that a key strategy can result in scalable and sustainable usage growth. Fundraising at this stage is about securing the resources needed to scale rapidly so a believable growth trajectory is more important than a headline revenue figure in the eyes of most investors.

Seasonality 

VC activity – just like your business – ebbs and flows throughout the year. Avoid turning the dial up in December and July/August because momentum can be difficult to maintain around vacation schedules. Investors will understand if seasonality is part of your industry (like the way holidays benefit ecommerce), but, it’s better to be raising amid clear revenue growth. When off-cycle you will need to address this in every conversation.

Regardless of the above, the amount of time remaining until funding is an operational requirement is an obvious factor. Seek to start Interest Gathering with at least 6 months of runway to allow adequate due diligence time and optionality in the event the process is more challenging than expected. Even a well run process with no speed bumps can take 3-4 months.

Market Considerations

The macroeconomic backdrop can favorably or unfavorably affect the venture capital ecosystem, but early-stage VC tends to be isolated from trends in both exuberance and pessimism. Having been in the game through boom and bust, I’ve observed that the process requires good preparation and network-building in any market. In the case of a bear market, it’s even more important to start nurturing relationships as early as possible.

Get Started

It makes sense for founders to want to wait as long as possible to start their fundraising process because the journey can be emotionally, physically, and financially taxing.  With the right intention and time allocation, a founder can make valuable connections and learn from the market without being distracted from mission-critical priorities. I advocate for starting as early as possible. The unique opportunities available at the beginning of the fundraising cycle evaporate quickly as runways shorten.