(This is the third post in this fundraising mini-series: quick, simple ideas that I’ve used in various fundraising conversations over the years, that I’m sharing here, one by one)
You’ll often hear VCs recall how they knew they wanted to invest in a startup within the first 10 minutes of a one-hour pitch meeting with the entrepreneur.
For this to happen, a lot needs to align, both in terms of fit (right company for the right investor at the right time) and intrinsic merits of the opportunity (quality of the founding team, metrics, etc). But ultimately investors describe the experience less as checking a lot of boxes, and more as something akin to a state of flow: seeing, through the eyes of a founder, a future that is both exciting and inevitable.
(This is the second post in this fundraising mini-series: quick, simple ideas that I’ve used in various fundraising conversations over the years, that I’m sharing here, one by one)
Much of the frustration that startup founders experience about fundraising is due to the lack of clarity around two simple questions: “What do investors want?” and “How do they make investment decisions?”
Part of what makes the exercise such a “black box” is that the answer is often “it depends”. Investment decisions are made by humans, based on imperfect information, in an environment that constantly changes.
In addition, parameters evolve with each round: different expectations, criteria, and processes, and often different venture firms. You may feel you’re building the same company all along, but investors at different stages will be looking at it in very different ways.
As a starting point to understand how investors (angels and VCs) make decisions, one simple framework that I find myself using in conversations about fundraising is “art vs science”.
For founders thinking through fundraising, here’s a simple mental model I like:
“If this was a product launch, instead of a fundraising process, what would you do?”
Almost by definition, founders are very passionate about launching new products, and a lot of it comes instinctively. That’s often less the case for fundraising, sometimes considered as a counter-intuitive chore.
I haven’t written much on this blog about fundraising over the years, in part because there’s already so much good content on the topic out there.
But each time I get a chance to participate in tech community events, which I have done a fair bit in the last 9-12 months, I’m reminded that, for many founders, fundraising is as opaque and ambiguous a process as ever.
The venture financing landscape keeps shifting: dislocation of the traditional seed/A/B/C path, lots of new funds, older funds that evolve their strategies, long bull market (for now), increasing bifurcation between the “haves” (startups that can literally raise billions of dollars of venture money) and “have nots” (the many others that can’t get a simple financing done), etc.. New generations of entrepreneurs arrive on the scene all the time, and have to make sense of a complex process in this shifting environment.
As a result, for all press about quick oversubscribed rounds and mega-financings, most founders experience a good amount of head scratching and frustration.
So I’m going to do my bit to help clarify, and share a few models and ideas I have learned along the way, in the hope that some entrepreneurs may find it helpful.