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.
I’m going to do this as a “mini-series” of sorts, across several posts that I’ll try to write over the next few weeks and months.
A few caveats:
- Unlike my usual long-winded (!) posts, I’m going to do this in “quick bite” format, one simple idea at a time, with limited editing
- This is by no means going to be a treatise of fundraising — I’ll focus on a few tidbits that come up all the time in my conversations, but are less covered in existing content
- Those posts are just my opinion… you’ll probably hear conflicting advice
- I’m mostly going to speak about early stage tech startups
Here’s the rough outline I have in mind… will probably evolve, suggestions welcome.
High level thoughts:
- Thinking of your process as a product [Update: the post is here]
- Art vs science [Update: the post is here]
- Clarity of thought [Update: the post is here]
Planning the round:
- “Always be Raising” vs “Heads Down” [Update: the post is here]
- Push vs Pull [Update: the post is here]
- Are there still fundraising seasons? [Update: the post is here]
Running the process:
- Customer Presentation vs Investor presentation
- Left brain vs right brain
- Asking for the right amount
- Understanding partnership dynamics
- Dealing with “no”
What else should I add?
6 thoughts on “New Blog Mini-Series: Fundraising”
Hi Matt – I’ve recently started “following” you and appreciate your thoughts and guidance, especially in your “Data and AI” posts. If there was one thing I would add to your new “Fundraising” blog, I would suggest a “quick bite” on what type of funds to raise (ie. debt vs equity) and from whom. This could be part of “Asking for the right amount,” but I know you want to keep these short. As you mentioned, the seed/super seed/A/B… has been blurred and knowing how much you need (and why) can help determine what type of capital, and whom, to target. Thanks!
A few possible sub-topics, especially focused on how to select appropriate investors for your needs:
1. Role of “lead investor” in a round. Picking a lead investor and expecting them to bear a larger part of the rainmaker burden… or not.
2. Does the old concept of “exit” and “exit strategy” matter anymore when seeking early rounds? Does it matter whether you’re interested in becoming a public company or being acquired? When exactly does it become a necessary front-burner issue. Should you select investors based on their expectations for exit strategy and timing?
3. Non-VC angel investors vs. VC for seed round vs. going straight to A-round.
4. Pricing a round both valuation and quantity? Whose job is that? Should you try to front-load early rounds or bias towards larger later rounds, and exactly what trajectory to aim for?
5. At what stage do you bring in an IPO-capable CFO?
6. What kind of mentor(s) should a founder seek vs. depending on initial investors for advice.
7. When do you bring the lawyers in and how to find them.
8. What VC qualities should you seek to match your particular venture?
9. How to decide where to draw the line between founder leadership and board decisionmaking. What to look for in investors to be compatible with founders’ style.
10. How do you know when it’s your time to go… or to at least merely let go to let others and the board take on more of the burdens that founders felt they needed full control over at the start.
11. Whose company is it anyway… once you’ve taken on even one penny of equity investment? When should founders begin deferring to the board on some or all major decisions?
12. To what extent should existing investors be expected to contribute follow-on investments in subsequent rounds?
13. To what extent should existing investors be depended on or tolerated for advice on subsequent rounds?
14. Which investors should be put on the broad vs. a passive role? Should you only take money from VC who commit time for the board, or are follow-on investors who have a relationship with the lead investor acceptable or even preferable?
15. Do you just want the money from the investor or do you have specific needs such as networking for future rounds, assistance on executive staffing, contacts for initial alpha/beta customers, contacts for strategic investors, etc.? IOW, value far beyond the money. To what extent might this calculus change from round to round?
16. How frequently and intensely should you expect or want to communicate with investors and the board, and making sure you choose investors who are compatible with your own communication “style”.
17. How should you plan funding when you expect to do a fair amount of “research” (like for AI or quantum computing) before a product can be proven vs. product development using off-the-shelf, proven technology? Is a seed round the most you should limit “research” to, or is it acceptable to blow through several rounds before a usable product appears?
18. Any guidance on taking money from non-US investors?
19. When is it advisable to limit investors to local or regional vs. on the other side of the country?
Quite the list, thanks!
Hey Matt, great to see that you’ve started this. I’ve been a “regular” at your Hardwired series in NYC for a while. As you can imagine, I’d love to hear more about the fundraising process from a connected hardware standpoint. Also, it would be great to hear thoughts on protecting my team from dilution during subsequent funding rounds. Cheers, Steve
Thanks Steve, appreciate the suggestions.