No longer. But, also, kinda, yes… It’s complicated.
When people talk about “fundraising seasons”, they mean that there are certain times of the calendar year when you should be running your fundraising process. And conversely, there are times of the year when you shouldn’t, because venture capitalists won’t be paying attention.
In many people’s minds, this is effectively the VC calendar (U.S. version):
- February to May (Memorial Day): Do some work, issue a term sheet or two
- May to September (Labor Day): Rest. Hamptons, Greece, Playa Del Carmen
- September to November (Thanksgiving): Do some work, issue term sheets
- November to late January: Rest. Aspen, Lake Tahoe or Courchevel
So basically that would mean that, if you wanted to raise a round, VCs are open for business seven months out of the year. The traditional rule of thumb is that you should get a term sheet before Memorial Day, if you raise in the first part of the year, and before Thanksgiving, if you raise in the Fall.
Cue in all the jokes about VCs being rich people who don’t really do any work…
While I secretly wish some of the above was true (!), my sense is that this perception largely dates back to older times in the venture capital industry, when VCs held all the power in the investor-founder relationship, and could impose any timetable they wanted. But the venture world has changed dramatically over the last few years, with much stronger competition and the balance of power shifting in favor of founders.
Today, VCs simply can’t afford to take their eye off the ball for any prolonged period of time. There’s simply too much competition. Term sheets routinely get signed in August, during Thanksgiving weekend, during the holidays, or at any other time. In fact, some of the emerging, hungry new firms will make a habit to pursue deals during quieter times of the year, and will consider it an edge over their more established competition. But some of the best known firms in the industry will be very aggressive from that perspective as well. As a result, most VCs are now in near-constant hustle mode.
An important caveat, though: the above is mostly true for startups that, rightly or wrongly, VCs perceive as very desirable or “hot”. If you have all the metrics every VC looks for, or if what you do happens to be what VCs are excited about at that moment in time, or if there’s a competitive situation emerging with multiple firms circling around… then the calendar and seasons do not really matter.
For all other startups (meaning, the vast majority of startups), perhaps some of the old rules about seasonality still apply, to some extent.
I’ve certainly seen “investor fatigue” creep up before the Summer and towards the end of the year. Not because people are lazy, but because the pace is pretty relentless before that. People won’t refuse to take new meetings, but their bar will go higher in terms of what they get excited about.
Also, at least for the investors that take board seats (typically those that lead Series A, B, C…), there’s a little bit of a “end of the year” phenomenon. Those investors typically have informal goals around annual pacing, where they will get on 2 or 3 new boards maximum every year. Towards the year (December), the risk that they have already made those 2 or 3 new investments is higher. Here as well, their bar will go higher, if they feel that their dance card for the year is already full.
Finally, when you raise during quieter times of the year, there’s just more stuff that can get in the way of an optimal process:
- Some of the firms on your wish list may engage, but others that you would have liked to work with may not be able to do so, for whatever reason, resulting in a smaller pipeline and a lower likelihood of getting several competitive term sheets
- The VC you are working with closely at a given firm may be pushing hard to get the deal done, but his or her partners may be on vacation at one point or another and it may be harder to schedule a partner meeting
- Whoever you need for reference calls may not be available, or slow to move: customers, partners, existing investors, etc.
- Your lawyer or external accountant may be out, or slower to respond.
None of the above is a terminal issue in and of itself. It’s just additional friction.
But the question becomes: Why take the risk? Why take on that additional friction of raising off-cycle? There’s not much upside to doing that. With a little bit of planning and thinking ahead, you can easily avoid it.
In conclusion – fundraising seasons have largely disappeared, particularly if you have great metrics. But, pragmatically speaking, founders might as well just run their fundraising process when things are easiest from a logistical standpoint. In most cases, that probably still means starting your fundraising process in January or February, or right after Labor Day.
(This is the sixth 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)