Raise With Confidence
Raise With Confidence
Most founders only think about fundraising when they are about to run out of money - this is the single worst time to raise capital
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In startups, timing is crucial. When you start a new business. When you launch a new product. When you hire more employees.
Today, I want to talk about timing a fundraise.
Deciding when to start fundraising as an early-stage founder should be simple - you don't have any money and you need money, so you start asking for it from other people.
Except that's probably the worst time you could start a fundraise. If you're out of money or don't have any to begin with, you're immediately on the back foot. The best time to raise is when you're in a position of strength and feeling confident about the business.
Whilst it's subtle, this confidence will resonate through the pitch and in a negotiation, put you in a powerful position.
Unfortunately, that's also not how the world always works.
Over the last few years, as ZIRP-era funding ended and startup founders were crunched for cash, I've seen numerous founders time their raise poorly and raise for indefinite periods of time. It's an easy trap to fall into; however, as an early-stage founder, raising capital takes you away from your business. If you're gone for too long, it's hard to nurture the business back to where it was before and regain momentum that you might've had before.
Moreover, you don't want to be seen in the market for too long. If you're fundraising for a long period of time, it's very hard to stick to a coherent fundraising strategy, and you risk being perceived as 'damaged goods' after awhile. To change this perception, you'll need something overwhelmingly positive to change in your business to stand a chance at raising capital.
Deciding when you should raise is largely guided by the story that you want to tell. You can either take a quantitative or qualitative approach to pitching.
Pitching based on quantitative metrics makes it easy to decide whether to raise or not. It is entirely reliant on how good your metrics are. If you're outperforming common benchmarks, then go ahead and kickstart a fundraise. If not, then focus on the business until you're close to the benchmarks or past them.
Pitching based on qualitative information takes a little more nuance and is usually the better option for early-stage founders.
When thinking about the pitch you want to give, you need to make sure you have the following elements:
A logical storyline driven by market tailwinds, future product development and a coherent customer acquisition motion
An exciting and real inflection point that can only be unlocked by capital and not time.
Founders often have the first point figured out, but the second is still unclear. If you’re fundraising based on an inflection point, then it needs to be enabled by capital, not time, to create competitive tension and excitement. Otherwise people will sit back and wait to see if that exciting thing happens before taking the opportunity seriously, e.g., if you're selling to a large customer or preparing to launch a beta, most VCs will elect to see how that goes before digging deeper.
Fundraising is about excitement and scarcity - it's emotional. Do both, and you'll raise a large round. Do either and you might do okay. If you do neither, you may as well stop fundraising and spend that time building the business.
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Abhi