Don't Force a Fundraise

What’s more important when you’re fundraising:

• Persevering through and dealing with rejections

• A willingness to stop raising based on investor feedback

People commonly say that fundraising is a number’s game.

You’ve been rejected 99 times… but what if that hundredth meeting is the yes you’ve been waiting for that changes your startup and your life?

This week Harry Stebbings from 20VC shared that take and it spurred reactions on both sides of the aisle.

This might sound like a question with no answer or where neither approach is necessarily worse than the other but, actually, that’s not true.

In fact, they aren’t even mutually exclusive.

This week I’m sharing why, and when founders should consider keeping going vs adjusting their plans when it comes to raising.

Don’t Force a Fundraise 

When Being Relentless Goes Wrong

Founders need perseverance.

Things will go wrong.

Catastrophes may happen.

This is why Paul Graham says the defining characteristic of a founder is that they are relentlessly resourceful.

But notice that he doesn’t just say “relentless.”

A relentless founder would take that 100th meeting with a different VC, tell the same story, and expect a different result.

Unfortunately, that’s also the definition of insanity.

It’s true that every investor has their own investment criteria, and one “no” shouldn’t cause you to abandon your fundraise (or potentially even change your pitch).

Sometimes someone just doesn’t get it. Or maybe you just need to refine your pitch.

One “no” is no big deal.

But when you start getting three, or five, or ten “no”s after a first meeting you should realize that something is wrong.

The issue could be any out of many things.

Some may be inside your control (traction) or outside (macro market factors).

Either way, figuring this out is a problem for you to solve.

In these moments you need to lean on the “resourceful” side of being relentlessly resourceful.

The first thing you should do?

Get honest feedback on the quality of the investment opportunity you’re presenting to VCs/angels from someone who sees a lot of pitches.

Don’t know any legit ones well enough who you’d feel confident they’d give you honest feedback and have a good handle on what the broader venture market is like right now?

Time to be resourceful.

Find a connector in your network who can introduce you to one. Explicitly go into that meeting saying you want advice and aren’t looking for an investment.

Maybe one meeting like this is all you need to see the weaknesses in the investment opportunity, from the investor’s perspective.

If not, go meet more.

Investors are looking for a reason to say yes, but there are simply so many possible reasons to say no to a startup because startups are so hard and risky.

Once they notice a risk, they’ll ask you about it. You need to know what those questions will be so that you can have good answers.

But let me save you some time

When this happens, the core issue is usually the same:

They don’t believe they will get a venture-scale return on their investment.

The investment is too risky for them.

As a result, you probably shouldn’t be fundraising right now.

When You Should Fundraise

I’m not a big believer in benchmarks for fundraising.

Some people say startups with recurring revenue should raise a Series A when you hit $1M ARR.

But $1M ARR for one company may be very different than for another.

My own startup raised our Series A with slightly under $1M of revenue and near-0 of that was recurring at the time.

Times have changed since 2021 but the principle is still true — you need to consider more than just your feeling that it’s the right time to raise.

The best time to raise is when you’re being pre-empted to raise by investors.

They want in.

They’re inviting you to sit next to celebrities like Jessica Alba at exclusive dinners.

Karri from Linear mentions this:

Now, if only it were that easy, right?

One perspective is that not everyone’s startup is going to generate massive hype and get investors interested.

Not everyone has Grade A credentials on their founder-resume.

But the relentlessly resourceful perspective is obsessed with finding a way to, even without those.

The point is that rather than desperately trying to fundraise, you should desperately figure out how to make an investment in your startup seem like a no brainer idea or potential missed opportunity.

Even if you have to reach out to investors at that point, unlike Karri, you’ll be presenting them with something you know they’ll want.

💡