There are countless articles on how to raise your pre-seed, seed, Series A, and institutional money beyond – the world certainly doesn’t need another how-to article for fundraising, but there are some important considerations often left out of the mix.
Each and every raise is its own unique, exhaustive pitch marathon. Yet, looking at peers and ourselves as sample data on what made for a successful raise, here are a few high points that we really wanted to share with the Applico community, because these questions still come up a lot in our conversations.
Investor FOMO (Fear of Missing Out) is the relationship dynamic here at play. The ideal situation to raise is not when you need the money, but when you don’t need the money other than as “growth capital,” when you can’t grow without the cash infusion and can continue apace without it.
This is when you’re at the best position to approach VC’s, which leads to less founder dilution, board requirements, and other gnarly bits like full ratchets or hidden multiple liquidation preferences.
So how does that happen?
Key activities include:
Being prepared makes the deal so much easier such that when your funder offers a verbal yes, you have your papers, documentation, and reference checks in place already.
Funnily enough, despite the general slowdown of successful fundraising and the Series A crunch, seed money is booming.
As a matter of fact, we’d say the first place you should go is friends and family because if you can’t convince a friendly crowd that you’re worth their money, how the hell are you going to pitch to a seasoned angel or VC whose default response is saying no?
If the ship sinks, friends and family will most likely be more forgiving than a vengeful angel or VC out to recover a lost investment. Remember, hell hath no fury.
Taking VC money is a career commitment to building a rocket ship because they will want you to multiply their capital investment by 20 times (ideally more) for their Limited Partners (LPs), who are their respective bosses when it comes to access to capital.
It is completely acceptable to build a “lifestyle” business that generates $1-3 million in gross annual revenue on a consistent basis. Understand that’s not what VCs typically want, but if the business is thriving and it’s work you can do forever, being comfortable and sustainable doesn’t sound like such a terrible outcome at all.
Not all businesses are capable of taking off like a rocket, so it’s imperative for founders to chart an honest projection for their growth and how they plan to accomplish it.
I’ll end with this piece of advice because it is often the most common rookie mistake we see and, amazingly, we have had a lot of clients push back on this crucial bit.
Try to keep the fundraising process to ONLY one founder, ideally the CEO. It is important that you don’t affect morale with any struggles associated with fundraising.
It’s also probably one of the most gruesome aspects of the startup business when you have to become a professional beggar for VC money. It’s a massive time-suck for a lot of startups, and bringing multiple folks into the room for the fundraising says a few things:
Though a lot of these thoughts have been trotted out before through other experienced write-ups on fundraising, hopefully this guide reinforces some of those key points on what helped many survive and succeed to find the next level.
Good luck, break a leg, and let’s put on them rain dance shoes.