5 fundraising traps to avoid in this market
Another VC writing about how to fundraise? Yes.
Fundraising in this landscape is a nightmare, and we’re hearing of some great founders failing to raise by approaching their pitch in a subtly suboptimal way. There are plenty of guides on “what to include in a pitch deck”, but we find a lot of them miss out on the nuance, and particularly, how a founder can generate the most excitement, confidence and FOMO in VCs. That’s the gap we’re aiming to fill.
The difficult thing isn’t just “should I include or exclude X from my deck”, rather it’s about balancing some key tensions in the founder-VC relationship, so that you land the perfect partner.
While other views may differ, here’s the Form view of what matters:
Big vision, but across the detail
Always selling, never lying
Coordinated campaign, but opportunistic
Negotiate hard, but be wary of the trade offs on valuations
Be scrappy and show hustle, but be predictable and mature
Big vision, but across the detail
Big vision
VCs need to believe that you have a compelling vision for a huge company. We’re trying to weigh up the vision itself, but also test for whether you genuinely have the appetite and single-minded desire to build a unicorn.
Across the detail
With this, we’re weighing up your progress, but also your ability to execute (i.e. get shit done) and be across the detail. It means having a clear, live view of your pipeline and talking through a backward and forward looking roadmap. You are unlikely to raise cash if you don’t do these two things well.
Always selling, never lying
Always selling
Every interaction you have with an investor is a selling opportunity - each one is a data point that a VC will be considering when they weigh up the opportunity. Generating a sense that you are moving quickly, you believe you can raise, and that you are a credible salesperson is equally critical. A founder’s ability to sell — to investors, to prospective hires, and to customers — is (for most VCs) one of the most essential characteristics. Without it, you’ll struggle to raise. That said...
Never lying
VCs need honesty from founders to build trust and address the asymmetry of information we have at the point of investing. We’re looking for a founder we can build a collaborative relationship with, so trust is a non-negotiable. If a founder is deceitful, or even just deliberately holds back important info, it’s pretty much impossible to come back from. We’ve been so close to a yes before, and then we found out something about the company’s history that completely stalled our momentum, and ended up with a no. In another world, where the founder dealt with this early on, we definitely could have built momentum to a yes.
Coordinated campaign, but opportunistic
Coordinated campaign
VCs discuss and exchange deals all the time, and they react to a sense of FOMO and building momentum. Reaching out to VCs one-by-one, in an ad hoc way, over time, decreases your ability to create momentum and increases the perception that you may be struggling to raise (even if this isn’t true at all). Coordinating outreach to VCs in a tactical, coordinated campaign can help you control for some of these factors and optimise your chances of closing the round. Additionally, once an investor commits, they are officially “on side”, so put them to good use! Work with investors to systemise outreach and optimise access to their network — they can back channel to funds you like. Take iterative feedback from them and all investors you speak to, so that you’re honing the pitch until close. At the same time:
Be opportunistic
One thing is almost always true of fundraising processes - things happen that you haven’t predicted. Sometimes, opportunities come up that weren’t in the plan, and you have to just run with it. Being agile, learning quickly, and adapting your process, will help optimise the outcome.
Negotiate hard, but be wary of the trade offs on valuations
Negotiate hard
It’s important for founders to negotiate hard on valuation/dilution/ownership — it gives us huge confidence in your commercial ability. Some of the founders we respect the most were the ones that scrapped to optimise for every basis point of their cap table.
Be wary of the trade offs on valuations
Be aware of the funding landscape for your stage/sector when negotiating on price. Founders pricing themselves unrealistically (which may look different according to a range of factors, including market conditions, sector, desired lead fund’s appetite) is a red flag for two reasons. One, it makes us question your ability to prioritise long term success and finding the right VC partners vs short term optics; and two, and it narrows your margin of error between now and the next fundraising round in terms of reaching necessary milestones to justify a punchy previous valuation.
Be scrappy and show hustle, but be predictable and mature
Be scrappy and show hustle
This is a tough, but crucial, balance. VCs want the speed, agility, and hustle of a startup. In fact, some VCs say speed of iteration is one of the best indicators of top teams. Demonstrating speed is crucial.
Be predictable and mature
But “unicorn hunter” VCs are backing you to become a vast company, so helping them think of you in this way as early as possible is also really important. Scrappiness/hustle needs to go hand in hand with showing the competence to run a huge company. Be prepared with supporting docs (even a data room if appropriate) and be able to turn diligence requests around quickly. Being disorganised and slow during the process itself is both a waste of your time and a bad signal to investors. Show you take building a team, management, leadership seriously.
tl;dr? Don’t let a sub-optimal process disrupt your momentum and stall your fundraise.
And if you’re raising right now, get in touch:
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