Don't Run into This Wall When Fundraising
Don't Run into This Wall When Fundraising
There's a common scenario that unfolds in far too many startups going out to fundraise. It’s the "Oh s**t, not enough time" wall. And you absolutely want to avoid hitting it.
It all begins with well-intentioned entrepreneurs failing to allocate enough time for vital tasks before starting to fundraise.
Founders will find themselves making micro decisions that push away from fundraising tasks. They’ll choose to take on company issues instead of creating a deck, practicing their pitch, getting their data room ready, or mapping out intros to investors. Slowly but surely, it adds up. Until you look around one day and find that you're not ready to fundraise.
Why does this happen? Mainly it’s because people deeply underestimate the effort required to prepare even if they've done it before. Either that or they enter the process HOPING it will be faster and easier than people (like me) say it will be.
There are two main ways this plays out:
Crash test dummy - you run straight into the wall. You assess your timeline, shrug, and go ahead with trying to fundraise even though you know you're not putting your best foot forward. The hope is that you've done enough and that you can actually somehow muscle through to the promised land. This leads to a scary, stressful, hurried lead-up to the fundraising stage. Unfortunately, this often ends in failed fundraises and for companies that rely on venture capital to survive, the shuttering of companies.The false start - The other way I’ve usually seen this play out is founders with a bit more runway initially thinking that they're going to raise at certain time, but then start prepping way later than they thought they should. They end up just using that as good preparation for a delayed fundraise.
Imagine you planned on fundraising in March and February’s rolled around. But- oh no!- you didn’t have that jolt of anxiety and nervousness of “This isn’t going to get done” until far too late, and you're not ready. You still need to finish an avalanche of tasks. Realizing this, a March fundraise is out of the question. However, your March preparation morphs into the foundation for an April or May fundraise. Your delay could prove beneficial, provided you have some buffer in your runway.
How To Avoid Hitting the Wall 🚧
1. Start Early
Duh.
The first and easiest way is to start thinking about your fundraise strategy far in advance of when you have to fundarise. You may have heard the advice of raising capital a minimum of six months in advance of your cash-out date. This helps allow you to account for any delays, slow starts, or disruptions instead of letting them derail your fundraise.
Give yourself buffer time to make sure any slippage isn’t disastrous for your company.
2. Prioritize Fundraising Prep
If you're a venture-backed startup, keep this in mind: doing the work to bring outside capital into the company is just as important as running it. While handling company operations can seem like the obviously correct decision in the short term, ignoring fundraising prep can lead you into dire straits later on.
Prioritizing fundraising prep could be as simple as adding an immovable calendar hold for this category of work once a week. This will help overcome the “Important but not urgent” trap which causes founders to continuously delay prep work.
3. Add Accountability (partners)
Even if you do understand the importance of some of this work, it can be hard to motivate yourself to do this before the feeling of existential dread kicks in.
For many, the second most motivating feeling behind existential dread is embarrassment. Disappointing someone you made a promise to.
This is where having support in the form of advisors/investors/friends/etc. who check up on you frequently can be extremely valuable. Make a commitment to them to show progress on your fundraise work and then setup a mechanism to show what you’ve done.
In my mastermind groups, much of the value comes from the weekly check-in around progress (something you can set up yourself!)
Support and accountability partners are incredibly valuable. Having these bumpers in place helps make sure that you don't procrastinate your way into fundraising misery and instead get you to the finish line. 🏁
4. Spend Time on Project Management
The real trick to being organized pre-fundraising is good old project management. Think through everything that needs to get done before you can successfully fundraise (check out our Fundraising Timeline for a handy reference).
Estimate how long each task will take and put it on your calendar. After you have your inventory of everything you need to do- from building your narrative and materials to finding investors and intros, etc.- organize your tasks into workstreams that easily allow you to see which are dependent on each other and which can be executed independently.
Note: all timelines are different so don’t get freaked out if yours doesn’t look exactly like our example or other timelines you’ve heard about.
5. Get Your Team Involved
Another vital step is to communicate, delegate, and ask for support. CEOs often neglect to leverage their team members to make sure they can focus on fundraising. There’s a lot of guilt around not managing their day-to-day responsibilities in favor of doing something that to many people, especially engineers, can look like very soft work.
Communicate clearly about your fundraising plan, the work coming down the pipeline, and how much of your time needs to be committed to it. Your co-founders and team members need to help pick up the slack so that you can be successful in fundraising and make sure the company has the capital it needs to continue building.
6. Don't Wait for Perfection
The perfection trap is what drives so much of general procrastination and fundraising is no exception.
Don't wait until you feel your narrative is perfect before kicking things off. Don’t wait until your network feels perfectly setup. Don’t wait until you have the perfect target list. In some situations, you won’t ever get to perfection. Your narrative and fundraising artifacts are living breathing things that will evolve with feedback.
There is of course a minimum threshold for much of this (don’t throw complete crap out there) but make sure you don’t fall into the perfection trap…
7. Only wait for narrative changes, not incremental improvements
Finally, understand that there is no direct, reliable correlation between company metrics and valuation or success in a fundraise.
Theoretically, the better your company gets the easier it will be to fundraise. You could always continue preparing your fundraising materials into perpetuity and working on your company to make your fundraise easier and more effective.
Some people think “Maybe if I just wait a little bit longer, when I get 5% extra revenue, then my story will be 5% better, my valuation will be 5% higher.” That’s not how it works. Fundraising success and valuation are market-driven and extremely subjective. They don’t react to granular changes in progress.
A better approach on fundraising planning is to triangulate between your actual runway and points in time when your narrative will significantly change.
That means think about when you will have the best narrative that you can deliver AND sufficient time to execute a raise. If you look at the milestones in front of you, decide whether you have enough runway to get to that next milestone AND if it will actually change your story. If it will, then go ahead and hold off your fundraise until you hit that point in your story. If nothing big will change between now and when it's too late to fundraise, then start now.
Takeaways 🎯
To sum up, avoiding the "Oh s**t, not enough time" wall is all about:
Starting the fundraising process early.Prioritizing the necessary prep work.Engaging advisors for accountability check-ups.Project managing your effort.Involving your team in the process.Starting the actual fundraising even before you feel 100% ready.Understanding when your your narrative will change.
These insights should help you in steering clear from the dreaded wall when you're planning for your fundraise. It might sound cliché, but this is especially true in fundraising: failing to prepare is preparing to fail.
Be chased,
Jason