A Few Thoughts on Fundraising Strategy

Yesterday I was able to spend the morning with 20 student led teams in a summer accelerator at the Berthiaume Center for Entrepreneurship at UMass Amherst. I love spending time with student entrepreneurs. The ideas are really smart and innovative, and their energy and excitement leaves me energized and excited.

One of the sessions I led was on fundraising strategy. Of course, these are student teams, and most aren’t even close to worrying about fundraising. So I tried to steer clear of some of the more technical details while trying to give them a sense as to how to approach the process when they are ready.

I’m still working on my technique for leading these kinds of sessions. I come in with a game plan in terms of topics I want to cover, and the three or four main points I want people to walk away with. But I get excited, I start talking fast and the questions start coming. And then, right at the end of the session, I forget to reinforce my key points.

Yesterday was one of those days. A dynamic conversation, a lot of great questions, but I forgot to summarize the takeaways at the end of the session.

So in the spirit of better late than never, here are the points I tried to reinforce throughout the session.

• Fundraising is extremely time consuming. I have led processes that have taken over 9 months to complete. The process is going to distract you from actually running and growing your business. Don’t enter this process lightly. Raise with deliberate intent, and do it as efficiently as possible so that you can get back to running your company.

• Fundraising is a sales process. Just as you are doing your customer discovery exercises now, you need to take the same approach to determine which investors to pitch to increase your likelihood of success. You can’t just randomly select investors to pitch. You need to do your research. Find investors that invest in companies and sectors like yours. Find investors with a clear thesis about the market you’re targeting, who will understand your pitch and the opportunity you’re pursuing. You should be doing a lot of research about your target market for your product or services. Do the same for your fundraising strategy.

• Raise enough to be able to execute against key milestones that will get you to your next raise, or to cash flow positive. Take the time to build your business model so that you know how much you need to raise. I’m constantly surprised by how often entrepreneurs want to skip this step. They pick a number out of thin air as their fundraise goal, without having done that hard work of tying critical milestones to a series of tactics that require a specific amount of money to fund. You should have a plan for exactly how you intend to spend this money, and what result you expect from that investment. When you have your estimate of what you need, add 25% so you have room for the inevitable mistakes and misfires.

• Run your fundraise process in a very deliberate and thoughtful way. I meet people that are always sort of raising. They meet with investors when they can, they make their pitch all of the time, and some even get rolling SAFE notes that stack up on top of each other. That’s not the way to get the best terms. You should either be raising or not raising. If you’re not raising, go run your company. If you are raising, do your research, put together a target list of investors, and then work to set up meetings as close together as possible. Your goal is to try to build simultaneous interest from multiple investors. This increases the odds that you will get multiple term sheets. And that’s the only way you’re going to be able to get the best possible deal. If you have 6 weeks of cash left and all you have is one term sheet, you don’t have any leverage. Investors are trying to optimize deal terms to get the best possible result for their fund. You need to create the leverage to be able to get the best possible deal for your company.

• Finally, if you can’t get investors excited about your company, go back and try to figure out why. If you’re three months into your process, and after 15 meetings, you aren’t receiving any followup or positive feedback, you need to rework your pitch. You might need to rework your entire idea. Be careful about trying to seek out ‘dumb’ money that might throw $100k at you in a SAFE note. Those investors might extend your runway a bit, but they aren’t going to be there for you if it turns out you were running full speed down the wrong path. Similar to the process of trying to find product-market fit, sometimes the market is telling you that there is a problem with your product. Sometimes the market is wrong…but sometimes it’s right. Pay attention.