Nobody Wants to Fundraise (But Everyone Wants the Money)

Treat fundraising as a core business function worthy of your time

“We hate fundraising. All it does it take us away from building the business.”

Seems this refrain is breeding through the startup world these days. There is much implied here but generally this is the logic:

1. Our team is fantastic.
2. Our product is unique.
3. We are finely tuned to pour all focus to internal matters needed to scale.
4. We know we need capital to run the business so we understand we have to fundraise.
5. Since fundraising is a complete suck of our precious time we will spend as little time as needed on this process.

Here’s the thing: I don’t disagree with the logic. The best teams with the best products should minimize any activities that take them away from hiring, building, selling and shipping. I love teams that understand the demanding hours and dedication required for a startup, and are disciplined to shut out external noise in order to constantly tune the business.

The flaw lies in the expectation of what raising capital entails. In early days, after friends and family money has been raised, many startups are woefully unaware what the market requires to invest capital. The reality is that teams will find out quickly.

Much of this rosy expectation has been fueled by a positive multi-year fundraising environment for startups. Low interest rates have fueled the need to find growth and capital has been flowing into startups. Capital needed to start a company continues to decrease. Anyone can write a check, and crazy valuations always exist.

Early-stage investing requires quick judgments of the strength of the team and its vision. The best investors don’t need months to make a decision, but they certainly need as much information as available to formulate a working thesis. At minimum, startups should expect institutional investors to ask for the following:

1. Deck
2. KPIs of business
3. Past financials
4. Projections
5. Cap Table/Schedule of Investors
6. References

Warning flags arise anytime there is pushback to any of these things because the team “just wants to get back to building the product.” That generally means they haven’t taken the time to plan/formulate or want to hide the reality of the data/numbers.

Teams earn trust and points over time, and patience is required to prove every day that your business is worthy of capital. The best teams know this, and place high the importance of always having enough cash to properly scale their company. The secret is good investors not only continue to invest in future rounds but also bring other great investors to the table, making future fundraising easier if the company finds traction.

Treat fundraising as a core business function worthy of your time — the early effort will continue to pay dividends to the founders and company well into the future.