The 5 Basics of Fundraising

Save the Drama

Some people add drama to everything in life. The startup world is no different.

Fundraising doesn’t have to be filled with Academy Award winning performances. It can be long and tiring, but startup teams can smooth the volatility significantly. Just as our investing rules at Promus Ventures are simple (People, Product, Potential), so should be the rules for startups when fundraising:

1. Take Your Time — Every investor should do his/her part to make quick decisions and not burden founders’ time with lengthy due diligence, but the world is not going to end if you don’t raise your entire round in three weeks. I see so many founding teams frustrated that fundraising takes “so long.” Just as a boat doesn’t leave the harbor without planning for the journey,think carefully about ALL the elements of the raise (lawyers, deck, AngelList profile, valuation, terms, burn, amount, etc.) before setting sail. Be patient, make wise decisions, no one is going anywhere. The best teams in our startup community take their time bringing in the top investors and advisors at every stage of the business.
2. Pick Your Investors Wisely — Have a well-thought out, strategic rationale for your team of investors. Are they diversified among relationships, networks, and skills? Are they geographically dispersed to provide the greatest market coverage for the business? Do you genuinely like spending time with them? You are picking investors, advisors and mentors for the long haul. If you’ve done it correctly at the beginning, the future dividends are enormous.
3. Optimize Cash and Dilution — I’ve previously written about this, but understand that if your team continues to build a best-of-breed product, future rounds will take care of themselves. Raise more than you think you need in the beginning stages, bring in revenue early and often, and run leanly as long as possible. Go big or go home is a great mantra, just not when budgeting cash burn. Get this wrong, and you’ll be scrambling to raise flat or down rounds because you got too big for your britches.
4. Be Honest — Nothing is more refreshing to me than to hear founding teams say, “I don’t know.” Have a plan, fill it with numbers, let your energy fill the room, but don’t opine on things yet unproven. It’s called “early-stage” for a reason — the product is still being iterated and tested. Pomp will get you nowhere, but vision, mission, and passion will run for miles. It is impossible to be plainspoken when all that comes out is sizzle.
5. Be Open and Clear About Expectations — After each fundraising meeting, each side should be clear about next steps and motives. If the next step from an investor is not forward, then don’t waste your time on them. If you don’t think an investor would help the business moving forward and doesn’t fit with where you are going, be upfront and end the conversations. Leading people on and then dropping them on the curb will come back and haunt you.

Focus on these things and your fundraising process will have less high-seas drama than many processes out there today. Let those who long for madness have it — instead head to the theater to get your fill. There are better performances there anyway.