Fundraising advice for founders
How to maximize value while minimizing time spent with VCs
DEAR STAGE 2: I’m a CEO of a seed stage company and we are planning to raise an A round in 12-15 months. I want to make sure I am building relationships with VCs well in advance. What advice do you have for a founder to both minimize time spent with VCs between rounds and maximize how that time is used? ~FUNDRAISING IS A FULL TIME JOB
DEAR FUNDRAISING IS A FULL TIME JOB: Fundraising is an incredibly inefficient, and yet integral, part of the startup ecosystem. My job as a VC is shockingly similar to a BDR — find companies, reach out to CEOs, book an intro call, qualify, and in the best outcomes… nurture that relationship to the point of a deal. As a VC, it’s interesting to compare the advice we give to our portfolio companies (ex: limit time spent, don’t share projections, etc…) with what we ourselves are trying to achieve (ex: get face time with founders, gather data points over time, etc…).
With that in mind, I polled some friends from CRV, Ridge Ventures, Wing Venture Capital, The Aligned Fund, and of course Stage 2 to find out what advice they have shared with founders in their portfolio.
Things we agreed on: there’s no one right way to do this. Founders have to prioritize who they spend time with, and not enough founders put VCs to work in the process!
Certain founders/CEOs find fundraising and conversations with VCs to be natural and energizing — they learn from each interaction, pressure test new ideas, and get fresh eyes on their product, vision, and challenges. Other founders prefer to be heads down operating, and run an extremely tight process when they are fundraising, restricting all convos to only a few weeks/months. Regardless of where you fall on the spectrum, we hope you can take something away from the list of DOs and DON’Ts we have assembled:
DO tier the potential investor list
Not all investors are going to be a fit for your business and your goal should be to qualify hard and spend time accordingly. Consider things like their investment criteria, ownership requirements, if they have done a deal in your space before, if they understand your business model, etc…
Zach Dewitt, Partner at Wing Venture Capital, shares, “After your seed round is announced, there will be some [lots of!] cold inbound from VCs. Spend 10 minutes checking out their websites and other investments and see if there is alignment [before agreeing to a call]. Getting to know VCs who share a similar thesis early will be immensely rewarding — these are the types of partners you want to build real relationships with to go on a 10+ year journey.”
Ariel Winton-Jones, GP at The Aligned Fund, recommends asking yourself, “Do you fit into the firm's sweet spot, or would you have to convince them to do something untraditional — investing in a new market, stage, round construction, or business model relative to their usual course of business — to get the deal over the line? It's hard enough to get buy-in on an early-stage business that's relatively unproven, so is it worth introducing additional hurdles to the mix?”
DO invest in long term relationships with a few firms and/or Partners
More often than not, the Partner you are going to work with is a (or THE) deciding factor, and it’s very difficult to build a relationship in a few weeks over the phone. If you see strong alignment between your company and the firm (see tiering note above), it’s worth putting in some extra time. That can look different in practice — lunch when he/she is in town, joining an event with the firm (an invite is a great signal!), or even regular email updates (more on this later). In all cases, you need to trust your gut and determine who you really want to work with:
Cailtin Bolnick Rellas, Partner at CRV, shares, “I think the best thing you can do is take a handful of initial calls and figure out who you enjoy spending time with. Then, catch up with that person every so often — doesn't need to be formulaic, but just more ad hoc to stay close and continue to get to know each other. Ideally, the investor is also providing some sort of value as the relationship progresses.”
Ariel Winton-Jones, GP at The Aligned Fund, questions, “Do you want to work with this person or these people? Signing a VC term sheet is like getting married, so if you're not getting good vibes from your early interactions, you probably won't like what you'll find over many years of working together.” Zach Dewitt, Partner at Wing Venture Capital, echoes this sentiment, “Much like dating, you will have an intuitive sense if you want to have more conversations, as you will leave the first conversation feeling energized.”
DON’T commit to a bunch of regular update calls
When you are trying to minimize time commitment between rounds, there is rarely value in agreeing to a cadence of calls. These agenda-less check-ins are a waste of time. If you’ve tiered the list effectively, a call every 3-4 months with the top 5 (don’t let this number creep up!) may be valuable. An alternative is to think about when and how you can get the most value out of each interaction.
Sakib Dadi, Partner at Stage 2 Capital, shares, “The best founders I've seen often will limit VC meetings to particular blocks of time, like one week early in the year when new year planning is done. That way, they can use those conversations to have a more productive dialogue with a venture firm, whether that be about fundraising, hiring, or something else entirely. A really excited investor will want to support and help the founder with those plans so there can be some relationship building done over a longer period of time by acting as partners before formally investing.”
Cailtin Bolnick Rellas, Partner at CRV, encourages founders to lean into the process that works best for them noting, “Some founders pick their heads up 3-4 months in advance of raise and get to know investors then. In some ways, this may be the most productive approach, albeit gives you less time to get to know investors.”
DO share updates and put VCs to work!
As investors, we’re constantly trying to gather data points on a business, but we talk to 1000s of founders and are tracking 100s of companies. So, counter to our above advice, we love the idea of our portfolio founders finding ways to stay top-of-mind with limited effort, using these interactions to figure out who is really interested and putting potential investors to work for the business. Most CEOs are sending their board/investors a quarterly or monthly recap — you can repurpose this for a broader network by removing some of the sensitive info (ex: ARR, churn, confidential logos, etc…), while still highlighting the progress you are making on customer acquisition, hiring, product, etc. and highlight specific asks.
Akriti Dokania, Partner at Ridge Ventures recommends that founders take this a step further. In addition to sharing a version of the investor update externally on a regular cadence “add some special info for the ones you like - if they respond to those, then keep sending them more updates or else remove them actively from your list - HAVE ASKS in them! Have two or three specific or personalized actions - look at their Linkedin - can they connect you to a customer?, review their active portfolio - should you be talking to their founders?, or share a challenge you are encountering - is there someone in their network who can help?”
DON’T share projections until you are ready to raise
The truth is that you are going to be evaluated against any expectations you set, and data points will be compared over time. Consider these 2 paths:
Founder tells VC, “We ended last year at 250K and will hit 2M this year.” At the end of the year, they’ve hit 1.25M. The VC is thinking, “Wow that’s a big miss,” or “What changed to slow growth down?”
Founder tells VC, “We just wrapped up a great year and hit our goal of 250K, now we’re heads down building.” At the end of the year, they’ve hit 1.25M and get to share an update saying, “We did 5x growth and have great pipeline coverage and momentum going into Q1.”
While the numbers are identical, the expectation setting is very different. You are in control of the narrative and should hold key metrics close to the chest until you are in an active raise process. It’s better to leave a bit of mystery and build interest in the company.
DON’T spend time with people who aren’t doing the work
If you are taking the time for a meeting or sharing specific asks, a VC’s response is a great signal on both their level of interest AND how they will engage as a board member or investor in the future. VCs are constantly in buy and sell mode, meaning they should be actively learning about your business to determine if it’s a good fit for their investment model (buying), and showing value to you at each interaction (buying, or earning the right to win a deal in the future).
Ariel Winton-Jones, GP at The Aligned Fund, shares some specific questions to reflect on throughout the process: “Are these conversations progressing such that the firm is deepening its understanding of your business over time? If you're having the same conversation over and over again, it's definitely not a good use of your time, and it's a sign that the firm isn't progressing its thinking. Or, in other words isn't that invested or interested.” And on the sell front, “Is the firm adding value to you? Getting to know folks ahead of time gives them an opportunity to audition for the role of your future lead investor and board member. They're probably on their best behavior before the deal's signed up, so if you don't like what you see, consider it a red flag for later.”
DO create some FOMO
One of our portfolio CEOs has done a great job of staying in touch with investors while focusing his time on operating the company. Each time he gets an inbound email from a VC, he shares a quick templated reply with some company highlights and key asks:
Thanks for your interest in [COMPANY],
We have decided to limit investor conversations for the time being to concentrate on building the business. That said, I am super grateful for your note and wanted to share a few snippets of what we have been up to and how we are thinking about the next round:
[INSERT COMPANY HIGHLIGHTS: Key Hires, New Logos, Product Releases, Press]
We are not in a position to take meetings until at least [DATE]. But if you want to be helpful in the meantime…
[INSERT ASKS: key hires you are recruiting for, profile for prospect/customer intros, etc…]
I have you on our list of investors to reach out to, but in the meantime, I hope this mini-update was helpful.
To sum up, it's definitely worth getting to know folks ahead of time, provided you're deliberate about who you connect with and how you go about it. In the coming weeks, we'll explore investor relationships even further, sharing insights and best practices directly from the perspective of founders and CEOs.
Hope these ideas help guide your next steps, and stay tuned for more Dos and Don’ts!
love these!