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April 4, 2013

As it’s been reported, a number of companies are having a harder time raising money in the Series A crunch.  As a response, I’ll sometimes hear entrepreneurs say something like this:

“I know that fundraising is going to be tough.  Se we are going to start earlier and give ourselves more time to raise”

I don’t know if this is really the right approach.  It’s not like investors now need more time to make a decision than they used to.  There remains only so much due diligence one should be doing for a series A stage company.

The other problem is that budgeting more time for fundraising usually means starting earlier. Is that a good thing or not?  The positive is that it might allow investors to “watch the movie” more.  But the downside is that A) you wont’ be as far along with your company and B) because of the time allotted, there is no sense or urgency on anyone’s part to get it done.

I think that fundraising is taking longer is a symptom of something else.  Instead of starting the process earlier than normal, I think the right strategy is to start at the same time, but go broader.

The #2 reason why VC’s pass (aside form team) is some version of “I just don’t get how this is a really big opportunity”.  In some cases, this is just objectively true – some companies are going after markets that are too small.  In many cases though – it’s more a matter of fit than a matter of fact.  The goal for a company looking to raise their series A is to show as much market validation as possible, and then find the right investor that shares the same vision as you do.  That’s it.

More time doesn’t help an investor really absorb your vision.  The only benefit of having more time is that you have more opportunities to turn over more rocks.  What I’d say is instead of budgeting more months to fundraise, my mentality would be to just hit the process harder, go broader, and search for true believers.

Final thought – sometimes, I find that entrepreneurs want to reach out to investors sequentially.  They focus on the most name-brand, aspirational firms first.  Don’t do this. Make your targeted list, make it pretty broad, and go search for true believers all at the same time.  If anything, you want to save the aspirational names for your 4th or 5th meeting, not your 1st or second, because you’ll need to work out the kinks of telling your story.

 

 

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  • Rob Go
     - 13 hours ago
    Cool design focused event @bladebos Nov 6. Limited seats available! http://t.co/qHjU4WBeTx
  • Lee Hower
     - 1 day ago
    @vcparty agree. some LPs have to bend their model, though best LPs don't care much about concentration - they focus on accessing best funds
  • Lee Hower
     - 1 day ago
    @vcparty that statement is true. FRC's LP base looks pretty similar to Sequoia's though
  • Lee Hower
     - 1 day ago
    @vcparty thx - would slightly disagree trad'l LPs & smaller funds are misfit… best seed funds have trad'l LP base (albeit concentrated)

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