If you’re the CEO of a startup, fundraising is likely a meaningful part of your job. If you’re one of the lucky few that can build something great without relying on outside funding — congrats. For everyone else, here are some mistakes I made in our fundraising rounds and saw other CEOs make as well.
Long thank you notes- Many VCs use very basic pattern recognition to make decisions. Given there is little data and hundreds, or thousands, of deals that approach them each year, these VCs are often “looking for a reason to say no”. While the best VCs understand that negative social proof is how you win big, most mediocre ones look to other investors for proof that a deal is hot. In their mind, a hot deal must be a good deal. One way to judge a hot deal, or rather that a deal isn’t hot (and thus should be eliminated), is how much proactive attention the CEO gives the investor. If the CEO is writing long follow-up thank you notes, that’s a good indication the CEO isn’t swamped with inbound from other VCs or running their business. Thus the long thank you note becomes a negative signal. I hate that because I love thank you notes, but I’ve found this to be true with many (not all) VCs.
Probably don’t follow up – “He’s just not that into you.” When I founded my last company, a VC I know well told me if another VC doesn’t follow up proactively within 48 hours of a meeting then that investor isn’t interested in moving forward. They may take another meeting, they may respond if you reach out to them, but the chances of conversion are microscopic if they don’t proactively contact you within 48 hours. Have you ever seen the movie or read the book He’s Just Not That Into You? That’s it. You can try to justify it by talking about the VC’s process, a vacation, board meetings or something else. But when a VC is interested, they take action — and very quickly. Oh, and when they say “sorry, we’ve been really slammed with deal flow” — that’s their way of not being direct. It’s probably why that VC has never led anything in their life- that one just struggles to give clear feedback. I will. They aren’t into you.
Focusing too much on valuation- This seems to become a problem more and more each year. I am not referring to whether perpetually rising valuations make sense. I’m talking about a founder’s tendency to overly focus on valuation at the expense of partnership. Of the tens of thousands of founders I’ve talked to in my life, I can think of less than five that, years after a round, regret raising at too low a valuation. I can think of hundreds — perhaps thousands — that I’ve met who regret raising (or trying to raise) at too high a valuation. The latter can bring unforeseen issues, such as getting into a post-money trap (hard to raise next round), or perhaps ending up with a VC who is less sophisticated or feels more pressure to justify the high valuation.
Not giving clear deadlines to lawyers- In a fundraising round, lawyers need to be managed very tightly. They have bigger clients that will distract them — frankly it’s rare for an individual startup to be a meaningful client — but, if managed tightly, their fee will be lower. There are lots of reasons why fundraising legal docs drag out unnecessarily. I’ve found a very effective way to prevent this is for the CEO specifically to drive clear deadlines with the lawyers. Have your side draft the first draft of your docs – you are more incentivized to do this quickly than the investor is. Base them on a standard template and don’t get cute with terms. After every single interaction, give the lawyers a specific date by which you need to see revisions. Early on, that can be up to 3 days. Later in the process (with smaller changes), it should be 1-2 days max before the next turn of the docs. From term sheet to money in the bank should be no more than three weeks if you are experienced, and four weeks max.
Not getting warm intros- Related to the pattern recognition point I made above, here is VC logic: To be a good CEO, you need to be able to network and build relationships. It’s required for partnerships, future fundraising, attracting and retaining talent, talking with press and many other things. If a CEO can’t network to set up a warm intro with a VC, then the VC often believes that’s a bad sign. Focus on finding the right founder/CEO to make the intro, preferably one the VC has worked with and with whom they’ve had a good experience. My original intro to Sequoia was through a lawyer. I was naive and the meeting was about 20 minutes long. It was cringeworthy. I’m not saying that is the reason they didn’t invest, but I think a warm intro from a trusted source matters. Conversely, the CEO of a successful Union Square Ventures portfolio company made the intro to USV and they led our Series A.
Don’t listen to the VCs that say they respond to inbound emails to their firm’s alias account. It’s an uphill battle — get a warm intro. (Disclosure: this is clearly one of several habits of VCs that perpetuate an old boys’ club mentality that is hard to break into in VC.)
Having too long of a deck/Notion doc- Decks for Series B and below should typically be 15 pages, 20 max. There are more than a few templates for fundraising decks that are great. Google around and you will find some. A more common mistake than using the wrong template is having too many slides or too long of a Notion doc. It’s an indication you can’t focus on the levers that matter.
Being too worried about confidentiality– I have rarely met an experienced founder that worries about confidentiality. If a VC was going to copy you, they would likely fail. If they could do so and win, then you would probably have lost eventually anyway.
Communicating too little with the team- The team knows what VCs look like. They know that when you, your co-founder and CFO are in a room — or out of the office, or your calendar is blocked — that something is going on. Multiply that by 30-50 meetings with a dozen VCs, and they quickly recognize that you’re fundraising. Be open with them. Talk about the goals of fundraising, why it’s happening, why it’s difficult, what you need from them and what fundraising will do for the company. Lack of transparency breeds distrust. I liked to walk through the fundraising deck with the full team, unedited.
Communicating too much with the team- Being at a startup is a rollercoaster with huge ups and downs, often on a weekly basis. I think the CEO and founders feel those extremes more than the typical employee, as they should. I think that’s appropriate. While you want to be transparent, there’s a balance to be struck. I found that informing the team of every meeting and its outcome forced them to go through a similar rollercoaster and was ultimately counterproductive. It’s ok to talk more high-level and not focus on details like “X passed today”, or “we hope the meeting on Tuesday with Y goes well”.
Meeting with Associates instead of Partners- VCs will hate me for saying this, and many will disagree, but Associates don’t get deals done. Partners do. If the Partner won’t join the meeting, basically any meaningful meeting pre-term sheet, that’s a signal that they just aren’t that into you. Accepting the meeting with an associate is often a sign that you don’t have a hot deal (if you did, why would you take the meeting?), and we’ve already talked about the implications of that.
If you hate fundraising, know that you aren’t alone. Most CEOs do. Just remember if you’re successful you’ll get to go back to focusing on what you love- building.
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