August Portfolio Fundraising Workshop
We know fundraising is top of mind for many founders in this market, so we recently hosted a virtual workshop for our portfolio where we heard from top VCs about what it takes to raise capital in this challenging fundraising environment.
We invited Nancy Torres (Partner at Ulu Ventures), Amias Gerety (Partner at QED), and Lucy Deland (Co-founder and Partner at Inspired Capital) to discuss fundraising in this current market. We covered milestones needed to hit before Seed, Series A and Series B, the new normal for traction/metrics in this market, and general tips and tricks they've seen be successful in this challenging fundraising environment.
Keep reading for the most important tips for fundraising in this current market:
In terms of metrics, investors will focus on scalable and healthy growth rather than any concrete metrics for revenue, number of customers, number of users, etc. When considering the tradeoff between growth vs. profitability, remember that all revenue is not created equal - don’t just keep your eye on top line revenue and instead aim for a business model with high, healthy gross margins. Investors look for high revenue quality along with growth in a business model that gets better, stronger, and more defensible over time.
Start your raise earlier. Fundraising is taking longer, so ideally raise with 9+ months of cash in the bank.Whenever you do start your raise - be ready to share and open up diligence. Because there is an opportunity to do more diligence when rounds take longer to close, diligence is taking longer and getting deeper.
Most importantly on timing, raise into momentum. Time your raise for a period where you're confident you can keep showing momentum over 2-3 months. Whenever you raise, try to line it up with great things that will happen. This growth will help you build credibility with investors. Since rounds are taking longer to get done, VCs are willing to wait to see whether your model matches your results.
Transparent communication on recent milestones helps founders build a clear story of success. Because rounds take 2-3 months now (as opposed to 2-3 weeks), founders need to think about story and credibility over a longer time period. Finding ways to keep investors updated over time - such as alerting them when you reach milestones in your business - is a great way to showcase small wins and communicate a coherent, positive story to investors.
Dynamics at the growth stage are heavily influencing investment decisions at the earlier stage. In this market, there is no longer an assumption that if a company is doing well, someone at the growth stage will fund it. The rise of larger growth funds means that these funds are now looking for $10B exits (rather than $2B). Seed and Series A investors now need to underwrite to Series B and beyond - this means that investors need to understand how well your product is doing but also determine that the backbone of the company you are building is sound (including building KPI framework, financial controls, treasury strategy, etc.)
Don't name (or mislabel) your round! A label like "Seed Extension" or "Series A" can unnecessarily opt investors out. If you name a round, you expect a big step up in price - calling a raise a Series A extension vs. a Series B mean very different things. Instead just share the amount you're raising, traction to date, upcoming momentum, and any recent milestones. Investors like to see a reason for the raise and don’t necessarily care about what it is called. Instead, investors will care whether your traction matches how much you've raised to date.