August is often considered the black hole of venture capital fundraising. Everyone is on vacation (well, everyone who’s not a founder anyway), while half of Silicon Valley is slogging down to Black Rock City for Burning Man. It understandably can just seem like an exercise in futility to try to raise any funding at all.
I’m here to tell you though that August is not the bleakest month of the year for fundraising (that actually would be December according to data from DocSend we’ve published). In fact, using August effectively for fundraising is perhaps the single most important factor for success in the coming fundraising season (there is a reason that YC Demo Day, one of the largest fundraising events in the calendar, is set for August 19-20 after all).
Let’s walk through a plan of attack.
First, the truth about VCs and vacation
Let’s get one thing out of the way: Yes, VCs take vacation, sometimes sparklingly expensive ones, like the kinds with yachts or the kinds where someone rents out a whole ski chalet (or two). It can seem like an incredibly enviable lifestyle, and it is at a certain point of success, particularly in comparison to the context of a founder who is working around the clock and eating instant ramen.
However, VCs don’t get to that level of success without hard work nearly all other times of the year. This isn’t the 1980s old-boys network of fundraising from gentlemen on Sand Hill where a triple-martini lunch was considered too hard-working — fighting for the top deals today is an always-on, frenetic, competitive tournament. I know of no venture firm that takes August off, although I do know some very successful VCs who are closer to retirement who do.
And the obvious reason is that many great deals get done in August and over the summer more generally. Lucas Matney wrote up his latest “The Exit” column this past week for Extra Crunch, with this edition zooming into Scott Sandell of NEA’s investment into Tableau, which sold for $15.7 billion to Salesforce. Take a look at this critical section of the interview:
Sandell: So we knew we had a big challenge in our hands, which was to figure out how to sell this very, very good stuff. But it was with that understanding that we made our first investment in the company in 2004.
Matney: Looking at the pedigree of the founders, it kind of seems like that might have been a tough deal to score.
Sandell: It was a very competitive deal, we had to move really fast, It was over the summer as I recall. All the best deals tend to go that way though. So, you know, Forest comes in and says, “We’ve got to jump on this one, clear the decks.”
So we do and we went up to Seattle. And I remember having lunch with [Tableau’s other co-founders] Chris Stolte and Christian Chabot.
This pattern is hardly atypical, and this was back in 2004 when the VC industry was just a bit less chaotic. VCs love a great deal — in fact, probably the number one criteria for success as a VC is the willpower and tenacity to win the best deals. No ambitious VC is going to potentially skip out on the next Uber to avoid interrupting their vacation.
Term sheets are the real challenge of August fundraising
That said, coordination inside of venture firms can be hard in the summer and particularly in August, and coordination is critical for the creation of term sheets.
Much of Europe and cities like New York and Washington have an August vacation season. The reason has to do with heat — these places are just scorched during the month, and so many professionals with the means vacate the premises for cooler climates. New Yorkers head to the Hamptons, Washingtonians head to Chesapeake Bay, Europeans head out to the sea coasts.
The Bay Area where a plurality of VCs are based is very different. SF is downright frigid in July and sometimes August, and the South Bay is often quite cool and mild in the summer. Today’s weather on Sand Hill Road shows a high of 74F degrees (23C) and a low of 57F (14C) degrees. So unlike in many other cities around the world, VCs don’t leave en masse to avoid the heat — people can sort of just take their vacation whenever they want.
So while no VC firm shuts down entirely in the summer or in August, no VC firm is fully present either. Every partnership has at least one key partner gone every week, making consensus-driven decision-making quite challenging to say the least.
That makes getting a term sheet in the summer and particularly August acutely challenging. Even if you get a partner meeting in August, if only seven of the nine people needed for a decision are there, you are now trying to sell your investment to other people over the phone wherever they may be. That situation can actually be worse for closing a fundraise than trying to get a partnership to agree at other times of the year.
Getting a running start
All that said, a lack of coordination inside of venture firms is no block on successfully fundraising. Instead, consider August a crucial month to start getting feedback from individual partners, work out some of the logistics of what a venture fundraise with a firm might look like, and begin to scope out the process you intend to implement in September. This month, think of it less as a war to be won and more like a cocktail party where you want to know everyone in the room by the end of the night.
Tactically, this comes in a couple of flavors. First, August is certainly a less frantic and more relaxed month for conversations with VCs (generally), so take advantage of that tenor and approach fundraising the next few weeks with a mindset of information collection rather than purely trying to work out a deal.
Who is funding what? What are people seeing in the marketplace? Who is up and who is down? Feed that background information into your fundraising plan for the fall.
It’s important to do the wink-wink messaging of telling people that you are not fundraising. Because you are not “fundraising” in the sense of trying to get a deal done, but rather trying to meet folks and get feedback (of course, you are fundraising if you are reaching out to VCs, and that’s where the wink is important). So don’t be afraid to explain in a short sentence in email intros, “We are preparing for a fundraise this fall, but wanted to reach out early and get feedback from some investors who we feel would fit the company well” or something along those lines.
Second, start to collect specific and critical feedback on your pitch deck, and even more importantly, your narrative. If you have existing investors start with them, but then start to move to some new investors who might be generally interested in your space.
Do they understand how your product, model and market all work together? Are they engaged with what you are saying? Do they seem to be bored? If they can’t figure out your startup when they may have a bit more time in August, they certainly aren’t going to have the bandwidth to do so in a couple of weeks.
Next, and this comes from a founder friend who has successfully fundraised a number of times, host casual encounters for founders, friends, and investors. Don’t let anything get too formal. While VCs may not take vacation, they certainly want to relax this time of year, and that’s an opportunity to find enjoyable joint activities.
Do a wine-tasting tour. Go fly fishing. Since you ultimately want to build enduring relationships with your next investors, meeting them outside of a business context can give you a wealth of information on the personality behind that next term sheet.
Perhaps the best value from starting to fundraise a bit in August is the litmus test it offers about both your company and your potential investor. You need to find champions to get a term sheet locked in, and champions are ambitious investors who want to get deals done. If a VC is on vacation for six weeks, or just seems to be lethargic — is this really the person who is going to run the gauntlet to get that money wired to your account?
Symmetrically, if the investors who are around don’t want to engage with you causally in August — there is something wrong with your fundraise. Maybe the numbers aren’t great, or maybe your story isn’t cogent. Maybe you are talking to the wrong investors. August is a great time to figure out that no one really wants to talk to you, because you ultimately have more time to adapt and evolve your pitch before the real action takes place in September and October.
Closing out, I want to reiterate the casual nature of fundraising this month. This isn’t a time to jam pitches down investors’ throats, or to push hard for meetings that don’t come naturally. Instead, focus on getting to know the next set of investors you need to meet to keep succeeding in building your company, and in the process, collect the key information that will inform your official fundraise in a few weeks time.
Comment