No matter the stage your company is in, raising growth funding is stressful, unpredictable and enormously distracting from actually running the business. And it’s become even worse in the last nine months as the turbulent global economy leaves the public and private markets struggling for air.
I faced a similar situation in late 2021. I was about six months away from starting the fundraising process for my company’s Series B when it became clear that the global economy was rapidly deteriorating, and I needed to reassess the timing of the next round.
Here are some of the steps my team and I took to analyze the situation and close a successful Series B:
The difference a year makes
My company raised a Series A in November 2020, just as investments in cloud computing and digital transformation initiatives were accelerating. About a year later, it was becoming obvious that the market was turning.
Timing the market is impossible, but as much as you can, you should raise money when your numbers are great.
The initial signs were the significant drops in public company valuations, with some previous high flyers losing 60%-70% of their value. It was unclear how much this would impact VC investments, as many of the top firms were, and are still, holding significant dry powder on their books.
However, we assumed that VCs would not be able to source as many new deals as earlier so they could pay more attention to and reinvest in their existing portfolio companies. This assumption was validated when a preemptive offer was pulled only a week into my funding process.
The decision process
While it is important to get input from trusted sources, you must ultimately decide when to raise capital based on all available data and your instincts and experience as an entrepreneur. You must factor in and analyze the performance of your company through an optimistic but realistic lens.
If we’d decided to stick to our plan of starting the Series B process this spring, we would have had to be confident in our ability to maintain the same rate of growth and that private market valuations wouldn’t change as dramatically as public tech companies. Back in January, some believed that the immense amount of dry powder some funds had would keep private deals alive and strong.
I consulted our board and decided to move up the process by four months to give us a good chance of closing the round on favorable terms and quickly return our focus back to the business.
Timing the market is impossible, but as much as you can, you should raise money when your numbers are great and you have a strong narrative for how the funding will accelerate your journey to the next important milestones.
Running the process
Once we decided to move up our Series B and begin reaching out to potential investors, we focused on following a rigid one-month process founded on clear communications with all interested parties.
As a founder, your principal role is to build your company. VCs spend most of their time meeting with founders, learning about businesses and understanding markets. A one-month timeline is crucial in order to keep the pressure on VCs to make an expedient investment decision.
The key to an efficient fundraising process is running conversations in waves instead of sequencing them. My first wave included those who I already had a relationship with. The subsequent waves mostly included people who were introduced to me via my network.
To ensure a timely process, you must be armed with a complete and bulletproof case for investing in your company. You need to spend a couple of weeks preparing your data and the story behind it before you start talking to VCs. There is no time to test the waters and get early feedback. Do all of that before you start the countdown.
When reaching out to investors, do not send a complete pitch deck in advance of the meeting. This will raise too many questions before you even have a chance to tell your story. Also, keep in mind that great investors are busy. So make it easy for them to learn about your business and its progress. I did this by creating a one-page summary of my company’s main metrics, and it was the the first thing I sent to everyone interested.
You want as many options as possible, which means having a pipeline full of prospective investors. Compile a list of venture firms and partners you’d like to connect to, create a spreadsheet with the people you already know, and ask your existing investors and founder friends for leads. Once you have a list, ask your network for introductions. Send them your one-pager and see where it leads.
Looking back on the first six months of the year, accelerating the timeline for our Series B was among the most important decisions we have made. By closing $40 million in early 2022, we avoided the market erosion of the subsequent six months and ensured that we could continue to invest in our business.