Raise One Round Ahead

It is rare to see founding teams, even the good ones, continually scheduling meetings with potential future investors when the team isn’t currently raising a round. It is counterintuitive and frankly hard to do.

This exercise requires a team to carve out priceless time to add “Fundraising” to their weekly responsibilities and team meetings even when they’re not raising a round. Why on earth wouldn’t a team just go “heads down” on product, customers and team hiring after a round is raised and deal with future capital raising more “when the time comes”?

The logical wisdom that most follow is to raise capital only when needed. No one enjoys asking people for money and everyone is surprised just how much time fundraising takes. So the natural response after closing a round is, “Whew! Glad that’s over! Let’s get back to building full time!”

Fundraising is never a discrete exercise but an ongoing process of dialogue around new pilots, customers, contracts, team hires and much more for investors to gauge the validity and strength of the founding team and startup. Here are the advantages of always raising one round ahead:

1. Rounds Will Be Raised More Efficiently and Quicker: What is almost impossible to see in the early days is how stunningly faster and easier fundraising can be in the future if the investor fire is constantly stoked. We have invested in more than 100 discrete rounds at Promus Ventures now, so we have a lot of data points around how the best teams raise capital. Just as one must continually add logs to a fire to keep the flame hot, in the same manner a team has to always be meeting with future investors.
2. Stay Updated on What the Market Is Saying: Just as listening intently to what your customers want instead of what you want to build, it is important to also listen to what investors want. Cut through the investor noise around how one should build the business (everyone has an opinion) and ask/listen to the metrics that investor would like to see if they would consider investing in next round. We like these questions from founders, because it tells us they are thinking ahead so they won’t be surprised to learn their model isn’t at certain levels required for financing when they get to that point. As the Series A market started to tighten in 3Q, 2015 and revenue requirements from investors were raised, great teams would have seen this important market change and factored into their real-time business model.
3. Creates Optionality of Possible Future Pre-emptive Bids: By always raising one round ahead, a team is able to build optionality in ways not expected. We have a certain paradigm in which we like to invest, but sometimes we will venture earlier and make very early investments. These are never planned, but come out of a strong sense of a special team and thesis. If a team is only talking to investors that “only” invest in their stage financings, the team losing the optionality of a later-stage investor taking an earlier bet in the startup. Even if this doesn’t pan out, these later stage investors when updated on the business may decide to pre-emptively invest and lead the round because their conviction (for whatever reason and timing) is now high enough to invest. Finding a lead for the next round is often the hardest part of fundraising, and a team should do everything possible today to fill that queue in anticipation of one of more of these leading the charge.

So add fundraising to the team’s weekly and monthly updates. The time invested in this exercise will not only help today with added insight into how the fundraising market is changing but will also establish strong relationships that will pay off greatly in the future.