It’s quite common to hear startup founders say: “I just want to finish fundraising quickly so that I can get back to building.” Understandable and I would probably have said the same thing if I were in their shoes. However, there is a fine balance between raising capital too quickly V.S. taking your time to know your funding partner.
In other words, speed matters when you are launching your rocket ship, not necessarily when you are building it — because getting it right is way more important than rushing rough it.
I saw this tweet couple days ago and couldn’t help but respond:
No question that early stage (seed and pre-seed) investing is hard. So is the company building, especially at its earliest stage. The conventional logic for startups raising capital quickly (via convertible notes) is that they can get back to building the product, securing early customers and get to the next series A milestone. While the logic is sound, it heavily discounted the value that seed stage capital could (and should!) bring to the table. Entrepreneurs at this stage (typically the first $500K — $1m) are severely underserved by quality capital.
On the VC side, the mega funds trend is accelerating — we now have over twelve Sand Hill funds with $1B+ AUM — and it’s mathematically difficult for $B-size funds to be meaningfully engaged with pre-seed/ seed stage companies. On the angel side, we have come to somewhat accustomed to the idea of party round, of optionality, and of FOMO. While I still believe many angel investors add great values to companies they back, I don’t believe the set value is the same when you have an institution who takes on a more proactive partner approach to helping a company. Even at pre-seed /seed stage.
The analogy of marriage V.S. fundraising is overused. So I might try a different one. Perhaps wholesome food V.S. fast food? Both satisfy your hunger but the former will benefit you in the long term, even though it might take some time.. To be clear, fast food is fine, but you don’t want to over do it and do it for too long (i.e. a $5m seed convertible party round that you raised over 3 years).
If we go back to the origins of venture capital — it’s all about writing the very first check, backing the very audacious companies. It was the same when Sequoia wrote the first $100K to Apple at$3m pre, and then $1m to Yahoo at (amazingly, still) $3m pre. It remained the same when First Round Capital backed Uber at $4m pre.
There is something magical when you are part of the founding team at the earliest stage. And there is a reason why venture capital had “venture” in its name. The very first meaningful check is the driver for extraordinary venture returns, for both founders and investors.
Finding a good long term partner matters. Surely, investors vote with their capital. But hopefully, they vote with their intelligence, network and value-adds along the way as well. For founders, the fundraising process could be incredibly distracting. But it doesn’t have to be. Founders should note that it’s a two-way streets. Ideally, each time you have a investor meeting during the fundraising, it’s a learning process for both sides. Don’t partner with the ones you wouldn’t onboard as a “cofounder” nor have a good chemistry with, despite the fund size and the its name.
I fear that, in today’s world, in the name of speed, we often forget to take our time to find the right partner for the long journeys ahead.
P.S. Fred Wilson wrote a similar post today on "Time and Money" where he said: "If one has time to evaluate the time commitment issue as part of an investment process, it becomes a bit easier for both sides to get this right. A rushed financing makes it harder and can lead to miscalculations on both sides." --- Different angles but similar conclusion.