Process and Leverage in Fundraising

Happy to answer specific tactical questions here. This is the kind of thing that seems easy until you dig into the details on actually doing it.

Following the advice of this post can make a 10x difference in outcome for founders. This is because they will sharpen their skill to raise this way in every round. The reduced dilution compounds. The additional money in each round can help get you to critical mass first. It’s a powerlaw. One of the most important things to understand when you’re doing a startup. Growth is what makes a company a startup: http://www.paulgraham.com/growth.html. Process and leverage in fundraising is an absolute condition to get there. This post should have 1000 points.

I really wish more first time founders took some time to understand these points.

Helpful post, thanks.

Prior discussion in the same genre: https://news.ycombinator.com/item?id=7858317

Great article Aaron! This is such an interesting part of fundraising, since while every founder has "seed round" stories, only a subset have Series A stories. And even then, it's a further subset of founders who have had multiple successful Series A. So the vast majority of Series A fundraising is done by first-timers. Making it hugely valuable for YC and similar groups to share this kind of advice.

Riffing on this topic, some non-obvious learning for us as Series A "first-timers":

(1) It was very tough to actually determine which funds would be a good fit. Funds that we had developed early pre-fundraising relationships with -- and who seemed to check all the boxes, like great partners, great reputation, great thesis for what we were doing, etc -- turned out to not be that good of a fit in the end. But it took getting exposure to truly "great fit" funds to see the difference - how quickly things moved, how they already knew the space, already knew our strategy with nuance, etc. Huge difference.

So the learning to me was to not hold too tightly to your initial strategy of which funds are worth targeting (because you might be wrong). 20 funds is probably a good number though I'd probably err on the side of being looser / targeting a few more.

(2) Having experienced advisors helping us was immensely valuable at every step (defining the strategy, building the deck, getting intro's, refining the deck, tactical advice on specific funds, and then of course negotiating the term sheets). We also learned that you actually have to listen to these advisors. e.g. In reference to my #1 example above, early on in my fundraise, one of our advisors told me that the funds I was talking to were likely not the ideal funds... but I didn't really want to hear it... I wanted to believe I was mostly done. Luckily, the advisor changed my thinking enough that we kicked off a proper process in earnest.

(3) Some of the best leverage is to just straight be killing it in the business during the fundraise. If your ARR/MRR is shooting up and to the right quickly, you're making big hires, signing big logos, etc - you have more ability to dictate pace. If in the time between your first convo and final partner meeting you've grown your ARR 100%... that gets a reaction. Adds momentum and FOMO (the investors know that other investors are seeing the same momentum... so how long until someone cuts them a check?).

This last point is kind of like the "don't be ugly" dating advice. You gain leverage by being an awesome company. But it's worth repeating - the antidote to most startup problems is quickly growing revenues/users.

Meta: I urge you to post this again in a few days. Very sad to see it never “got heat” and its reach was limited. I think this is one of the more valuable posts this year and wish more folks had seen it.