To Fundraise While You’re Not Fundraising or to Not Fundraise While You’re Not Fundraising? That is the Question.

"I'm not raising right now."

When said to a VC, this is one of the biggest BS lines out there.  You're literally talking to an investor, and if they offered you a big check at a great deal, you'd take it, no?  So, how could you say you aren't fundraising?

On the other hand, some founders *literally* aren't fundraising.  They won't share any info on what's going on with their company, even with investors that are really excited about their concept.

Is this a missed opportunity or just insurance that they're going to put their best foot forward in an organized process?  After all, they have a company to run now and success at meeting your current goals is going to improve your chances of a successful fundraise later, right?

Well, it all depends, right?

Actually, I tend to lean more on the relationship building side, for a couple of reasons.

First, in the early stages, there's a lot more information that can be gleaned about you than we can know for sure about the success of your company.  How you think, what your plans are, etc. are all keys to helping VCs figure out whether they want to back you--and before a Series A, you really don't *know* for sure whether something is going to be a success, no matter how much data you have.  

That's why the first check for a Series A firm is so small relative to the size of their fund.  Think about it... if a $350 million dollar fund leads an $8mm round, they're probably doing about $6.5 million of it.  That's less than 2% of their fund, and of all of their checks were like that, they'd be doing 55 deals in a fund, or over 2x what you actually statistically need for diversification. You think you're getting this big fat check compared to the seed money you raised, but they're actually doing something more like dipping their toes in the water.  It's less signal than you think. 

They know there's not a lot of data yet and it's still more of a flyer, which is why I think putting your head down to optimize your company to 110% to try to get your next round isn't the right strategy--because it's not the mindset the investors are in.  It's a game you're the only one playing.  Not only that, it's a game that you'll never be more poorly equipped to play.  Company success is a function of resources--people and money, neither of which you have much of. 

It's showing up to a gun fight with a Pez dispenser.  

Given that so much of the bet at these early stages, even at the Series A comes down more to "Do I believe what this founder believes?" it strikes me that actually talking to an investor, sharing your vision, and actually starting to work together feels like a better strategy than going silent until "Pitch Day" when you show up all ready and prepared, expecting term sheets in just a couple of weeks.  

This is especially the case with a strong founder who has the best company in a space--because getting to know more investors wards off VCs from investing in your competitors.  You'll clearly come off so much better than them that no one is going to want to settle for second fiddle.  They'd just as soon go find another space where they can find the category leader.  

A lot of founders worry about information sharing.  The fact of the matter is that you're not the only one who has thought about this idea--and you'd have to be pretty egotistical to imagine you had.  What you should imagine is that you're the best team to execute on it--so that no matter what you tell an investor, it won't matter who knows what, because just knowing the plan doesn't mean executing on it.  

One thing going on behind the scenes that founders might not be conscious of is intra-firm dynamics.  One partner might want to meet with you while you're "not raising" in order to build the case inside their firm for doing this deal.  Maybe not everyone in the partnership is there on "Casper for Congressional Testimony Seat Cushions", so they're meeting with you to socialize the idea of the company ahead of you actually being ready for a check.  Keeping close to the vest in this scenario would make it impossible to get the partnership to a yes if you just showed up after running silent.  

Here's something else to consider--the getting to know you phase has very different expectations than the due diligence phase.  If your company is a work in progress and you didn't show up to "pitch" then an investor is absolutely going to understand if you don't have the perfect deck or all the customer acquisition data figured out yet.  Founders worried about this need to stop acting as if investors have never seen a startup before.  

Too often, because most investor conversations result in a no, founders start telling themselves all sorts of reasons what caused that result.  Thinking you were underprepared to discuss your company and that more model tinkering and deck stylizing is just bad thinking.  Investors have seen a wide variety of companies before at various levels of rough edges.  They can recognize a deal they want to be in versus not.

Besides, would you rather get a "no" after knowing that the investor absolutely understood what you were trying to do and you had enough time to share why you were excited, or would you rather walk out feeling like the pitch process was very rushed, and you didn't get everything out there in the shortened cycle you actually had to do the pitch?

On top of all this, what about your own due diligence as a founder?  Don't you want to get to know different investors over time to decide who you want to be working with?  It's like making a hire that you can't fire--so having the chance for multiple interviews over a longer period of time is important and to your advantage.

My advice is to work with your current investors, if you have any, to pick out a short list--maybe three or four investors--and gauge their interest.  See whose eyes light up when you tell them about the company or who gives you a reason why they've been looking at that space.  Have an introductory meeting, and if you feel like you would like working with them, get their feedback on what's going to be important and what should be a priority when.  Do some deeper dive working sessions that give that investor some insight into what it would be like to work with you.  Get them to do some homework for you, too--especially around hiring.  See what kind of candidates they send your way, or what kind of partner introductions they can make.  

Be cautious about your time, of course--cutting off these conversations if you know this is an investor you're not excited about or you're pretty sure they're not excited about you.  

I am convinced, however, that investors come on more because they believe your vision and trust you, conclusions that can only be reached over time through experience, than because you achieved some operational milestone.