Fundraising — 100% Focus or Zero

Be fully focused on fundraising or not at all. Don’t be tempted to “chat” with funds who cold email you. This is risky.

  1. Need to run a full process to get both right terms & right investors.
  2. 2. Doing diligence work with anyone is distracting & will likely hit your growth.

Transcription

Hello, everyone. Today, we are talking about the risky partial fundraise. In an ideal world, you would be 100% focused on fundraising or not at all. Most founders have heard this advice before but they are understandably tempted by the allure of cash. The situation is quite common: early-stage startup doing very well, laser focused on customers but they get an inbound email from a curious VC. Because the company is doing really well the VC starts asking for more and more materials and away we go. This is risky for a couple of different reasons.

1: Doing due diligence work is a massive distraction and will likely hit your growth. Creating two year plans and pulling together all the other evidence of your success takes a lot of time. Plus, it will distract others. You will at least have to talk to your co-founders about it and everyone will start thinking about what they’re going to do with all that new money. So you should expect any fundraising process to hit your growth. If you’re going to go through a process you might as well do a full process, if you’re taking that hit.

2: Data from Y Combinator shows that if you take a pre-emptive round, then you’re actually going to take more dilution. This makes intuitive sense. You’re talking to less investors during your process, so there’s going to be less competition for your round. More importantly, it also reduces your chances of finding the right investor as your selection pool is so much smaller.

Overall — either fundraise or don’t do it at all

Written by

Pre-seed Investor. Email: ash@sterlingroad.com. B2B, US only. I work with founders for 3 months before investing. More info: http://SterlingRoad.com/process

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