From the outside, raising capital may seem… exciting and sexy? That’s the Instagram version, you know it well.
The reality is it’s an all-consuming and exhausting grind with zero margin for failure and the potential of changing an industry if you get it right.
2023/24 was the toughest market to raise venture capital in over a decade. Over five months, we met with 142 funds across 4 continents and did more than 300 zoom calls at all hours.
40 funds entered detailed due diligence and by the end, 5 funds invested in our round.
Below are our top tips for other founders. But even if you’re not involved in funding, you may find some useful parallels in this story.
1. Build relationships with VCs at least 6 months before you go out to raise
We met with many major investors including our eventual lead VC, Rampersand, multiple times in the 12 months before the raise. This created a low pressure environment for both sides to get to know each other.
Don’t wait until you need to raise to build relationships with VCs! Get their feedback on your business and what they want to see to invest well before you go out to market.
Pictured with Taryn from Rampersand in February 2024 – a relationship long in the works!
2. Make sure the business grows meaningfully during the raise
A lot can happen in 5 months. Venture capital is about backing high growth start-ups, so it’s table stakes to grow throughout the fundraising period. We grew 20% MoM throughout the period giving investors confidence. We made a point of sharing monthly growth updates with all investors in the process, including revenue and customer wins.
The big factor in enabling ongoing growth is bringing your team on the ride. They’re delivering the growth while founder time is diverted.
We trusted our team and gave them transparency at every step, and they knocked it out of the park. This can be uncomfortable – there were scary times during the raise – but treat people like adults and they show up as giants.
3. Worry about the three big swing moments
When you start the raise it’s daunting… where is all this money going to come from! We found there are three big swing moments for a successful raise. Nothing really matters outside of achieving each.
First – get to the first term sheet (this is a VC committing to lead your round under given terms). Getting a term sheet is the most critical piece of the funding puzzle. Don’t worry about the terms being exactly right. Leverage that first term sheet to bring in other term sheets faster. Now, you have options.
Second – choose the right lead investor (hello, Rampersand !). This is the most important decision you’ll make. Select an investor who understands the long term ambition of the company and the key levers that will get you there. Find people you trust and want to work with. Your relationship with your lead investor is on par with a cofounder relationship.
Third – work with your lead investor to create round momentum by securing one or two other top VCs. For us, when the second major fund, Aura Ventures, committed in November, it tipped the round momentum in our favour. We were originally shooting for $5m and all of a sudden everyone wanted in. We had to cut things off at $7m with a high quality group of investors. This shows the power of getting the right first few investors committed.
4. Set your own fundraising strategy, beware conventional wisdom
We were super clear at the start on our round goals. We cared about:
- The quality of the lead investor, and their support of our long term vision
- Raising the amount of capital that allowed us to go for it
- Limiting founder dilution to ensure the business stayed founder controlled into the future
This helped us move through the rollercoaster of calls and due diligence, and made it easier to make the right swing moment calls.
We also bucked conventional “keep it to 10-12 slides” wisdom to create an awesome, information rich deck with ~ 50 slides (complete with testimonial videos and deep data). This took about a month at the start of the process and brought the serious investors in faster. It remains a valuable strategy document.
Slides from our funding deck
In terms of our timeline, we created our deck in July ‘23, started conversations in mid August, agreed terms with our lead VC, Rampersand, on 20th October, secured other VC commitments in November & early December, and finalised the funding round contracts in time to sign on Dec 23rd.
I had already planned a Christmas sailing holiday to Mexico with my partner and friends, and so I signed the final documents on a catamaran in the Sea of Cortez!
My one funding round Instagram moment – the day of signing.
5. Find yourself an amazing lawyer
You’re only going to fundraise once every 2-3 years, and so you just can’t be an expert on all the clauses you need to agree to. But you need to be scrupulous with the contracts and know exactly what you’re agreeing to.
We partnered with Xavier Keary from Gilbert + Tobin. He was a game changer for us, guiding us through the myriad legal and commercial decisions we needed to make, and aligning five different VC funds under the one set of contracts.
Having someone like Xavier protects the business and your long term vision for it, it’s invaluable.
6. Burnout, early mornings, late nights
This fundraise was the second hardest thing I’ve done in my career (number one was the first year of THE ICONIC).
For five or six months I was working two full time jobs: running the business and running the fundraise. I went to sleep each night about 1am and was often up back at 4am for a US investor call, only to find they’ve rescheduled overnight. And I’m not a morning person!
My health and my life outside of work took an absolute beating. My voice became croaky with all the calls.
I ignored so many healthy habits while we were working on the raise – sleep, exercise, good eating, a knee surgery I needed – and I thought a three week holiday would wipe away the exhaustion at the end.
I was wrong.
Now, a year on from the fundraise, my energy is still not fully recovered but I’m close. I felt better about this after hearing Michael Fox‘s similar story with Fable Food Co. It’s a common founder experience. (ps – thanks Michael for all the advice!)
Turns out, a long holiday does not solve burn out. Healthy habits do. For me, that’s getting up earlier, sleeping well, choosing to take time for myself and keeping it sacred, and protecting non-scheduled time to let my mind wander.
I’m not sure it’s possible, but I wish I had kept those habits during the fundraise and avoided burnout altogether.
Alright! Back to Hatching what’s next.