Fundraising When You’ve Been at It for a While
Fundraising for startups is a mix of selling both promise and reality. In some respects, one of the often non-intuitive privileges of a seed-stage fundraising process is that the company is so new. There isn’t much history — much reality — to get in the way of a good story. Accordingly, many founders can weave a tale of the promise of what could be created, rather than what has been created. The earlier stage the startup is, the less capital that’s gone into it, and the smaller amount of time spent on it to date, the more it’s a blank canvas on which the founder can paint a vivid and promising vision for the future.
But what happens when you’ve been at it a while? Many startups have hit a patch on their fundraising journey wherein they’re still figuring things out, not linearly progressing forward, facing challenging external circumstances, or refactoring a product or go-to-market approach. Sometimes those time periods are extended.
The reality is that when fundraising for a successive financing round along the seed-stage continuum, all startups are graded on a curve based on the amount of time and capital that has been invested into the company. Companies are evaluated not only on the absolute progress and scale which they’ve reached, but also the relative progress and scale given the inputs.
This situation presents a challenge for startups that took a little bit (or a lot) longer than they’d hoped to figure out product-market fit, or for startups that spent more than they should have in determining the right marketing channel mix and tactics. Fair or not, venture investors look at the time and money it took to accomplish that traction as a proxy for the success trajectory following a subsequent financing.
Given the reality of what’s happened in a startup’s past, what’s a founder to do if their fundraising or building journey is longer than expected?
The best way to address excessive resources utilized when you’ve been at it a while is to clearly and explicitly reframe a “reset” as the new starting point of the company.
”We founded the company four years ago, but we consider 16 months ago when we launched our product to [x].”
“We hit a clear inflection point in our revenue trajectory 14 months ago when we radically changed our marketing positioning.”
“$1M of our capital raised previously was spent on a product that isn’t currently in-market, but the remainder is what we consider to have brought us to the business milestones today.”
It’s incumbent on a company with a history to answer not just the “why invest” question, as all startups must, but also the “why invest now” question. There’s an additional onus on startups in this situation to demonstrate an inflection point or catalyst for why new capital now will be more efficient than that and quicker response than what’s previously gone into the venture. The brighter the line of before and after, the better.
How hard should founders lean into this reset story? I believe in most cases it’s beyond a voiceover when presenting. Rather, the longer a company has been around, the more rational it is to incorporate a “why now” into the whole narrative of the fundraising pitch deck. Draw arrows in the revenue ramp for that “ah-hah” moment when things changed and there was a kink in the curve. Murkiness and burying the truth is the enemy; rather, directness and crispness of an inflection point are a friend.
Startups that deserve to raise subsequent funding in a pre-Series A seed/post-seed/extension round eventually cross the finish line to accomplish that goal. The race can be more difficult because they’re really starting behind the starting line due to a not-so-linear history or absence of the promise of an empty page. The best way to jump-start this profile fundraising is to directly acknowledge the past, what’s worked and what hasn’t, and articulate a clear and specific time and place when the real race began.