Many first time founders have a hidden assumption that their fundraising strategy cannot change. 

I was on a panel this past week where a founder asked me the question, “We want to raise $1M, but should we consider a smaller initial investment, like $500,000? Is that OK? How do we know?” 

I resonated with that question. I asked the same thing when I was a founder.

I had this assumption that my target dollar amount and fundraising strategy couldn’t change.

If I'm being honest, I assumed that if I adjusted my fundraising strategy, it would give the impression to investors that I don’t know what I’m doing. 

That’s a false belief. I’m going to clear the air here and set you free. 

It's not possible for a fundraising strategy to be locked in. 

That’s not reality. 

It’s also not how startups work.

In a product, when founders get to market with their initial product, they learn a ton very quickly from their customers. They learn what customers see as valuable about their product, what they do not care about. The team takes it back, iterates on the product, adjusts the messaging, etc. and releases the next iteration of the product based on the feedback. 

Yet, I have never heard anyone talk about how fundraises need to be adaptable in the same way. 

But fundraises DO need to be adaptable.

Just as in the product example, investors are experts in the domain of what startups are getting funded. They see hundreds of startups, identifying patterns across all of them, seeing what is working and seeing what isn’t working. 

Founders don’t know how their fundraising strategy will resonate investors until they actually hit investors with it. 

Founders don’t know if their fundraising strategy is on target, or off base and needs to be adjusted. 

Investors can oftentimes be your greatest asset in helping you actually get funded. 

Let me share a story of what I mean.

The Fundraise of Flamingo Marine

Flamingo Marine is one the companies that Tundra Angels invested in this year. Brian Davis, Eric Davis, and Trent Warnke, and the rest of the team are rockstars. Brian and Eric sold their previous venture to Volvo Group, so the team possesses very strong capabilities. 

When I first encountered Flamingo Marine about a year ago, they were raising tens of millions of dollars in a large funding round. 

At that time, the stage of the business was in an interesting spot. They did not have substantiated demand from the market to show that this product was the next biggest thing in marine. 

I really loved the Flamingo team. But one aspect I didn’t love - the fundraise strategy. It wasn’t clicking. In my conversations with the team, it became clear that investors were not biting at the tens of millions of dollars raise. They had a cadre of interested folks but in the several million dollar range, not close to the full raise amount that they were asking for. And no lead investor was actively pursuing them with earnestness. 

I struggled to understand how they would get tens of millions with a traction story that at the time, in my opinion, wasn’t compelling enough to raise that amount. 

At least, not compelling enough… yet. That, “yet,” became my conviction. 

I really liked the early demand signals they were getting from the market but that demand narrative was still in the early stages. I concluded that they need more time for the traction story to play out. 

After a number of conversations, I cared enough about the team. I liked their company and liked them. Thus, I felt comfortable to have a more collaborative conversation with them. 

On one call, I decided to call it out. I proposed to the team this aspect of breaking up their fundraise. 

I suggested, “Raise a smaller round of capital now in the near-term that will help you build out the traction of market demand. The capital ideally will help unlock the demand that you need to really raise that larger round.”

I also indicated that this is a scenario that Tundra Angels would be interested in pursuing. 

In saying this, I had placed a bet. 

A bet that the Flamingo team had shopped around the tens of millions raise for enough time unsuccessfully and collected enough investor feedback to see that the raise that they were originally seeking was not one that investors were willing to fund. 

Sure enough, the team responded that they had considered breaking up the fundraise into a smaller raise initially. They needed to run the numbers to determine what milestones they’d be able to hit and if those milestones would make a material difference. 

In making this suggestion, I believed that the team was coming to this hypothesis independently. 

My comment only intended to help them decide and push them further in the direction of pivoting their fundraise. 

So, after a few days, we had a Zoom call where the team came back with some good news. I still remember that Zoom call with Brian Davis when he shared with me. 

“Matthew, we’ve decided to stage our fundraise,”Brian said. He went on to share that they are courting a lead investor but were looking to pivot into a smaller funding round that would extend runway and give them more time for a strategic pivot to play out to build more traction.

This last piece that made me hesitant about Flamingo was now resolved. They had changed course to a fundraising strategy that I thought made a lot more sense for their stage of the journey and their traction.

That set Tundra Angels into aggressive motion to have them pitch for our group. We made an investment in them two months later. 

If founders are listening to the investor market, which Flamingo was, it shows you - “Yeah, our fundraising strategy isn’t making sense to investors. We’re clearly off here. So… what scenario do investors get excited about?” 

The Fundraising Feedback Loop

You can see fundraising as having a feedback loop. 

The Feedback Loop of Fundraising 

Startup develops fundraising strategy → pitches the startup and its fundraise → takes in investor inputs from the market → startup evaluates the interest, non-interest, and what is working vs. not working → startup refines fundraising strategy → Startup goes to market with the refined fundraising strategy 

If a startup is not flexible in its fundraising strategy, it will likely not raise capital. 

But here is a major watch-out:

Only take feedback from an investor that knows your market and knows enough about your business that it can speak from a position of context. 

Personally, the only time I call out the fundraising strategy needs to change is if I have spent enough time with the founders to understand the business model, the traction, the financial requirements about the use of funds and milestones that need to be achieved. 

I have no business giving fundraising strategy feedback after a 30 minute call. It’s nearly impossible to glean enough context to make an informed suggestion even after a 30 minute intro chat. 

Thus, I would recommend only taking advice on your fundraising strategy from investors who have spent enough time with you to understand your business and the risk that you need to reduce in order to unlock the next stage. 

Their feedback is the feedback that you can trust. 

The Unlock of Flamingo Marine

Back to Flamingo Marine. So, we made our first investment in early Spring this year, with the full knowledge that we were taking on a risk that the larger round may not happen or happened in the time frame that we thought it would. 

But see, we had no doubt that they were going to achieve the traction they needed for that larger round. They just needed time. Time to achieve those milestones. And a smaller round was the exact right decision because it gave them time. 

Throughout the summer, the traction story continued to ramp up, hitting one stair step of excitment after another.

I later reconnected with Trent Warnke at a conference. 

Almost by perfect design, the lead investor that they had been courting was moving forward. The larger round was happening! 

Now, here is a question. Would this have happened without the pivot to raise a smaller round that the team made earlier in the year?

Likely not. Here’s why.

By pivoting their fundraise strategy, Flamingo was making an important tradeoff - a tradeoff of time.  

The tradeoff is this: 

Spending an extended time trying to execute a raise that investors do not feel good about funding, all the while not accomplishing the milestones…

Versus

Spending that same time to get money in, be done with the raise, and start executing on the most critical milestones…. 

The funding ultimately is the means to the end - accomplishing the milestones. 

Sometimes a startup can hit their ideal funding scenario. That’s amazing when that happens. But sometimes, it can’t. 

Pivoting a fundraise is ultimately about a tradeoff of execution time.

Closing Thoughts

There appears to be a hidden assumption that when a startup begins to fundraise, their target dollar amount and fundraising strategy, cannot change. Otherwise, it risks showing the investor you don’t know what you’re doing.

But that’s ludicrous. 

Founders don’t have the same sense that investors do and what’s getting funding and what isn’t getting funded. 

Sometimes they can raise according to plan. But sometimes they cannot. 

So, your fundraise may need to be adaptable. 

If a startup is not flexible in its fundraising strategy, it will likely not raise capital. 

As the story with Flamingo Marine and countless other startups, consider asking for feedback about your fundraise. But only take feedback from an investor that knows your market and knows enough about your business that it can speak from a position of context. You want to ensure their feedback is sound and sees the big picture of your business. 

In many ways, founders are investors are much more aligned that we give credit to. 

One of the greatest insights that I and other investors can give to founders is the practical reality of how to move from a fundraise that is planned to a fundraise that is executed. 

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