A founder recently posted this question to me:

“I have no idea how to seek funding. I'm green when it comes to seeking investment but very mature when it comes to building the guts of the company. 

But I need more runway than I have which makes me think I need investment.

I DON'T KNOW what I don't know - which is why your advice is so appreciated. Please put questions in my mouth and tell me what I SHOULD be asking of myself, the business and the product.”

I have never written an article about what I wish I would have known 10 years ago when I was a founder, starting from fundraising ZERO, so here it is.

Most articles assume that venture capital is necessary and get right into tactics. That’s not my starting place, at all.

The first thing to do is to frame up the proper mindset around the role of external capital. Let’s start with a few principles to frame this: 

Let’s dive in.

First, you need to get in the right headspace about fundraising. 

In today’s world, getting an investment from a venture capitalist is highly lauded as a metric of startup success. 

I’l be honest. It felt so amazing for me to click submit on that LinkedIn post that a Fortune 500 financial technology company just funded my company. Or, if you imagine your next Thanksgiving with your extended family and sharing with your Uncle Joe that you just raised $2.5M from a Tier 1 venture capitalist. (“Take that, Uncle Joe. Don’t forget you told me when I was six that I wouldn’t amount to anything.”

Like that feels great. It’s a validating moment. It seems to justify your existence. But it means nothing. The very hard work has only begun. 

Disconnect the acclaim from raising venture capital from the aim of raising venture capital.

Why? 

Because a VC investment is simply a means to an end. It is not a destination. 

Receiving an investment gives an illusion of progress, but real progress, the progress you actually want to achieve, is measured in customer acquisition and in winning customers over in the market. 

Imagine that you're on a road trip to the Grand Canyon. About 250 miles away from the Grand Canyon, you have to stop at a local gas station to refuel. While at the gas station, you start taking pictures and posting them on social media, touting that you reached the gas station. You pay a videographer to do a slick video of you pulling into the gas station, fueling up, and post that on social media and on your website that you filled up at a Shell gas station. You do a press release that you just stopped at this gas station and how long and far that you’ve traveled to get here. Man, that Shell gas station was Tier 1. Like Tier 1 super octane baby. 

You are aiming for the Grand Canyon, but you are focused on the acclaim of reaching the gas station, which enabled and empowered to go faster on the next leg of the road ahead. 

In startups, your aim should be acquiring customers and winning in the market.

Yet, too many founders are focused on glorifying the moment that they filled up with gas. 

Now, listen, Tundra Angels invests in startup companies and I aim to do so for the rest of my life. I’m no gas station attendant.

Don’t misunderstand me. I’m not saying that.

But, I also want founders to have the right head space when they think about fundraising, and investment, and what it means for their company and for them. 

Make sure that you separate the acclaim from the aim by asking yourself, 

We have companies in our Tundra Angels portfolio that have raised large rounds that never got announced. They decided to not go public with the announcement. It is a major win that only a very small group of people knows about. It’s a hit to the ego, but there are strategic reasons to do it and it shows that their mindset is in the right place. 

Be honest with yourself. If you couldn’t click “submit” on that LinkedIn post. If you can’t tell Uncle Joe that you raised $2.5M from a Tier 1 VC even though he told you when you were six that you wouldn’t amount to anything?

If you raised venture capital devoid of any spotlight, does it still feel as sexy?

Many, many founders misplace why they need investment. 

Are you raising because it feels like a natural next step - something that “companies like you” should do? 

I speak to many founders that I’m like, “Yo, you don’t need investment, you need to get your product in the market and start selling. Why are you raising?” They don’t have a great answer.

But, I faced this too.

At one point when I was a founder, I was describing some of my fundraising woes to an advisor. The advisor was pushing me on what we were going to use the funds for. Transparently, I didn’t have a great answer for him.

I still remember when he told me directly, “You have decoupled money from why you are raising money.”

That hit me.

I felt that I needed money because it was tangible. It felt like the right thing to do. But I didn’t have great conviction around why we were raising money to begin with. 

The ultimate exchange is the trade off of investment money for additional money in the form of customer revenue. 

Investment capital represents the fuel station that empowers the startup to go down the next leg of the journey faster - getting further down the road and to win more customer and earn more revenue. 

If you get mental and emotional clarity there, I then would ask a line of questioning of the necessity of capital.

For context, there are three ways to fund your business. 

I am taking the position that #1 optimal way to fund the business is by money from customers. 

However, this approach does have an effect on the speed at which you move through the market. 

The decision to fund a company always passes through this expression:

Does my value proposition delivery require money from me or money from others? Or, can I fund it via money from customers? 

This question gets at what the delivery of the product/offer is - is it a software product? Is it hardware and software? Is it a physical product? CPG? Is it deep tech? Is it a university invention? 

I spoke with a CPG founder recently that was using a third-party to perfect his product’s recipe. Then, the founder was going to work with a co-manufacturer to do an initial run of the product. 

This is a situation - you cannot sell the product without spending money to build/make the product. So, the founder needed capital in order to do an initial production run of the product. That was 100% clear. They could not fund it via customer-revenue. At least in the case of this product, they could not have customers buy a physical product that didn’t exist. They could potentially do a wait-list, but that wouldn’t produce the revenue to the scale required to get a meaningful amount of product.

A hardware play could face a similar situation. Perhaps deep tech, depending on what they are doing.

It is all in the context of the product delivery.

Now, in the world of software, especially with AI tools, I would think long and hard about if the product delivery requires you to get money from others initially.  

I have spoken to many founders that built their initial product, were live with many customers, and then embarked on a fundraise. Their product delivery did not require money from others, and they were able to get pretty far on money from customers. 

If your product delivery requires money from me or money from others, then you potentially may be a fit to raise capital. 

Depending on your product delivery, you may not have a choice to raise capital. But, if you do have a choice, and that is something to consider. 

Does money from you or money from others drastically affect the speed at which you move in the market? Or, can you fund it via money from customers? 

Venture capital is capital in exchange for speed.

Why is speed in the market necessary? Just a few reasons are:

Let me share a story.

Tundra Angels was once considering a SaaS startup. The startup had several well-known name pilot customers.

Interestingly, the company had been around for a number of years at that point and had bootstrapped the technology in the early years. They ended up raising a venture capital round, yet the team was still small.

After the founder left the due diligence call, one of the Tundra Angels investors astutely noted, “You know, this company is one that would have benefitted from raising venture capital earlier.” 

The investor detailed that when the company started, there didn’t seem to be a competing technology. But in the last two years, it was clear that the the startup’s technological advantage, which frankly was their sole defensive moat, was diminishing. What was relevant five years ago was not so relevant anymore. 

This investor was getting at, “Not raising earlier on was eroding their market advantage, now.” The choice of bootstrapping then was costing them, now. 

That is one example of why speed in the market could be important.

With those two in mind, the founder must ask, are the product and the speed trade offs worth the valuable equity of my company? 

Based on the product delivery, some startups may not have a choice. But, some might have more optionality.

Based on the speed that is required to win in the market, some startups may not have a choice. There is a limited time window opportunity. Going slow is not an option.

Some founders may say, “Yes, absolutely.”

Other founders may say, “Not at the valuation that investors are giving me, so I am going to fund the company via money from customers until we can get a better price.”

Now, the reason I stepped though the value proposition delivery and the speed in market is that it helps you run through the process of elimination.

What funding options are actually on the table for me, and which ones are not?

Separate the acclaim from the aim

If no one ever knew that you raised venture capital, would you still do it?

Then, step through the questions of

Value Proposition Delivery ∝ Speed in Market ∝ Willingness to Give Up Equity

Hopefully, you have a clearer view of the role of external capital in your business, and what that might mean for you.

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