If you’re new to this newsletter, click here to access the rest of my newsletter articles such as the “Why We Passed on this Startup” series, reflections on investing, and tactics on winning in the market. This article is part of the “Venture Investing Expression” series. Now, onto today’s post!

Today’s topic is “Progress of fundraise.”

If you’ve been fundraising for any stretch of time, you’ve likely had email responses from investors such as, “Come back when you are fundraising,” or, “Let me know when you have XX% of your round committed.” 

✅ Some passes are due to lack of fit. If it’s a lack of investor/founder fit, investors will hopefully clearly communicate that to you.

But some investor passes are due to the snapshot in time of when the investor and founder interact, i.e. the fundraise has not progressed to the point where the investor feel that they have to make a decision. ✅

No one likes to be first. Especially in venture capital. But, why is that the case? 

Why is it that if you are a startup raising $1M with $150,000 committed, that fundraising is so hard? Investors seem to want to evade speaking with you. It’s excruciating to move the needle in your fundraise. 

But why is it if you have $400,000 committed toward your $500,000 raise that conversations are much, much different? There is a completely different level of kinetic energy around your fundraise. 

✅ Fundamentally, fundraising is all about the critical mass of the movement behind the startup. The critical mass is measured by progress of the funding round. ✅

Venture capital is a high risk game. Thus, like it or not, investors look to external data points to validate their decision to invest or not to invest. With a fundraise that is in the early stages with 10-15% committed, other investors observing the round do not know if the early believers are enthusiastic for the wrong reasons or if they are onto something. The round has not yet reached a point of critical mass. 

Remember, the dynamic of startups being what it is, is that typically, time is on the side of the investor. 

✅ That being said, investors evaluate startups by “time urgency to close.” Those startups whose rounds are closing in weeks get a priority decision over the ones who are 15% committed and likely 3-4 months away from closing. ✅

If the startup’s fundraise is about 15% committed, then an investor thinks to himself or herself, “I have more time to act.” 

Conversely, if the startup’s fundraise is about 85% committed, then an investor thinks to himself or herself, “I need to decide quickly what my move is here.” Otherwise, the risk is that the round closes without giving them an opportunity to invest, if they decide they want to do that. 

Building up the fundraise to a critical mass of investors is not simply a challenge for the startup founder. It also has a double edged sword. A less progressed fundraise can also distort the decision process of the investor….

I’ll share a story. 

At one time, a startup pitched Tundra Angels that was raising $1M, whose fundraise was in the early stages. I still remember the Ask portion of the startup’s pitch. It essentially was, “We are raising $1M… and we don’t have any commitments yet because we just started our fundraise, but we are in discussions with investors.” Well, even though that startup had a solid core product value and brand name customers, we lacked interest. Fast forward, and this company is absolutely killing it… outside of the Tundra Angels portfolio. 

✅ Thus, we passed on the startup. In retrospect, I attribute it to seeing the startup at a point in time when it had a less progressed funding round. ✅

Lesson learned. Snapshot in time matters. 

FOMO (Fear of Missing Out) is one of the most powerful forces in the world today. 

What FOMO is not - sometimes founders tell me, “My fundraise closes in March.” And the date is February 7th and I look at the round and it’s 10% committed. I think to myself, “That’s not going to close in March. Either something radical will happen out of the blue or you’ll stop fundraising with what you have.”

What FOMO is - FOMO happens when investors are calling, emailing you, trying to get a meeting. It’s the feeling of investors aggressively pursuing YOU. That’s when the startup is in control of the timing of the fundraise. 

First, don’t go live with fundraising until you’ve secured a good percentage of your round. That way, when investors learn about you, you’re “out of the gate” with 50%+ committed. That’s a signal to investors that this deal is so hot that they had commitments before they were actually fundraising. 

When in actuality, the startup beautifully orchestrated the fundraise to maximize FOMO. 

Second, consider adjusting your fundraising amount. I once had a conversation with one of our portfolio founders. This founder attributed their challenges in fundraising to VCs tightening up, becoming more hesitant, waiting to deploy more capital to follow on companies, etc. I told them, "You don't have a macro-economic environment problem, you have a FOMO problem..."

When we talked through their startup’s fundraising strategy, something vital was missing - the round in the current state had no gravitational pull. The founder had intended to raise a larger round but was 0% committed. That's the hardest part of any fundraise - the Valley of Neglect when no one has said yes yet. Super hard for any fundraise, but exacerbated difficulty with the current market. 

In a few minutes, we talked through what traction they needed to achieve to raise the next round. We re-framed the current round's ask so that the current commitments brought them 85% of the way there. Just like that, their round was 85% committed. 

Game changer. Different conversation. Likelihood of success and eventual close improves dramatically.

Note: This strategy works if you can adjust the fundraise amount and still achieve solid traction milestones to set up the next raise. I don’t recommend trying to get less capital and only buy yourself time to be in another lurch with your fundraise. The power of reframing cannot be underestimated. 

Tundra Angels has a monthly co-investor newsletter that gets sent out to a ton of investors every month. It’s a detailed digest of the deals that we have committed to to invest in or from our portfolio companies. 

In addition to that, we do highly intentional one-on-one reach outs to investors who are investing in that stage and space. It’s been very successful because as we continue to develop, this is a flywheel that continues to grow. 

✅ When a founder pitches an investor, it’s way different than when an investor pitches another investor. That’s what you want to activate to drive FOMO. ✅

Hint: If an investor drops a line on a call that to the tune of, “We have a strong investor network of folks who are interested in this space….” That’s an amazing sign. GET THAT INVESTOR INTO YOUR ROUND. 

I once was on a call with a co-investor that was leading the round of a particular startup we were discussing. I asked this investor how this funding round was going to come together besides their lead investor check. The investor mentioned to me, “We’ve got a strong co-investor network that we frequently co-invest with. We’ve already put this startup out to some of them. Based on the interest that we got back, we don’t anticipate any issues in closing this round out.”

What an amazing investor for this startup to have!

In short, the major reason why investors may not be interested now is the current progress of your fundraise. 

Your job as a founder is to figure out, “is this a founder/investor fit thing, or is it a timing thing?” If you don’t know, ask them. You’ll get clarity. 

If it is a timing thing, make sure you keep in contact with them monthly. There is no substitute for data points over time.