There is no substitute for data points over time. In venture capital investing, the most important data points are about the founding team.

One slightly negative data point may be completely unintentional and not representative of the founder. Or, it may actually represent a pattern that the investor has not seen enough data points of to extrapolate yet.

Once upon a time, I met a startup team.

Let’s call it XYZ Company with Jackie, the Founder and CEO.

XYZ Company had a product that solved a problem in a market where the existing alternatives for customers were either, “do nothing,” which was fraught with risk and liability. Or, the competitive products were either too overbuilt and too expensive. It was pretty clear to see the white space in the market.

After a number of conversations, I felt good enough about the startup to invite them to pitch to Tundra Angels.

That’s when the CEO started to appear flaky.

An Odd Request

A couple days before the pitch, I got a text message from Jackie.

Jackie: “Hey Matthew, I am just looking at the agenda and didn’t realize that the pitch event goes all evening. Is there a way that I can give my pitch first? I have to get back for some family things.”

I had never received this request before. All of the other founders that have pitched Tundra Angels stay for the entire time to ensure they are able to network with the investors after the pitches conclude.

But, if Jackie had things to attend to, then I suppose that it was awkward for me to force anything. I hoped she knew what she was missing out on.

When the pitches concluded that night, her absence was evident. Several investors asked me about where Jackie was. It was awkward for me to say that she had things to get back to that evening.

The Unreachable Founder

For all of the founders that pitch Tundra Angels, I specifically tell them that I will give them a phone call that same night to tell them the interest of our group and whether or not we are moving them into due diligence.

After the pitch, we had enough interest to move XYZ Company into due diligence.

Then, another first happened for me.

When I called Jackie to tell her that we were moving them into due diligence, I couldn’t reach her. In fact, the call went right to voicemail. I tried a second and a third time, in case the call had an error. It continued to go to voicemail.

I wondered if Jackie was truly unavailable, or was she blowing me off? It didn’t feel right that Jackie clearly knew that I was going to be calling, and yet I couldn’t reach her.

Even if she were at a family engagement, wouldn’t there be a text message reply at a minimum? I would have expected that given the potential opportunity, she would step out for two minutes to chat with me. The silence seemed to send a negative message.

Another signal of flakiness.

In the morning, I got a text message from Jackie:

“Good morning. Sorry I missed your call last night. My phone goes into do not disturb after 9:30 p.m.” And then followed up with some times on when she could talk that day.

The response came across sly. Was this just a convenient excuse to not take my call that night? But, we later talked and I shared that we were moving them into due diligence and scheduled the deep dive chat.

The Deep Dive Chat

If a startup has enough interest, the next step after the pitch meeting is the deep dive chat. This is where several the Tundra Angels investors get on a Zoom call and talk through the business and opportunity in more detail.

On the call, one of the Tundra Angels investors asked a very insightful question, “What are some of the objections that your target market has to not buy your product?”

Jackie replied that the product didn’t fit the need of users in a few specific ways.

Yet, the company had line of sight to a V2 of their product.

Along the same lines, company was still debating between two different pricing strategies. The two different pricing strategies were predicated on the product being in V2 mode.

Based on the type of company that is was, we made the decision to pass. I communicated the specific reasons to Jackie.

Essentially, we didn’t want invest capital towards a product re-design. It was still an unresolved risk whether or not the product re-design was the “answer” the market needed. Additionally, the product re-design also connected to another risk on how the very different pricing strategies would be received by the market. Thus, one risk was tied to another risk. So, we decided to hold on investing in this round, with an eye towards the next funding round after those risks have been resolved.

The CEO’s Reach Out Months Later

Months later, Jackie reached out to me email to give me an update.

Jackie communicated that the items that we had brought up as concerns months ago had been addressed - the company had a product that had been re-designed, the pricing strategy risk had been stabilized and was selling well. XYZ Company achieved a very nice growth in ARR since last time, etc. A sound update.

I asked Jackie for a call to touch base. My call with Jackie confirmed the solid nature of the current state of play and was exciting.

11 days later, I sent Jackie an email inviting her to pitch again to the Tundra Angels group, and asking if she could confirm the date. 

I then follow up with a text, where I got the following response:

Jackie: “Hey Matthew, could we hold off at this point? As of Tuesday, we are fully subscribed, but two of the commitments are verbal for now (but are very strong). If they don’t come through, I could pitch in June or possibly even May if there is still a spot.”

I was in disbelief with the request, especially since Jackie was the one who specifically emailed me with the update. We got on the Zoom call and it all seemed good. I was in disbelief, but on the other hand, I wasn’t.

I harkened back to the several other data points of this founder - the flaky text a few days before the pitch meeting, the flakiness of not being reachable after the pitch meeting, and the seemingly weird excuse for the unavailability the following morning.

I responded.

Me: Hey Jackie, the thing is, I can’t guarantee a spot in the next pitch meeting. I wanted to give you a slot at this one based on our conversations.

Jackie: “Does it even make sense to pitch now if we aren’t raising again until June? (Assuming the verbals become signatures). I don’t want to waste your time/take anyone else’s opportunity to pitch the group if our timing makes it impractical.”

Me: “Are you able to chat? It’s easier to talk through it.”

On the phone call, Jackie basically told me that they were done fundraising. The verbal commitments were in place, and there was no need to continue to fundraise, so she said. Jackie reiterated how strong these commitments were. Thus, there was no reason to pitch to Tundra Angels.

I told her that I’d recommend to still go forward and pitch the group. Mostly because I think they were in a good spot to do it, they had resolved the items that were concerns, and importantly, these were verbal commitments - nothing was signed yet!

But, Jackie downplayed my concern and said that there is no need to pitch at this time.

It is a massive risk to a founder to assume that verbal confirmations on investments will become signatures and stop pursuing other options.

I’ve SO many times the “verbal commitments” that founders speak of disappear so quickly. Founders that cut off their other options too soon are shooting their fundraise success in the foot.

Anyone can say anything. It takes far more commitment to actually sign something.

Playing Valuation Games

Then the conversation took an interesting and unexpected turn.

Jackie pivoted the conversation and indicated that they were going to do this fundraise in two tranches. The current round in question, that Tundra Angels was now no longer in consideration for, would be for the first tranche that they would close at X valuation. The second tranche would happen 6 months later at Y valuation (about 30-40% higher than X valuation).

Jackie said to me, “So this tranche is closed, but I am happy to have Tundra Angels invest in that second tranche.”

I’m not sure if Jackie thought that her offer would give me a warm and fuzzy feeling or what.

It certainly didn’t. I felt snubbed. Jackie had showed her cards. “I want you… but not that badly.”

It’s almost like I had been bidding on an item at an auction and all of a sudden the starting bid price just jumped up 40%. In that situation, the question is, “How much do I really want it?”

Additionally, the step up in valuation was alone incredulous because the company didn’t have anything brewing in the next six months that would justify a 40% higher valuation. Thus, I knew that closing the fundraise now, then re-starting in months later a higher valuation, was simply a move to preserve founder equity.

I never heard from the company again even after our mutual agreement to discuss the second tranche. But it didn’t matter. I made a decision right after that phone call that we weren’t going to be considering that company again.

The flakiness had been strung into a pattern, which had turned into a minefield of unwise fundraising decisions.

The Start, Stop, and Start Again Fundraising Motion

I want to comment briefly on one thing.

The start, stop, and start again fundraising motion is an absolutely terrible fundraising mindset. There are two reasons why:

1) Fundraising success is based on momentum and FOMO.

✅ FOMO is emotional kinetic energy. Thus, a start, stop, start again motion in fundraising is a fool’s errand. It’s the opposite of what should be done. ✅

Stopping the fundraising process to restart again several months later, especially when the startup has a very similar traction story, completely eliminates the FOMO on the table. This would have to start from zero.

The only time when that start, stop, start again motion should be considered is when the company has hit a very significant inflection point that is universally seen as a really big deal - such as a marquee-level customer, a technology breakthrough, or something else that I cover in my series on inflection points.

✅ Fundraising is really all about taking in capital when the checkbooks are open. Distractions and time is one of public enemy number one of fundraises. ✅

✅ 2) When founders are fundraising, they are competing with the other deals in the consideration set at that moment in time. ✅

Not to mention, founders don’t have the macro view that an investor has. Deal flow is very contextual to the snapshot in time. Investors do not know the deal that will come in six months that everyone will want to get in on.

There will likely be deals that the investor is anticipating to invest in or that will come through unexpectedly in the future that will throw future fundraising success off the rails.

✅ Founders should raise in one singular fundraise when the FOMO is strong, when the checkbooks are open, and before the investor’s consideration set shifts. ✅

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