Tuesday, October 13, 2015

What makes fundraising so stressful?

In theory, raising venture capital could roughly look like this:
  1. You create an investor deck and send it to 5-10 VCs that you like (1 week)
  2. You meet the ones that are interested and quickly figure out the 3-4 that are really bullish (1-2 weeks)
  3. You have a few more meetings with those 3-4 VCs and answer their questions (2 weeks)
  4. You negotiate with 2-3 of them and sign a term sheet with your favorite one (a few days)
  5. You hand it over to your lawyer for the final due diligence and the legal paperwork (3-4 weeks)
So ideally it's a couple of trips to Sand Hill Road (or San Francisco or London or Jaegerstrasse) over a period of 4-6 weeks to get a term sheet, and after another 3-4 weeks you've got the money in your bank account.

In practice, things rarely go so smooth. More often than not, raising venture capital is a huge distraction for the founding team. Even if things go reasonably well, it usually means that one of the founders spends half of his time talking to VCs for several weeks – time that he or she can't spend on building the business. If things go less well, it's not only a huge time sink but can also be an extremely stressful experience.

Why is that, and does it have to be this way? 

To some extent, it's in the nature of things that convincing other people to give you a lot of money (and to commit to supporting you for the next 10 years) for a small stake in your risky early-stage startup is not an easy feat. The vast majority of startups fail, VCs can invest in only 1% or less of the startups they see, fundraising involves a lot of relationship-building, it's a complex process – that's all pretty obvious so I won't elaborate on that.

But the question is if fundraising really has to suck as much as I think many or most founders experience it, and what investors can do to make it suck less. (I've already written about what founders can do on their end, e.g. by having clarity about their numbers and by pre-empting most DD questions.)

To shed some light on that question I put together a short Typeform survey. If you are a founder or CEO and have raised venture capital it would be awesome if you could participate in the survey. It's anonymous and takes only a few minutes to complete (and thanks to Typeform, you can do it on your iPhone :) ). I will share the results in another post shortly.

Thanks in advance!

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