Running a Startup Fundraising Process in 2023.
It’s a different environment right now — which makes it even more important that startup founders use a structured process.
I’ve experienced startup fundraising in good times and bad. During the easy-money days of the “dot com boom” I raised a $5M Series A, only to find myself looking for a Series B during the nuclear winter that followed the crash. I succeeded, but it wasn’t easy.
Then, during the Great Recession of 2008, against all odds I successfully raised funding for a new startup. We managed that company carefully and never had to raise funding again.
So while it’s true that we’re currently in a down cycle, I’ve seen this movie before and great founders will still get funded. But running a structured fundraising process is more important than ever right now, so here are my Top Ten Tips for successful startup fundraising in 2023:
- It’s not peach season right now.
I love mid-summer peaches. They are sweet, plentiful, and cheap. But we all know not to go shopping for peaches in January — they are scarce, expensive, and not that tasty. So don’t go shopping for capital in 2023 thinking you’ll easily bag a $20M seed at a $100M valuation. It’s not peach season right now.
- There are lots of peachy alternatives.
This is a great time to look at alternatives to traditional venture capital. Revenue share notes can be a great way to go. Or customer financing — many great software companies have financed product development by doing a big custom development project for a customer. Or even an SBA loan. The last few years the startup world has been fixated on cheap and easy venture capital — but now is the time to realize that you actually have a whole buffet of financing options to choose from. It ain’t just Sand Hill Road.
- It’s a numbers game.
I recently had a call with the founder of a 4thly company and he told me he’d just closed a nice round of capital. Over the past year he had more than 100 investor conversations. Of those, 42 requested more information, 23 requested a third meeting, 11 of them submitted the deal to the partnership for an investment decision, 4 issued term sheets, and 2 invested. These numbers are pretty typical.
- Play the long game.
The same founder also said that he kept investors engaged for many months — even those who had said “No”. Over the year he sent out quarterly updates to every investor he talked to, circled-back with them about concerns they had expressed, and kept them informed as milestones were achieved. Raising capital is a sales process, and the sell-cycle is longer today than it was a couple years ago. You’re not going to pitch on Tuesday and have a term sheet on Wednesday. That ain’t gonna happen. Play the long game, and you will succeed.
- Solid economics are more important than ever.
Remove from your brain the mythology that investors will invest in crazy-ass ideas with no clear monetization. Investors today want to see opportunities where the founders have already proven the economic model, and now it’s ready to scale. It all comes down to CAC<LTV, baby.
- Accept that cold calls ain’t gonna work.
Every investor I’ve ever had in my career was someone I knew socially, or was referred to me by someone I knew socially. Most VC’s I know say they’ve never invested in a deal that came in “over the transom”. Yes, life’s not fair — get over it. Focus your energy on getting warm introductions and you will be 100x more effective in your fundraising efforts.
- Don’t look for apples in the berry store.
Don’t pitch your early-stage SaaS startup to a growth-stage biotech investor. Every investor has a stage and sector focus. If you have a social venture, focus on impact funds not traditional venture funds. If you have a healthtech startup, find investors that focus on that. Taking the time to understand stage and sector focus of investors will make you much more effective.
- Double-down on storytelling skills.
Every great entrepreneur has the ability to tell a crisp, clear, and compelling story about what she’s working on — and why it matters. It has always been thus, and it is twice as important right now.
- It’s a sales process. Use sales tools.
Being on the Fundraising Trail is like any other sales process — so use the great sales tools available in 2023. Use a CRM for tracking every touchpoint, consider upgrading to LinkedIn Sales Navigator for research, use DocSend when you send out your deck, Use HubSpot for sending out updates and tracking opens. Treat your fundraising like a professional sales process — because that’s exactly what it is.
- All things being equal, bootstrapping still rules.
In any environment, bootstrapping is always the best way to grow a startup. Back in 2021 it was easy to get distracted by the shiny prospect of cheap delicious venture capital, but now it’s time to get back to basics. During the last recession, my friend Christina Stembel of Farmgirl Flowers got frustrated by fundraising so decided to just bootstrap and focus on execution. She now owns 100% of a $100M business, and is very happy that she never took any outside capital. It’s always good to be like Christina.
So yes, it’s a challenging environment right now — there’s no getting around that. Rising interest rates always drive down venture capital activity, plus valuations got too frothy in 2021–22, and now events like SVB’s collapse have everyone spooked. But I’ve seen this movie before — Silicon Valley has always had wild economic cycles — and the great startup founders will always survive and thrive.
As David Weekly said in a recent Tweet, “The companies that can find a way through the winter of ’23 will be far more competitive than those that blossomed in the summer of ‘21”.
So be one of those.