Insights from my conversations with 20+ VC’s – PART 3

When should you initiate a conversation with a VC?

Is it only when you’re actively fundraising? 

Fundraising is a perpetual and demanding aspect of being a CEO. As your company scales, so does the time and effort required for this crucial part of your role.

If you are in the pre-seed stage, then you should reach out to venture capitalists as soon as possible. This gives them a chance to get to know you as much as possible as at this stage, there is greater consideration around founder-market fit, then there is product-market fit.

Beyond the pre-seed stages, it is important to have traction and a clear path forward before approaching venture capitalists. This means having an established customer base, a well-defined go-to-market strategy, and tangible evidence that your business can succeed. Having these pieces in place will give venture capitalists more confidence in their investment decision.

Build Bridges Before You Need Them

Establishing connections with potential investors should commence long before the need for funding arises. Attend networking events, engage in conferences, and interact with VCs on social platforms. Cultivating rapport in advance can significantly bolster your chances when the time comes to seek investment.

Raise money as quickly as possible so you can get back to work as soon as possible. Avoid overcomplicating the timing of your raise. As one VC commented, ‘it becomes evident when a company is in fundraising mode by observing the trajectory of its growth curve, especially when it starts flat lining’.  However, by this point, founders might have already relinquished some leverage. Major companies like Airbnb, Dropbox, and Twitch secured seed/pre-seed funding at modest initial valuations.

How long is your cash-runway?

The primary consideration when contemplating a fundraising effort is your cash runway. The shorter your runway when engaging with a VC, the less leverage you have in negotiations. Avoid finding yourself in a precarious situation where discussions about valuations coincide with a dwindling cash balance.

Time to get cash in the bank?

Having asked several VC’s what the typical turn-around time is from the first meeting to term sheet and cash in the bank, this could take anywhere from a very optimistic 4 months to 12 months and longer. This also very much depends on the stage of the investment and how much you are raising, as well as maturity of the business. Not to mention that each VC firm will be at a different stage of deployment in their funds.  It’s best to have done the leg work around your fundraise well in advance so that it is not too overwhelming when it comes to closing the deal. 

Therefore, it is never too early to start building your relationships with VC investors, if VC investment is the right source of funding for your business growth.  Investments are a two-way relationship and for most people relationships happen because it’s a function of time. The more data points people have over a period of time the better it is when it comes to starting the fundraise discussions.

Approaching a VC is not just about your startup’s readiness but also about the current state of the market and investment landscape. Economic conditions, industry trends, and the specific focus of the VC firm all play a role in determining the right time to make your move.

Rushing into VC discussions prematurely can lead to missed opportunities, while delaying might allow competitors to seize the spotlight. Striking the right balance and knowing when your startup is poised for the next level of growth is the key to successfully navigating the complex landscape of venture capital.

Subscribe to Disrupt Entrepreneur

Discover ground-breaking ways of working, living, and building businesses that are truly life-changing, delivered to your inbox each week