An early-stage founder asked me for feedback on his fundraising deck, and I went over it with him. Then he asked me to also look at his data room and provide feedback.

The data room was well organized and included more detailed information than I’d expect for an early-stage company. I asked the founder about that, and he said it’s the expectation these days—without this level of detail, his chances of getting funded would be significantly lower.

My takeaway is that investors are focusing more on substance, and founders are starting to get the message. Investors are taking longer to evaluate investment opportunities and diving deeper into whatever data exists to help them make an investment decision. They want to understand the problem, the market potential, and whether the solution is adding (or could add) real value to customers. Founders looking to raise should be aware of this and prepare accordingly.

I’ve been keeping tabs on several early-stage founders who are aiming to raise capital before the end of the year. Their funding experiences so far are on the extreme ends of the spectrum (for various reasons). From what I’m hearing so far, it sounds like funding rounds will end up in one of two camps.

•  Fundraises will be extremely successful and engender a high degree of interest from several firms. These founders will likely be given offers to raise materially more capital than they set out to raise (which isn’t necessarily a good thing).
• Fundraises will be completely unsuccessful, with zero interest from firms. If these founders are running out of runway, they’ll likely struggle to raise a bridge round.

These initial thoughts are subject to change as the market changes. But if they hold, it sounds like an extreme case of haves and have nots this fundraising season.

I recently talked to founders building an AI start-up. They shared with me that they’re raising capital, and I asked the normal questions about metrics, runway, etc. I learned they have a significant amount of capital in the bank from their raise less than 12 months ago. This made me ask, why are you raising again if you have ample runway for executing your strategy?

Their response was simple. They’re getting interest from VC firms looking to invest in AI start-ups, and they figured they should strike while the iron is hot.

It’s so interesting to hear how different the stories of founders raising in the market right now are. Some are grinding it out to get an opportunity to pitch an investor, while others are being sought out by investors. I’m really curious to see which companies successfully complete their fundraising rounds (i.e., have money in the bank) before the end of the year.

One of the founders I work with recently kicked off his fundraise. He decided he wanted a well-run, tight process to boost his chances of completing his fundraise before the holidays. One of the things he’s doing is sending a weekly recap of the week’s activities to all his existing investors.

I really like this. My favorite part of the recap is that his fundraise process is displayed as a funnel, and he quantifies how many venture capital firms are in each stage. As an investor, I can quickly understand, looking at the funnel, where he is in his process and gauge the likelihood of it being successful as it progresses.

In addition to the funnel, he includes in his recap a few bulleted highlights and planned activities for the upcoming week. 

In a minute or two every week, I get a good idea of where he is, what he’s planning to do, and how I can help (if I know some of the investors he’s about to pitch or already has pitched).

I’m a fan of this fundraise update email. It’s a great tool to help founders focus, run a tight process, and keep stakeholders informed throughout the fundraise process.

Fundraising season is in full swing, and founders are having lots of meetings with VC firms. Many are trying to complete their fundraising before the holiday season begins in November. And many think, because of the rapid decision processes in the 2020 to early 2022 period, that that’s plenty of time.

Getting a quick decision isn’t a given these days. Some firms may still say yea or nay quickly, but many have adjusted their internal processes to spend more time evaluating a company before deciding whether to invest. Said differently, some firms are taking longer to decide.

The best thing founders can do is not assume. During initial meetings, they should ask, “Assuming an investment will be made, what steps are left in the firm’s decision-making process?” “What’s the average time frame to complete those steps?” Who else will I need to meet with before a final decision is made?”

These simple questions help founders set loose expectations and give them a better idea of where they are in the firm’s process. This helps the founder run a better fundraise process and, hopefully, increases the chances of success.

A few days ago I shared my big takeaway from an article about Andrew Bialecki, founder of Klaviyo: he bootstrapped his company at first and advises founders to raise the least amount of capital needed to get traction in the early days.

Andrew owned 38% of his company when it went public, which is a bigger share than you normally see. I usually consider 10% to 15% a big win for the founder.

Digging into Klaviyo’s early fundraising, I learned that the company was founded in 2012 and didn’t raise capital until 2015. In that three-year period, it surpassed $1 million in revenue and became profitable, per Forbes. The company then received a $1.5 million investment from Accomplice and a few angel investors, according to a press release.

Andrew’s advice about raising minimal capital early on sprang from his own experience in doing so, which likely was a material factor in his ability to maintain a large ownership stake. Andrew’s advice and his outcome are useful things for early-stage founders to consider when they’re thinking about their fundraising.

When early-stage founders pitch investors, the process can be long and exhausting. They end up pitching countless investors in hopes of one or two saying yes. By employing a bit of scheduling strategy, they can improve their chances of getting a yes.

Great pitches are the result of practice. The more you pitch, the better you get. The more you pitch, the more you realize what isn’t resonating and adjust. The more unanticipated questions you get, the more you incorporate the answers into your deck (or an appendix). After countless reps, the pitch flows smoothly and you’re more confident. The chances of getting a yes are better.

Most founders aspire to have a particular investor on their cap table. Maybe it’s an angel investor or venture capital firm with industry expertise and relationships. When you pitch your first-choice investor, you want to put your best foot forward. You want them to be blown away by your pitch (or at least interested enough for another meeting).

Because practice leads to a great pitch, it may not make sense to schedule your preferred investor early in the fundraise process. If you do, they’ll get a pitch that still needs work. Instead, pitching the investor you really want to land after you’ve done more reps pitching other investors and fine-tuning the pitch can be a good idea.

Scheduling meetings with several investors is great, but you want to be thoughtful about when you reach out and schedule time with your first choice.

In many VC firms, someone leads each potential investment. This deal lead develops conviction about the company by learning as much as they can about it. Once they’re convinced the firm should invest, they turn their energy toward convincing others in the firm of the merits of investing.

This effort usually involves preparing an internal deal memo that details what the deal lead has learned about the company and lays out the case for an investment. To those who see them, these memos provide a rare glimpse of how VC firms evaluate a company for investment.

These deal memos are often protected work product that VC firms don’t publicize. Bessemer Venture Partners, though, has made deal memos about some of their successful investments—Yelp, LinkedIn, Pinterest, Shopify, and others—available for public viewing. These memos aren’t recent and likely have been scrubbed, but they still provide a great perspective on how Bessemer’s deal lead evaluated each company for investment.

If you’re interested in reading Bessemer’s deal memos, you can do so here.

I’ve spent time with a few entrepreneurs recently. One of them is gifted at finding undervalued assets. He buys them at deep discounts, improves them, and sells them for premium prices. He’s got a great eye for opportunity and has a top-notch business. 

He said his main constraint is capital. He doesn’t have a deep network of people who invest in projects like his. So, he has relied on a single wealthy investor to back his projects. This has worked, but it’s put him at a disadvantage in negotiating terms. It also has limited the opportunities he could pursue because the investor, who must sign off on each project beforehand, doesn’t understand the potential of some of the assets.

It amazes me that an entrepreneur with a decade-long track record of success is constrained by capital availability. I suspect there’s a large, fragmented market of entrepreneurs like this one. Seems like a big opportunity!

I found a report from Carta, the equity management platform, that’s full of data and very helpful. It’s called State of Pre-Seed: Q2 2023. Carta defines “pre-seed” as “any company that has yet to raise a priced equity round.” Lots of companies begin by raising capital on convertible instruments and do priced equity rounds as they mature. Carta doesn’t explicitly say this, but I assume it also caps valuation of companies included in this report.

The report is full of useful data. In addition to high-level data, it provides granular data broken down by the two most common convertible instruments used by early-stage companies to raise: simple agreements for future equity (SAFEs) and convertible notes.

One point that stood out to me was that 52% of pre-seed companies that raised in the first half of 2023 were in California and New York. These companies were also more likely to raise more than $2.5 million in their pre-seed rounds.

The report is a great resource for anyone curious about the state of fundraising for early-stage venture capital companies in the first half of 2023. The report can be downloaded for free here.