Raising money is hard

Many, myself included, think 2025 will be a big year for VC again. Exits and fundraises will pick up. “The casino is open,” as one friend put it. I’ve been talking with a few founders about fundraising recently.

Raising money is hard. If you’re a founder, you know this. If you’re a VC, you probably also know this. Especially if you’ve recently come back from LP meetings.

Unlike VCs, for founders raising money is especially hard because it takes away from progress in the rest of the business. Some people (like me) love spending time on high-stakes deals and negotiations. But that doesn’t mean getting punched in the face doesn’t hurt–the constant rejection isn’t fun for anyone. I like spending time on high-stakes deals because I like closing them!

I was reminded of all of this when I caught up with one of the most successful founders I know. I didn’t realize how hard it was for her to raise early on, and now that she reminded me I thought it might be worth passing on two simple tactics and one observation.

Get your shit together

You need to have your shit together to raise money. This varies by stage, but generally that means at the very least having your finances in good order. It should be easy to point to cash coming in and and cash going out.

Your forecast should be based on defensible assumptions or, at later stages, real operational data. And it should be reasonably conservative (that is, you should have high confidence you can hit it) for 6-12 months, because that is how long it may take to raise money. Promising to get to $3mm ARR in 12 months from $100k? If your growth doesn’t track there during the deal, it might fall apart. And if you take a year to raise, those VCs will absolutely look back at that deck that you shared with them and wonder where all the missing revenue is.

Early stages get more leeway, especially if everything is made up. But you can’t miss by 50% or more. That’s never ok.

Get the easy stuff right. Hitting your revenue target might be very hard. But your cap table can always be accurate. That is easier than ever these days. Things can go wrong if it’s not: I saw one Series A deal fall apart after a cap table was restated 4 times. I’m still not sure how that happened. Even though the issues were $25k or $50k missing SAFEs, investors start to wonder what else has been botched or sloppy. After all, this is the easy stuff.

Accounting is also easy. Your books should be clean and straightforward. If you are running your own LLC and avoiding taxes, fine. But don’t try to sell your venture-backed company your used sofa for $1,000 (yes, true story). People will find it and ask hard questions. It’s a bad look, and not worth $1,000 even if the sofa is (which I somehow doubt).

It is, in my opinion, OK to be aggressive with your accounting if that makes you look better. Opendoor is a company that sells houses. Because each item it sold was six-figures, it looked like it had tens of millions in revenue every time it raised–even though it only took a ~5-7% fee of each transaction. That worked out ok. Same with Groupon, and many others. There is a difference between strategic accounting choices and sloppy accounting. There’s no reason ever to do the latter.

Your data room should be clean and well organized. That’s also easy. VC firms usually have their wishlist of things they want in the data room, which they’re usually happy to share very early in the process. Your lawyers, if you’re using good ones, should also know what is typical in a data room and can give you a list. In an investor-friendly market, people will want more in the data room. In a founder-friendly market, they might accept less. Most law firms work on both sides at different times–investor and company–so are uniquely situated to give good advice here. Listen.

Tell a story

What is in your data room does not matter as much as the story it tells. Because, like everything with fundraising, your data room needs to tell a compelling story.

You’ll have two data rooms, usually. The first is what people will see when they exhibit some interest in investing. This is usually after your first partner meeting, but before going in front of the whole partnership (though each VC’s process varies–definitely ask!). This is not for before you meet–no data room access pre-meeting, or for people that aren’t seriously committed to a round.

Plenty of VCs just want to see your data without any intention of investing. There are at least four reasons why someone who has no interest in investing in this round would want to do that:

1. They want to benchmark you or your company against others they’re thinking of investing in.

2. They want to benchmark your company against itself for the next round, so when you come back in 2 years for your Series B they have 2 dots on their plot.

3. They want to take your data and share it with competitors. Yes, this happens.

4. They’re learning about your industry because it’s new, and your data helps them fill in the picture.

You do not want these people in your data room or wasting your time in any other fashion. There’s a reason why Uber required NDAs and, essentially, non-competes for data room access in later rounds: their operational data was valuable and could help an investor know how ride sharing worked. If they wanted to see Uber’s data they had to commit to not to investing in a competitor in a legally binding way. (Note, this is highly unusual and you probably can’t pull it off.)

Back to that first data room. Typically it’s very small, because at this point you just want people to get enough information to be interested. Critically, that means having a story. At this stage you are putting your best foot forward. A short deck with the key information-how great your team is, how great your growth is, how big your market is. Whatever your story is, it’s in the deck. Then some supporting data, and a summary cap table. The supporting data might show the high revenue growth or unusually high NRR or some other aspect of a revenue-based story. It might tell a story about high margins. It depends, but it should really only be supporting that story. No dirty laundry, yet. The summary cap table lets them do important math on ownership percentages and what things will look like for them and for founders post-money–that is, after investment.

Once you are further along there will come a time to share more. In an M&A deal, this is once you have a short list of interested parties, or even LOIs. For VCs, you might share more slightly earlier. It depends. Get good advice; there are standard practices here that exist for reasons. No need to reinvent the process.

When you get into confirmatory diligence, your data room will have much more in it. It’s never a good idea to hide anything material because with a team of accountants and lawyers, investors or strategics will usually find it anyway. Sometimes VCs are less thorough than acquirers, but not always (ask your lawyers what to expect from the specific VCs you’re working with).

Err on the side of disclosing. If you don’t, you’ll waste time–usually, weeks–between them finding something, asking about it, you providing answers, and them asking more questions, etc. Time kills deals. Perhaps as importantly, you’ll lose trust. There are humans at that VC or strategic who are pushing to invest in you. There are usually one or two arguing not to. If your supporters get blindsided by bad news, or find out you withheld key information, they might not want to invest anymore. It happens all the time.

The confirmatory diligence data room can be overwhelming both to you as founder to compile and to the investors to go through (but they have to). This is the key reason you don’t provide an overwhelming amount of information at the outset: nobody feels comfortable making a decision until they go through all of it, and they will undoubtedly find something someone doesn’t like. Better for them to have committed emotionally to doing a deal with you before they get bogged down in pesky details.

What I forgot

All startups have something horribly wrong with them. It’s ok. People investing or acquiring at this stage know that, and can decide whether to look past it or not. As Jim Goetz of Sequoia Capital says, growth hides many sins. If you have great growth but shitty everything else–you’ll probably be fine.

There are companies with shockingly high customer churn, executive churn, engineering churn, etc. that still go on to raise more and more, and grow and grow. Because they’re growing, they can get away with it. You might have to answer some tough questions in diligence, but people will be able to get comfortable with it.

The media likes to talk about how hard it is for underrepresented minorities, women, or others to raise. Of course–and obviously–if you fit into one of these underrepresented groups, and there are programs or awards or other things you can leverage to get VC attention and raise money–leverage the daylights out of it. But at the risk of sounding out of touch, fundraising is really damned hard for everyone. It just is hard, period. Don’t wallow in “how hard it is for me”–it’s just hard for everyone.

If you have strong growth, you could be a purple alien and have no trouble raising money. VCs talk about how they care about the people, and that’s all that matters. I’m not sure how that explains Sequoia’s investment in Adam Neuman’s company, for one. Self dealing, private jets, lots of drugs… I guess he’s great at raising money, so that makes it all ok? I wonder how SBF would do if he walked out of jail… perhaps he’d raise $300 mil too, no sweat.

To raise money

Or not to raise money? Perhaps that is the rea question. Now more than ever, some of the best successes have come from people bootstrapping for longer. Many aren’t able to do that, so raising money is necessary.

Raising provides a lot of advantages, from capital to do things with and the ability to attract and hire better talent, to actually helpful and experienced people on your board or in your cap table–literally, invested in you. If I were starting something again, I think I’d lean towards raising. After all, that’s also the playbook I know best.

There’s an expression in Hollywood that might apply to this question: never make a movie with your own money. Usually expressions don’t need explanation, but I’ll explain anyway: most can only make one movie using their own money, and it’s a hits business–your first will probably fail. But if you use other people’s money, you can try many, many more times. That seems right for high growth startups, also.

To raise money, have your shit together and craft a great story. The first is easy, both easy to teach and do. The second is much harder. Maybe don’t hate the player, hate the game. But get the easy stuff right, tell a great story, and know that things don’t have to be perfect to raise. They never are.