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Michael MassadSenior Associate

How to Find Alignment & Save Time in the Fundraising Process

For many startup CEOs, venture capital fundraising can be shockingly time-consuming. Many founders contact upwards of 50 investors, have 20 to 30 meetings, and spend around 20 weeks closing a successful round.

This time period can really take a toll on founders, causing both professional and personal stress as it drags on. It’s tough to balance fundraising with running the business day to day. It can also leave the team rudderless if adequate preparations aren’t made in advance.

The good news is there are ways to save time in the fundraising process (without cutting corners) by preparing for the journey and seeking out alignment above all else. This way, you can narrow your focus to just a few VCs, speed up the due diligence process, and get funding without losing your mind.

The path to more efficient fundraising

For founders who choose to accelerate their businesses using venture capital funding, there are ways to be more efficient. Diligent legwork early on coupled with a clear-eyed understanding of the VC landscape will ensure you’re not wasting precious time. The primary areas where you’ll need to spend time are: planning, researching, and interviewing VCs.

Here’s what I’ve learned about how to approach each phase as efficiently as possible.

Planning: Prepare yourself, your team, and your calendars

First things first. As founder and CEO, remember you are also Chief Storyteller. This means you must be intimately involved in the fundraising process. No one can pitch the business as effectively as the founding team. If there is more than one founder, often there’s a business/technical split, and it may make sense for the more business-focused of your team to focus on fundraising. That said, every business is different. Open communication between founders and other key internal stakeholders is key.

If you are single-handedly running the business, you should be extra diligent about protecting your calendar and ensuring conversations are efficient and productive.

Your leadership team will also need to carve time from their schedules once you have picked a VC partner and during post-LOI diligence, so prep key colleagues (go-to-market, product, engineering, and finance, typically) in advance about what to expect. Keep them abreast of timelines so they can make room in their schedules. (Sharing this post with them may help illuminate the process.)

Researching: Aim for alignment

In my experience on the other side of the table, time is often wasted when there is not strong founder-VC alignment from day one. Finding alignment should be your ultimate goal. It’s also the best way to save time in the venture capital fundraising process.

Think about it like this: If you were going to purchase a new car, you’d first decide what you were looking for. Perhaps you need extra seats and a third row, a hitch to tow your boat, and a bike rack on the top. Based on those criteria, a compact sedan is probably not going to fit the bill. You can narrow your search down to SUVs right off the bat.

Similarly, before approaching investors, sit down (perhaps with some advisors or mentors, perhaps on your own) and clarify your objectives.

Questions to ask to assess what you’re looking for in an investor include:

  • What are the goals for the business?
  • How quickly do we need to accelerate growth?
  • How long do you (the founder) want to keep running the business?
  • How important are non-capital factors, such as access to experts to help scale?
  • What would a successful exit look like?

Your answers to these questions will lead you down different fundraising paths.

The Silicon Valley mentality and why it’s not for everyone

The Silicon Valley venture capital model prioritizes aggressive growth above all else. The formula goes like this: Add a large amount of fuel (i.e. funding), then step on the gas to create “disruptive” growth. Aim for a 10x or better exit return. The problem? Many Silicon Valley (or Valley-esque) VCs apply the same approach to every company they invest in. They get away with this because they only expect about 10% of their investments to succeed. If you’re part of the other 90%, that’s not exactly ideal...

In fact, the grow-at-all-costs mentality that has long plagued the technology startup space is not healthy for most businesses and can trigger critical problems during the high-growth stage.

By contrast, Elsewhere Partners is part of a small but growing movement to fuel more balanced, sustainable growth. Portfolio company ActivTrak, for example, had successfully bootstrapped and built a business that was growing organically by 40% year over year. The original founders had engineered a robust, capital-efficient business but didn’t have the go-to-market expertise or balance sheet needed to further accelerate. Their particular goals — assembling a SWAT team of operating advisors and executive team members while positioning themselves for long-term growth — meant they fit perfectly in our sweet spot.

Researching: Understand each VC’s focus

Once you’ve determined your objectives, you’ll be better prepared to sift through potential investors with a critical eye. Lean on your network and talk to like-minded entrepreneurs to create a shortlist of VCs, then do the legwork to whittle down your list.

Because the number of VC firms in the U.S. has steadily climbed since 2015, you’re likely receiving inbounds already. Don’t be afraid to reply to any VC’s email or reach out to them on your own. Ask them to explain more about the firm and (if they approached you) why they are excited about your business.

Here’s what you need to find out about each potential investor:

  • Growth stage of their portfolio companies and in particular their typical check size or minimums
  • Sector expertise (B2B vs. B2C; industry focus, etc.)
  • Size and depth of their advisory bench
  • Goals of their fund (i.e., Do they look for a 10x return or take a more pragmatic approach?)
  • Mindset and approach to investments (How well do these align with your goals?)

These answers will help simplify and shorten the research process and give you a deeper understanding of each VC’s focus.

Interviewing: Weed out mismatches

At Elsewhere Partners, we make clear from our first communication with a business what makes a mutual fit — and we appreciate when founders do the same. It’s better on both sides to save time by parting ways early on if there’s not a fit.

It may help to understand our typical process:

  1. Email Outreach: Our cadence often starts with a proactive email to a founder. We work hard to only reach out to businesses we know we can add value to given stage, sector, and market.
  2. Initial Phone Call: If there’s a response and we agree over email that there’s a potential fit, we move to an initial phone call to meet one another.
  3. CTO Phone Call: If it still seems like a good alignment on both sides after that call, we’ll loop in our CTO and Capital Geek, Josh Stephens, to build our understanding of the product, as well as make a high-level data request.
  4. Deep Dive Calls: From there, we’ll schedule at least two to three more deep dive calls with a curated subset of our operating advisors to ensure alignment and start gameplanning.
  5. Term Sheet: We wait until we are 99% confident we are on the same page and can make a deal happen to provide a term sheet.

While many firms rush this process by sending term sheets right away and then re-trading as they progress deeper in diligence, we believe this wastes everyone’s time and prefer to wait until we know we are aligned.

To ensure the initial interview conversation is worthwhile on both sides, I recommend asking every VC the same five to 10 questions. These might include:

  • What investments are you most proud of?
  • What does a successful exit look like in your mind?
  • How involved are you in the day-to-day of the business?
  • Can you tell me about a deal that wasn’t a good fit? What happened?
  • What makes you think we’re a good match?

Prepare for what’s next

In the whirlwind of fundraising, founders often get caught off-guard by its effects on day-to-day life and the business. Using the steps above, you can navigate the process more efficiently and find the right investor in less time.

Then what?

Often, once the deal goes through, founders may find themselves wondering where they fit into the company as it grows. It depends on your background and experiences, but often the excitement of founding and starting up a company may wane over time. It’s okay to move on if and when the time is right, and the best investors will help you navigate that transition in a way that rewards you for what you’ve accomplished.

Startup culture is too often dominated by a Valley-esque definition of success that isn’t right for many (arguably most) entrepreneurs. A good VC partner will help you and the team plan for that and ensure your exit — whenever or however that may come — is a positive for everyone involved.

If you are an entrepreneur looking for a growth-stage partner with ScaleUp expertise and a deep network of operating advisors, please get in touch.

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About the Author

Michael Massad

Michael is a software investor at Elsewhere Partners where he co-leads all sourcing efforts and conducts operational / financial due diligence. Michael strives to connect capital and operational expertise with growing software companies across industries – most recently in infrastructure and cybersecurity – that are located outside of traditional VC hubs