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When should you raise?
Fundraising is probably the hottest topic in startupland.
Maybe it’s because numbers are facts everyone can agree on. Maybe it’s because it gives founders & fans an occasion to celebrate along what are pretty long and exhausting journeys. Maybe it’s the lowest hanging fruit for VC content marketing.
But in all those hundreds of posts on fundraising, one thing is rarely discussed: When should early-stage founders raise funds?
When we talk about fundraising with founders, they always ask where it fits on their roadmap:
How much revenue should we hit?
How many daily users?
If we hire this engineer, salesperson or marketer… will it make us more attractive to investors?
First-time founders expect definitive answers.
I wish I could tell them: “Reach €10,000 in monthly recurring revenue before the end of the month and you’ll be able to raise.”
But headlines aren’t patterns.
Yes, some founders raised in just a week, and yes, some raised before they’d even built a full team, written a line of code or onboarded a single customer. But there are no lessons in all that for you. Especially if:
You’re not a founder who fits in an obvious box
You’re creating a slightly weird category
You don’t have metrics that are as easy to understand as SaaS
It’s not just a level you can unlock.
Any random “static” metric can seem incredibly encouraging or completely uninteresting depending on the context. Growing fast helps, but even that isn’t sufficient.
Try to put yourself in the investors’ shoes a bit.
Early-stage investors have few facts to base their decisions on.
If this is your first time running a company, they need to project whether you’ll be able to personally grow as fast as the business.
If the idea is convincing, they’ll need to understand why it hasn’t been done before and why you’re best positioned to build it.
And if their gut pushes them in the right direction on both of those things, then they’ll need to be sure the market is growing quickly enough to provide substantial revenue within a few years.
The story beats any benchmark...
The best time to fundraise as an early-stage founder is when you can tell a compelling story. Until then, you’re probably better off building and selling, then building and selling some more.
… And the story sets the timeline.
If you do enough of that, investors might just find their way to you. There will likely still be more work to get the first term sheet (& it’s all about that first term sheet!) but that’s easier if you reverse the power dynamic and get them to try to seduce you.
Still, the story is where it all starts; so until you have it - and you believe it - it’s not time to raise.
Some founders aren’t born storytellers & that’s OK.
It’s a far easier skill to learn than all the others in your job. It’s also what we at The Family can really help you with. If there’s one skill we’ve honed over the years it’s seeing what makes founders special and giving them the story so the world sees it, too.
To finish 2020 on a high note, one Director from The Family sends you a startup lesson each day all the way through Xmas!
The applications for The Family's next remote batch starting in January are open now. You're welcome to apply to our intense 6-week program, made for entrepreneurs willing to grow their startup in the best conditions: getting smart advice, accessing top operators and fundraising with the best investors.