It’s a weird thing, but some of the worst fundraising advice comes from … your existing investors.
Why? It’s usually not wrong, it’s just often, so, so biased:
- Accelerators view VCs as fungible. They often tell you to raise at the highest price irrespective of investor quality or ability to support the company later. Is this the right advice?
- Seed investors worry about dilution. Their check sizes are relatively small. But dilution is often the price of scaling.
- Series A and B investors want to “control the ball” and decide who invests more. So they don’t always want to let new folks in on the cap table. Is this best for the company?
- VCs with lots of money to deploy often want you to raise a lot more if you are doing well — even if you don’t need it. They are biased in favor of overloading you with capital. Sometimes. But not all the time.
- VCs with no more money to deploy often advise you not to raise more — even if it might help. They are biased in favor of keeping lean. Sometimes that’s the right call. But is it always?
- Growth investors want to manage downside risk. If you invest at a $1B valuation, you worry about the downside. If you got in at $10m? Maybe less so.
You can even get conflicting advice from VCs in the exact same board meeting. You might hear keep the burn rate low, but if they also want to increase your ownership, they may push for you to raise more from the insiders … at the exact same board meeting. Which is it? Spend less? Or spend more?
The biases creep up in many places: What terms are fair? How much should you raise? When?
I recently coached a founder of a rocketship raising the capital they needed at a $700m valuation where the seed investors told them to turn down all the term sheets they got because of a liquidation preference. Was this right for the company? Or right for the seed investors? Or even right for anyone? Just an example.
Yes, get tons of fundraising advice from your existing VCs and investors. They all have great experience.
Just realize 100% of it will be … biased.
