Bursts of Color - Raising VC in 2021 - Reality Check Edition
A few months ago I posted some thoughts and benchmarks about Raising VC in 2021. Since then the market has gotten even more frenetic and the reports of record funding levels may lead a casual reader to think that raising venture dollars is a walk in the park.
For Whom Gravity Doesn't Apply
Despite all this chatter, most of the money, attention and headlines are going to a select group of companies that are:
Raising later stage, Series C+ rounds
Delivering >$10m net revenue while still growing very fast
In a handful of favored sectors like FinTech and Crypto
It's true that for these companies, historical rules of finance gravity seem not to apply. If this is you: rock on! No need to read further.
For Everyone Else: It's More Complicated
Per the Crunchbase report, Series A/B rounds have grown modestly, and new Seed rounds actually declined this year. And in just the past three days, four different VCs have told me that they are overwhelmed, over-invested relative to plan and said something like:
When the market goes this fast, we go slower.
Watch Out for Unrealistic Benchmarks
So if you hear yourself or your co-founders saying any of the following, you may wish to reset your expectations:
My friend just raised a huge round at 100 times ARR, so that seems like the right valuation benchmark.
We raised X last year; we should be able get 5X this year.
VCs are moving faster than ever - I'm going to start pitches next week and raise in November.
I don't need to update my deck or model... some interested investors have been calling, so one of them will pre-empt.
One firm said they're interested and would get back to me, so I think they'll send a term sheet next week.
My insiders love what I'm doing; I think they'll lead my next round.
All of these things are possible. They are also extremely rare.
So What's a Founder Supposed To Do?
The good news is that there are still plenty of investors and dollars out there for all the strong founders. Here are a few standard fundraising suggestions that feel particularly relevant now:
Get your deck and financials tight before you ask for meetings
Think carefully about your capital raise target based on what you really need and can deploy effectively
Be prepared to kiss a lot of frogs and take your time getting to know each over a number of weeks or months
If you're not already in market, consider waiting until Q1 to avoid running a process during the holidays
Never tell VCs your valuation expectations - just say "we'll let the market tell us what the right price is"
Don't overplay your hand by telling investors how fast your deal is going until you have a term sheet in hand
In short: stay patient and confident... just not overconfident. 😎