Dear Advisor: How long will Fundraising take? (or) 8 steps you need to Know to Fundraise Successfully

December 2022, updated in January, March -- May, November 2023 for relevancy

Having mentored over 100 startups at a number of accelerators, one topic (that understandably) comes up again and again: what do I need to know to fundraise successfully? What’s the expected timeline for getting a VC check?

I'm here to help you prepare, covering: what to expect, what fundraising is and isn’t, and how long things may take, so that you can create a fundraising strategy (and roadmap) that works for you.

I will assume that:

you've already exhausted non-dilutive funding options such as SBIR grants (from NSF, NIH, etc.) and accelerators that don't take equity (such as FoundersBoost, CTIP, etc.).
- - If you haven't I share more advice on that in Resources for Extending Your Runway
you’re looking to fundraise from VC firms, which is the most common strategy. Please note: your strategy may differ (from below) if you’re going a different route altogether, including bootstrapping, crowdfunding, and raising from angel investors.

TL;DR: Please allow yourself 12-24 months to raise your next round; here's why.

Step 1: Evaluate if you’re Fundable

I hate to ask this, as this may be really hard to hear, but how scalable do you expect your company to be? That is, VCs invest when they expect a high enough ROI so that their 2 and 20 fund fee compensation structure makes sense. LPs give money to funds because they expect to diversify their portfolio of investments and get better returns than the market.

Do you expect your investors to be able to make a sizable (10x+) ROI by investing in your product, e.g. can you get a 10X+ valuation? Or, put another way, how can you help them make much more money than they've put in?

Please see this edition of Lenny's Newsletter for more advice on what is and isn't a venture-scale company.

Step 2: Start with the End Goal of Raise

Now that we got that out of the way – and you’re fundable, start by understanding your end goals for the raise. That is:

Why are you fundraising? What next milestone will it help you accomplish?

How much funding do you need to help you accomplish your end goal(s)?
What are you offering in return? What type of equity? Any other terms or considerations?

Make sure to include these points in your pitch deck.

Step 3: Understand VC Funds and Investment Thesis

One mistake I see founders make is assuming that every VC invests in every start-up – and, under this assumption, sends out their pitch deck accordingly.

Think of this step as similar to (back in the day when you were applying to full-time roles) identifying which companies you’d send out your resume to; you didn’t send your resume out for intern, pharmacist, Chief of Staff, and CEO roles in the same job search; same thing here -- each VC's investment thesis is different.
Please reach out only to those potential investors whose firms' thesis matches your focus area; you will stand out from the crowd (!).

To help you identify what (specific) VC funds your start-up may or may not be a fit for, I've found that each VC firm tends to focus their investments based on all of the following:

stage (pre-seed, seed, Series A, Series B, etc.), as well as
investment thesis, or area of interest that the firm has expertise and interest in, and
industry (such as Health, Space, etc.), and
hardware and/software and/or medical device, and
check sizes that they write, as well as
whether they are the lead investors, do follow-on investing, or something else, and
what additional value they can bring -- or what they may offer in addition to writing you a check, such as mentoring/introductions.

Here are a few examples of how vastly different investment theses are:

Healthcare innovation (including HealthTech and MedTech)
Medical devices for pediatrics (MedTech)
Pre-seed DeepTech
AI for Enterprise (SaaS and Hardware-as-a-Service)
SaaS for X industry
"Plausible Science Fiction" for Earth and Space
(many, many more)

To find out more about VC firms, check out:

Website, to see their portfolio of start-ups that they’ve invested in historically
Crunchbase, to see what other potential funds (and fund theses) they write checks for
“Meet the VC” webinars, hosted by Early Growth Financials
“LA Venture” podcast to learn about VCs in Los Angeles
Start-up pitch events, where there’s at least one judge that’s a VC

Which ones are now a better match based on what you’re looking for, and what each of the VC firms is looking to invest in?

Bonus tip: If you end up asking your network for introductions to specific VCs, this is something you should consider sharing (especially if the fit is not obvious), e.g. why you’d like an introduction to this particular firm/fund (above all other VCs)?

Step 4: Craft your Pitch Deck

You just got a warm intro – or your cold calls paid off – and you’re asked to share the deck. Another common mistake I see founders make is asking VCs for a signed NDA before sharing the pitch deck; they won’t; Brad Feld shares why. (As an aside, I also don’t sign NDAs for exploratory, complementary calls.)

Some firms see 8K+ decks per year (!); here's advice on how to stand out. Your pitch deck, at a high level, in layman's terms, should tell us the story of:

what pain point(s) you’re solving for customers and how, and
how this is a scalable, profitable business,
and your team is the one with the expertise to do this.

Major kudos if the story also builds rapport along the way – and lets us conclude that we need to invest in you now. 🙂

For more advice on pitch decks, please see these blog posts:

Dear Advisor: What metrics should I include in my pitch deck? which includes NFX's advice for metrics by stage
Aligning Product, Technology, and AI: advice from Pitch deck Due Diligence
What are the most common pre-seed and seed-stage Pitch deck mistakes?
Evan Boswell's (Upfront Ventures) recommendations

Step 5: Pitch deck due diligence

At this point, someone on the VC side (or from their network) will do due diligence on your pitch deck, to see if there's a potential fit, and recommend that you move forward to the next step: a meeting with someone from the VC firm.

If you're not a potential fit, see if you can get feedback on areas for improvement. You can use this as an opportunity to touch base with the firm (and stay top-of-mind) as you move forward addressing the most relevant feedback to improve your go-to-market or product-market-fit (depending on your stage).

Step 6: Pitch to VC

At this point, you'll be asked to pitch in person or remotely.

This meeting will help the VC firm to evaluate the team and team dynamic, hold Q&A and evaluate if you're a fit, and then recommend you to the next meetings: a more in-depth due diligence of your company.

The 2 most common mistakes I see at this stage are:

Forgetting that the meeting is a conversation and still focusing on trying to talk through the deck -- which the investors have already seen -- and forgetting to leave time for discussion, advice, and brainstorming.
- - Having reviewed 30K+ pitches, Elizabeth Yin shares more advice on what to include in the email deck and how that differs from a deck for an in-person meeting
Not having everyone on the team (that's pitching with you) be on the same page.

Topics that you may be asked about, either at a high level or with a bit more detail, especially if you haven't touched on it in the deck:

Customer onboarding process
Competition
Cybersecurity
Business Model
AI :)

Don't forget to ask for feedback and/or advice. For a list of investors that welcome cold calls, please see this blog post.

Step 7: In-depth Due Diligence

You've made it this far, congratulations!

At this point, the investment firm's team and/or its network of advisors/consultants will be scheduling a number of meetings with you, to do more in-depth due diligence to better understand and dive deep into your team, financials, technology, product, how far along are you actually, to better understand and risk, challenges and opportunities around how likely you are to deliver on what you promise.

This stage may take weeks or a few months, depending on everyone's availability (from the startup team to the evaluating team) and how prepared you are to walk through the details at this stage.

Don't forget to ask for input and/or feedback here as well.

Step 8: Term Sheet

You're almost there! Now it's time to outline and iron out all the terms around the investment by this particular VC firm; this legal document is called a term sheet, one per firm that's making an investment.

Depending on your stage and the investment size, you may be asked for board seat(s) and potentially board observers.

I can't stress this enough: please find a lawyer you trust (yesterday!), one that has experience navigating and negotiating term sheets to help you understand every word in the contract and to advocate on your behalf.

This stage may take a few months as well, depending on the legal teams' availability on both sides as well as how many discussions and revisions you'll have. (For reference, in my consulting business, it takes an average of 3 weeks to iron out a consulting agreement that both sides are OK with – or walk away from the potential collaboration.)

Should conversations fall apart, as they sometimes do, this step restarts with the next potential investment firm -- and with each firm that's making an investment. That's another reason why it may take a long time to close the round!

Parting advice

Remember: funds exist because LPs expect to get higher ROI than the market. Funds will invest in founders that seem to have de-risked the idea in one way or another, often by finding a really narrow niche/focus area with many underserved customers -- or by getting SBIR (or similar) funding to begin proving out the idea. The more your pitch deck story talks about the work you've done to already de-risk the investment (from expertise to MVP to traction/similar), the more you'll stand out from the crowd.
Make sure that your start-up is incorporated in a way that allows you to issue equity; LLCs or sole proprietor corporations don't allow this.
Fundraising may seem like a full-time job (!).
It will take longer than expected to get funded. There will (unfortunately) be lots of NOs.
Note that you'll have to tailor and repeat Steps 5-8 for each VC firm you want to raise money from
Find a lawyer that has experience with equity contracts – before you need one; your network will have recommendations.
Practice your pitch to make sure that the story comes together, by:
1. - recording and reviewing it,
  - attending and pitching at startup pitch events,
  - asking your (non-technical) network for feedback, etc.
Based on the current economy and market trends, Steps 5-8 typically take 6-12 months -- or longer (even 24 months or more), depending on:
1. - firm pitching to,
  - fit between your ask and what the VC firm is looking for, which includes:
    - - stage raising,
      - industry,
      - how much do your product and business and technology strategy line up with a particular VC firm's thesis,
      - check size,
      - if the firm leads rounds or not,
  - how novel/different/uncomfortable your product/technology is,
  - (unfortunately) if you're a minority/not,
  - (unfortunately) if you're a first-time founder,
  - (unfortunately) if cold/warm outreach, and
  - potentially many other factors.
Additional advice from Yrjo Ojasaar on 10 things to do differently so that "VCs don't hate you"

Consider starting to fundraise 12-24 months before you need, focusing on getting to know VCs, including what they look for and how they differ from one another.
Incubators/precellerators and accelerators, as well as, start-up communities are here for your support.

Good luck!!