5 Things They Won’t Tell You About Fundraising

Raising startup capital requires an enormous amount of energy. While most entrepreneurs believe their startups are worthy, the opposite generally is true. 1 out of 100 startups successfully raise institutional capital, and a healthy percentage of those still fail(though the failure rate is far lower than conventional wisdom would suggest).

At ETW, we have spent the last 2.5 years advising on more than 20 fundraises totaling north of $100M. Each time, our first-time founders are consistently surprised by the unpredictability and difficulty of raising capital.

Here are the 5 things about fundraising you won’t find in books or classes.

1. You won’t hear “no” very often.

You pitch your startup. The investor is engaged, friendly, and curious. You follow up with him/her and hear and receive an ambiguous response, “We really like you/your business, excited to see how you mature, but you’re a bit early, so we would love to keep in touch.” Isn’t that just “no?” Investors are motivated to preserve optionality — they might see 2000 companies in a year and make ten bets. They know there likely will be winners among 1990 they passed on this round, so they hint at a future relationship. For the first-time founder, this can be hugely confusing. A simple rule of thumb — if the investor wants to spend time with you immediately, they are interested. Any other language from them means they are just not that into you.

2. Investors don’t get fired for not making investments.

Investor passes on the next Uber or Airbnb — it becomes a war story to share at cocktail parties. If they invest in Theranos — they can lose their job. It is shocking to new founders to learn that venture investors are hugely risk-averse.

In the beginning, there is precious little evidence to support your dream. You might have a demo, an attractive pitch deck, a fantasy financial model, and a handful of devoted team members. How is an investor expected to evaluate your potential? Is someone the investor knows willing to vouch for you? Are you someone that is going to be fun to work with? Are you emotionally stable? Trustworthy? Are you someone worth betting $ on?

4. You better learn how to play poker

Everyone is about to close their round (or fund). Everyone is over-subscribed. Every investor is really interested (until they’re not). While we train our ETW portfolio companies to color inside the fundraising lines, those lines often get blurry. It takes practice to know how to excite an investor, evokes a sense of scarcity, negotiate terms, and funnel someone to close.

5. Breaking up is hard to do.

The US as a whole is middle-of-the-road when it comes to conflict avoidance, but my utterly unsubstantiated instinct is that those in the investing ecosystem are below average. Investors skew younger and experience little formal training/coaching on conflict resolution. Instead of just providing a clear “not interested” too often, I hear stories of investors who simply drop out of contact following a pitch. The investor who classily follows up with a clear and candid pass is sadly the exception. Of course, the entrepreneur who non-defensively can listen to the feedback similarly is under-represented.

So entrepreneurs — take heart! If fundraising seems unpredictable, at times irrational, and frequently frustrating, that’s because it is! Investors see an enormous number of deals and have to reach high-stakes decisions armed with very little data. It’s why there really is only one entrepreneurial tactic sure to cut through the noise and lead to fundraising success… build a real business.

Learn more about Jonathan Lowenhar at ETWadvisors.com.