The purpose of early-stage fundraising is to get a clean swing, which means raising enough capital for 18 + 6 + a buffer to achieve milestone(s) that can unlock the next funding round.
Fundraising is an option and a tool in the broader context of building a company. This naturally begs the question, how does one think about fundraising? What is its actual purpose within the broader corporate strategy?
I believe that the purpose of early-stage fundraising is to get a clean swing.
Let’s unpack this a bit further:
When I say “swing,“ I am referencing the baseball analogy of trying to knock it out of the park. This means seeing an exciting opportunity to build a large company in a short amount of time. Within the context of early-stage venture capital fundraising in Silicon Valley, a large company means a billion-dollar company, and a short amount of time means 7-10 years from inception to success.
The “swing” wording also references the fact that outcomes are not under our control, only inputs are. What happens once you have raised capital is impossible to fully predict or control. That uncertainty, with the associated upside / downside, is a core part of the startup game, which can’t be meaningfully derisked beforehand. And your investors will be taking a leap of faith on and with you that things will come together eventually.
The “clean” part refers to securing an appropriate amount of capital with which to put together the right team, product, and go-to-market strategy. If you raise less money than you need, then you won’t be able to execute the way you believe is right. You can still succeed, but you will be playing with a handicap. The startup game is already hard enough even without such disadvantages. That’s why I advocate raising whatever you believe is appropriate in terms of funding to get to the next milestone - and no less.
Operationally, a clean swing typically means raising for 18 + 6 + a buffer. That is, 18 months to achieve the next milestone, 6 months to raise the next round, and a buffer because everything always takes longer. Note that this requires having a clear corporate strategy, which specifies the next big company goal and what it would take to get there.
Choose your milestone well for it will become the cornerstone of your next fundraise! One exercise that helps with that is to imagine closing the current round and then pitching your company 18-24 months later. What did you achieve that put your startup on a meaningfully different trajectory? That de-risked key assumptions? That demonstrates your startup’s future potential? That is compelling to prospective investors? Make sure to choose a lofty milestone that, once achieved, will provide good answers to the questions above.
When it comes to fundraising planning, it is crucial to have a good understanding of the VC ecosystem, which is the topic of the next section.