In Praise of the Hard Raise

I saw this tweet the morning and it reminded me of a conversation I regularly have with founders raising seed rounds. They’re typically introduced to me by a founder, angel, or investor, and often the “round is coming together fast.” They usually have some commitments, are raising on a SAFE because they “want to move fast.”

Some of these founders are arrogant, but most are just excited, and the social proof and excitement they’ve received from investors has given them the confidence that they have a great plan. I get it. Who would investors give you millions of dollars for a half-baked plan?

Unlike Bill (or maybe he’s using shorthand), I don’t see the problem being angels. I don’t really see a lot of true angels out there these days, they’re not making these rounds happen or following on at all, and it’s perfectly fine to expect them to be passive on venture questions; they’re experts in other things.

I see the problem being a bunch of small funds that aren’t doing the work founders would expect from them if they knew what they should expect. In effect, these funds are spreading chips around the board looking for the big win without being very deliberate (black swan roulette), which is a fine business model but not fully aligned with the company’s best interest.

And ultimately, this makes the raise easy, and the plan soft.

So, when I sit down with a founder to see if I want to be the last check into a $1M round (often at a price that itself is a structural problem for the company!), I’m not surprised that they often can’t answer some (in my opinion) basic questions, like “what are the milestones for the next round?”

Often, nobody in the first $900k of coffee meetings asked them this because Stanford CS blockchain Coinbase alum social proof.

Occasionally they just want the last $100k and these are the easiest passes in the world. But usually this turns into a great conversation, where we work though a set of milestones that make sense to us, then work backwards to a raise, and then check that against their resource plan.

A series of related questions are:

• What resources do I need to hit these milestones?
• How much money do I need to get the resources I’ll need?
• What are the biggest risk(s) to this business having the potential to be a success, and what are our criteria?
• Do we need additional information to feel confident in our plan?
• Who could I talk to who can tell me whether my thinking is right/wrong?

My suggested homework is almost always to talk to existing investors explicitly about the plan using this framework, as well as to talk to 3+ next-round investors if you can. They can help validate that if you hit your goals you’ll have a business that aligns with their business model (e.g. has the potential to be big enough) and the kind of data they’d want to see to make that bet (milestones).

Again, I get why founders don’t take this approach. They’re not experts in fundraising or the venture market, and it’s pretty reasonable to assume at least one of the professional investors writing six figure checks would push back on a plan that could be much better. But it’s important as a founder to understand that this is not what the early-stage market is delivering to founders today.

The hard raise isn’t necessarily fun, and it isn’t required, but the best founders impose the discipline on themselves and ideally to find partners who can help them maximize the probability of success in their portfolio of one.

A few of the remainder get lucky, but most of the rest muddle through a series of convertible notes, spending twice as much money and time as they needed to, and ultimately end up a deservedly cranky subtweet three years later and a pass for the A.